Budgeting- Management Process

Nursing Management for B.Sc & M.sc Nursing Students

1. Mr. Visanth V S Asso.Professor Dept. of Psychiatric Nursing IGSCON, Amethi, UP

2. BUDGETING Every organization has predetermined set of goals & objectives which are attainable only with the help of proper planning & execution of plans economically. Every organization prepare budget for its functioning. Literally the word budget means a leather bag to carry official papers in. this word is derived from the old English word “budgettee” which means a sack or pouch.

3. Definitions of budget 1)A budget is a tool for planning, quantifying the plans and controlling costs. - F inkler , 1984 2) A budget is a plan that uses numerical data to predict the activities of an organization over a period of time and it provides a mechanism for planning each unit’s needs and contributions. - Carruth and Noto, 2000

4. Importance of budget The budget is an essential management tool. The budget tells you how much money you need to carry out your activities. The budget forces for rigorous in thinking through the implications of your activity planning. The budget enables to monitor income & expenditure & identify any problems. The budget is a basis for financial accountability and transparency.

5. Principles of budget Budget should provide sound financial management by focusing on requirement of organization. It should focus on objectives & policies of organization. It should ensure the most effective use of scarce financial and non financial resources. Budget requires that programme activities planed in advance.

6. Budgetary process requires consistent delegation for which fixed duties and responsibilities are required to be allocated to managers at different level for framing and executing budget. Budgeting should include coordinating efforts of various department establishing a frame of reference for managerial decisions, and providing a criterion for evaluating managerial performance. Setting budget target requires utmost care to check against and balance between too high and too low estimates.

7. Budget period should be appropriate to the nature of business or service and to type of budget. Budget is prepared and interpreted consistently throughout the organization in the communication of planning process Budget necessitates a review of the performance of the previous year and an evaluation of its adequacy both in quantity and quality While developing budget, provision must be made for its flexibility.

8. Purposes of Budget Budget as a tool of financial control, it is exercised at various stages. Budget is an instrument of organization as policy, fiscal policy. It is device whereby plans and policies are put into action.

9. Budget is a tool of administration. When planning, co-ordination, control, evaluation, reporting & review are combined in a budgetary system it becomes effective tool of administration management . Budget is also a tool of accountability. It has informative roles as it contains valuable information for various activities.

10. Budget is forecast of income and expenditure in constructing business plan, attempt is made to show income & expenditure as shown below . Business plan Income Profitability Business plan Express

11. Types of B udgeting

12. Incremental budget : - It is based on estimated changes in present operations, plus a percentage increase for inflation, all of which is added to the previous year’s budget. Open ended budget: - It is a financial plan in which each operating manager presents a single cost estimate for optimal activity level for each programme in the unit, without indicating how the budget should be scaled down if less funding available. Fixed ceiling budget: - It is a financial plan in which the upper most spending limit is set by the top executive before unit and divisional managers develop budget proposals for their areas of responsibility. Flexible budget: - It is based on the fact that operating conditions rarely conform to expectations. Therefore a flexible budget consists of several financial plans, each for a different level of program activity.

13. Roll- over budget: - It is one that forecasts program revenues and expenses for period greater than a year, to accommodate programs that are longer than the annual budget cycle. Performance budget: - It is based on functions such as direct nursing care, in-service education, quality improvement and nursing research. Programme budget :- It is one where costs are computed for a total program, such as ambulatory surgery program Zero- based budget :- It requires the manager to justify each cost of every program, both old and new , in every annual budget preparation.

14. Sunset budget :- It is designed to “self destruct” within a prescribed time period to ensure the cessation of spending by a predetermined date. Sales budget :- It is the starting point in a budgetary program, since sales are basic activities which gives shape to all other activities. Production budget :- It is the budget that aims at securing the economical manufacture of products and maximizing the utilization of production facilities. Cash budget:- It is prepared by way of projecting the possible cash receipts and payments over the budget period. Line- item budget :- Itemize workers, machines, supplies by groups. It is primarily a device for controlling expenditures; it is used in planning and decision making.

