UNIT-III BUDGETING concepts, principles, types Budget proposal, cost benefit analysis.pptx

Budgeting is the systematic process of estimating income and expenses over a specific period to ensure efficient allocation of resources, financial control, and cost-effectiveness. In nursing, it is essential for planning, staffing, and maintaining quality patient care.

Definitions:

Budgeting is a financial plan estimating income and expenditure for a set period.

It is an operational plan, usually annual, expressed in financial terms based on expected income and spending.

Terry (1953) defined budgeting as developing and applying budgets to plan and control organizational activities.

Purposes:
Budgeting allocates resources, controls costs, aids planning, promotes coordination, supports evaluation, ensures accountability, and helps forecast future needs.

Features:
A good budget is simple, systematic, monetary, continuous, flexible, and inclusive, connecting all departments under one plan and preventing fund misuse.

Characteristics of a Good Budget:
It must be simple, flexible, realistic, comprehensive, time-bound, goal-oriented, and allow effective monitoring.

Principles:

Comprehensiveness: Cover all income and expenditure.

Flexibility: Allow modifications as conditions change.

Annularity: Usually annual, reviewing past performance.

Appropriateness: Match the nature of activities.

Universality: Ensure uniformity across departments.

Specificity: Allocate funds to defined purposes.

Exclusiveness: Focus on financial aspects only.

Delegation: Assign responsibility to managers.

Coordination: Align departmental efforts.

Accountability: Ensure responsible resource use.

Types of Budgets:

Fiscal (Financial): Includes capital, operating, zero-based, program, performance, and revenue–expense budgets.

Non-Fiscal: Deals with manpower, time, and material budgets.

By Period: Annual, long-term, current, and rollover budgets.

By Flexibility: Fixed, flexible, open-ended, and master budgets (integrating all departmental budgets).

BUDGET PROPOSAL
A budget proposal is a formal financial plan outlining projected income and expenditure, justifying allocations, and ensuring alignment with institutional goals.

Components:

Executive summary

Projected income and expenditure

Justification for allocations

Evaluation and monitoring plan

Steps:

Assess needs

Estimate costs

Prioritize activities

Draft proposal

Review and approve

Implement and monitor

Importance in Nursing:
Ensures adequate staffing, supplies, and equipment while maintaining service quality, accountability, and cost containment.

Advantages:
Enhances control, planning, accountability, and decision-making while reducing waste.
Disadvantages:
Time-consuming, may be rigid, data-dependent, and may not cover unforeseen needs.

BUDGETARY PROCESS:
A structured sequence ensuring efficient resource management:

Budget Proposal: Prepared by the accounts section with departmental input.

Approval: Reviewed internally and externally for sanction.

Allocation: Funds distributed based on perf

1. 40% 20 % 40% BUDGETING Mr. Pradeep Abothu, PhD Scholar, Dept. of Child Health Nursing ASRAM College of Nursing

2. CONTENTS Types of budgeting 2 Budgeting proposal 3 B udgetary process C ost – Benefit analysis 5 Concepts of budgeting 1 4

3. INTRODUCTION Budgeting is the systematic process of estimating income and expenses over a specific period. It ensures efficient allocation of resources, financial control, and cost-effectiveness. In nursing services, budgeting is vital for planning, managing supplies, staffing, and delivering quality patient care.

4. DEFINITIONS Budgeting is a financial plan that includes estimated expenses as well as income for a period of time. Budgeting is an operational plan for a definite period, usually a year, expressed in financial terms and based on expected income and expenditure. - NursingPath Budgeting is the process of developing budgets and applying them as a means of planning and controlling the activities of an enterprise. - Terry (1953)

5. CONCEPTS OF BUDGETING PURPOSES OF BUDGETING Budgeting helps in allocating resources by ensuring money is used where most needed. It supports cost control through monitoring of expenditure. It aids in planning by providing a framework for future financial activities. It promotes coordination among departments toward shared goals. It helps in evaluation by comparing actual performance with targets. It ensures accountability in the responsible use of funds. It assists in forecasting by predicting future income and expenses.