15. Essential Requisites Of Budgeting Fore casting : Sound forecasting may be related to making decisions on purchases, expansion, advertising, services, working capital needs etc. Accounting : Well conceived accounting system must be needed to compare the budget information with actual accomplishment. Lines of authority : Budget preparation operation and supervision need / require clearly defined lines of authority. Budget committee : Budget needs budget committee in an organization .

16. Business Policies : clearly defined business policies serve as basis for budget preparations. Statistical Information : In the form of figures re estimates regarding the budget terms are essential for budget. Top level management : Support is essential to ensure successful installation of the budget programme. Period of budget : Length of the budget period should be specified.

17. Steps In Budgeting Assess the goals of the institution Assess objectives of the present and proposed programs Assess all old and new programs for computation of manpower, capital and operating expenses. Identify alternative methods for realizing the objectives. Determine the price of each alternative. Compare alternatives to determine the most cost effective. Develop the budget

18. Advantages of Budgeting It helps plan for detailed program activities Budgeting compels and motivates management to make an early and timely study of its problems. Budgeting provides a valuable means of controlling income and expenditure of a business as it is a “plan for spending.” Budgeting provides a tool through which managerial policies and goals are periodically evaluated. Budgeting helps in directing capital and other resources into the most profitable channels .

19. The use of budgeting in an organisation develops an attitude of “cost consciousness”, stimulates the effective use of resources, and creates an environment of profit-mindedness throughout the organisation. Budgeting encourages productive competition, provides incentive to perform efficiently an d gives a sense of purpose to each individual in the organisation . Budgeting provides a systematic and disciplined approach to the solution of problems in the organisation . Budgeting , if executed in nearly every enterprise, helps the total national economy by providing stability of employment, economic use of resources and effective prevention of waste.

20. Disadvantages of Budgeting A budget may become an end in itself instead of the means to achieve an end. It may gain autocratic control of the organization. Over-budgeting is a big danger Forecasting is required but is uncertain Skill and experience are essential for successful budgetary control Budgetary planning is expensive and time consuming

21. Cost Analysis “Cost benefit analysis is a procedure by which all cost resulting from installing and operating a system are determined and converted to a financial unit [rupees], all resulting benefits of system are determined and converted to a financial unit [rupees] amount and ratio is calculated to reflect the relationship of cost to benefits.”

22. Cost benefit analysis [CBA] is measurement of the relative costs and benefits associated with a particular project or task. Cost benefit analysis [CBA] is tool with great potential for the decision makers so long as he or she recognizes the difficulty in determine the true costs and benefits of various alternatives. This tool can especially useful when trying deciding between alternative expenditure of money.”

23. Auditing Audit has been defined as an independent appraisal activity within an organization and for the review of accounting, financial and other operations as a basis of service to the management. “A systematic examination of financial statements, records and related operations to determine adherence to generally accepted accounting principles, management policies or stated requirements”.

24. Functions of Audit It reviews and appraises the soundness, adequacy and application of accounting, financial and operating cost. It assesses the extent of compliances with established policies, plans and procedures of the organization. It assesses the extent to which the organization assets are accounted for and to safeguard the same from losses of all kinds. It assesses the quality of performance in carrying out assigned responsibilities

25. Types of Audit There are basically two types of audit: 1) Internal Audit 2) External Audit Internal Audit : is conducted by the organization, within the organization from amongst the staff as a part of their control activity. External Audit: is conducted by people employed on deputation from outside the organization

26. Steps of Auditing Procedure 1) A committee is formed for auditing 2) The committee should thoroughly familiarize himself with the related accounting system, procedures 3) The committee designs the appropriate form for collection of the data and prepares audit schedule. 4) This data is compared with an existing standard and a summary note is made with the suggestions and recommendations. 5) Auditing is a continuous procedure.

27. 6) Audit report is submitted to the administrator. , information manuals, organizational chart, accounting documents etc. 7 ) The administrator considers each comment carefully and communicate it to the related department or personnel. 8) The concerned person reports back to the administrator informing him about the adoption of recommendation or reasons for not adopting the same. 9) After the administrator is satisfied with the result, he reports it back to the internal auditors. 10) These then become the basis of follow up at the time of next audit.