6. FEATURES OF BUDGETING: A budget should be simple in design and easily understandable by everyone involved. Budgeting is a systematic process that estimates income and expenditure over a period. It is quantitative , expressed in monetary terms to measure resources and costs. Budgeting is continuous , regularly updated and reviewed to reflect changes. It is flexible , allowing modifications as priorities or needs change. It involves all departments , connecting different activities under one financial plan. It provides ways to monitor spending , helping prevent misuse of funds. Budgeting is forward-looking , focusing on future needs rather than only past expenditures.

7. CHARACTERISTICS OF A GOOD BUDGET: A good budget should be simple and easy to understand by all staff. It must be flexible , allowing adjustments as needs or priorities change. It should be realistic , based on accurate estimates of income and expenditure. A good budget is comprehensive , covering all departments and activities. It should be time-bound , specifying the period for which it is prepared. It must be clear in objectives , showing what it aims to achieve. A good budget should allow monitoring and control , helping track spending and prevent misuse. It should be forward-looking , focusing on future needs rather than just past expenses.

8. PRINCIPLES OF BUDGETING Principle of Comprehensiveness: Budgeting should provide sound financial management by addressing all organizational requirements. It must be objective and policy-oriented, covering all expected income and expenditure. Principle of Flexibility: A budget should allow adjustments to accommodate changes in circumstances, workload, or priorities, ensuring that funds are used efficiently. Principle of Annularity: Budgeting is typically prepared annually and should include a review of the previous year’s performance. This evaluates the adequacy of both quantity and quality of resources allocated.

9. Principle of Appropriateness: The budget period must align with the nature of the service or organization. The type and duration of the budget should suit the activities being planned. Principle of Universality: The budget should be prepared and interpreted consistently across all departments, ensuring uniformity in the planning and implementation process. Principle of Specificity: Funds should be allocated to identifiable objects or programs, with all long-term and short-term expenses planned in advance for clarity and accountability. Principle of Exclusiveness: Budgeting focuses only on financial aspects. Care must be taken to set realistic targets, avoiding overestimation or underestimation of resources.

10. Principle of Delegation: Budgeting requires delegation of responsibilities. Duties must be assigned to managers at various levels for framing, executing, and monitoring the budget effectively. Principle of Coordination: Efforts of different departments must be coordinated to provide a common framework for managerial decisions and a basis for evaluating performance. Principle of Accountability: Managers are responsible for using resources as planned in the budget. They must ensure effective utilization of both financial and non-financial resources.

11. TYPES OF BUDGET There are many types of budgets , classified based on different criteria by fiscal managers. One of the most common classifications is based on fiscal and non-fiscal budgets . Based on fiscal and non-fiscal budgets: a. Fiscal (Financial) Budget: A fiscal or financial budget deals with income and expenditure expressed in monetary terms. It helps in planning and controlling financial resources of an organization. Types include: Capital Expenditure Budget: Covers major investments such as land, buildings, and costly equipment with long-term use. These reduce flexibility in budgeting.

12. Operating Budget: Provides an overview of agency functions for the upcoming year, including costs of supplies, minor repairs, and overheads. Zero-Based Budgeting: Starts from zero; all expenses must be justified based on expectations or goals for the upcoming year. Program Budget: Prepared specifically for a project or program, detailing all expenses and revenues related to it. Performance Budget: Focuses on functions, e.g., direct nursing care, supervision, audits, and in-service education. Revenue and Expense Budget: Shows projected profit and loss under classified headings, similar to a proforma income statement.

13. Operating Budget: Provides an overview of agency functions for the upcoming year, including costs of supplies, minor repairs, and overheads. Zero-Based Budgeting: Starts from zero; all expenses must be justified based on expectations or goals for the upcoming year. Program Budget: Prepared specifically for a project or program, detailing all expenses and revenues related to it. Performance Budget: Focuses on functions, e.g., direct nursing care, supervision, audits, and in-service education. Revenue and Expense Budget: Shows projected profit and loss under classified headings, similar to a proforma income statement.

14. b. Non-Fiscal (Non-Financial) Budget: A non-fiscal budget deals with resources and activities in quantitative terms rather than monetary terms. It is later translated into financial terms for practical use. Types include: Direct Labor/Personnel Budget: Covers wages and salaries of staff in terms of hours or manpower requirements. Time, Space, Material, and Production Budgets: Expressed in units such as direct labor hours, machine hours, or materials used. The rupee cost is calculated separately, as it may not accurately reflect the resources or results.

15. 2. Based on Period of Coverage: Annual Budget: Covers income and expenditure for a fiscal year. Long-Term Budget: Extends over multiple years (usually 5) for strategic planning. Current Budget: A temporary or adjusted plan for the current fiscal year. Rollover Budget: Forecasts programs, revenue, and expenses for periods longer than a year. 60% 10% 05% 25%

16. 3. Other Types of Budget: Fixed Budget: Components remain unchanged regardless of changes in activity levels. Flexible Budget: Adjusts according to changes in activity or units of service. Open-Ended Budget: Managers present cost estimates without specifying adjustments if funding is reduced. Master Budget: A Master Budget combines all departmental budgets into a single comprehensive financial plan, detailing income, expenses, overheads, and projections for a specified period, integrating operating and financial budgets for effective resource management and organizational control.

17. BUDGET PROPOSAL A budget proposal is a formal plan presented by an organization or department outlining its expected income and expenditure for a specific period, usually a fiscal year. It serves as a blueprint for allocating financial resources to various programs, projects, or activities in line with organizational objectives. In healthcare and nursing services, the budget proposal ensures that funds are effectively planned, justified, and allocated to maintain smooth functioning of departments and quality patient care.

18. Purpose of a Budget Proposal The primary purpose of a budget proposal is to: Forecast financial needs for planned activities, programs, and projects. Justify expenditures to higher authorities or funding bodies. Allocate resources efficiently based on priorities. Ensure alignment with organizational goals, mission, and policies. Provide a reference for monitoring and evaluating financial performance. 60% 10% 05% 25%

19. Components of a Budget Proposal A typical budget proposal includes: Introduction/Executive Summary: Brief overview of the organization, objectives, and purpose of the budget. Projected Income/Revenue: Expected funding, grants, or other sources of income. Projected Expenditure: Detailed plan of how funds will be spent, including personnel, supplies, equipment, and administrative costs. Justification: Explanation of why each allocation is necessary and how it contributes to organizational objectives. Evaluation and Monitoring Plan: Methods to track expenditures, measure outcomes, and ensure accountability.

20. Steps in Preparing a Budget Proposal Assess Needs: Identify requirements of each department or program. Estimate Costs: Calculate expected expenses for personnel, supplies, equipment, and operations. Prioritize Activities: Determine which programs or services require immediate funding based on organizational goals. Draft Proposal: Prepare a clear and structured document with all components. Review and Approval: Submit the proposal to management or funding authorities for approval. Implementation and Monitoring: Allocate funds according to the approved proposal and track expenditures.

21. Importance in Nursing Services: In nursing and healthcare, a budget proposal ensures that critical services are funded, staff salaries are managed, equipment and supplies are available, and patient care is not compromised. It also provides a framework for cost containment, accountability, and strategic planning.

22. Advantages of Budgeting: Provides financial control and efficient use of resources. Promotes accountability among managers and staff. Helps in planning and prioritizing activities. Facilitates decision-making and goal achievement. Enables cost containment and reduces wastage. Disadvantages of Budgeting: Can be time-consuming and require detailed data. May reduce flexibility if too rigid. Can overemphasize financial targets over quality or outcomes. Requires skilled personnel to prepare and monitor budgets. May not account for unexpected emergencies or changes.

23. BUDGETARY PROCESS The budgetary process has gained importance in recent years due to rising healthcare costs and the emphasis on cost containment. It consists of activities encompassing the development, implementation, and evaluation of a plan for providing services and capital assets. Budgeting is a systematic activity that develops a plan for the expenditure of usually fixed resources, such as money or time, during a given period to achieve desired results. The process is sequential , with various steps followed to ensure efficiency and accountability.

24. Definition: The budgeting process is the systematic activity of planning, implementing, monitoring, and evaluating the expenditure of fixed resources over a specific period to achieve organizational goals. It includes the development, implementation, and evaluation of a plan for services and capital assets. Features of Budgetary Process: Incorporates a long-term perspective . Establishes linkage to broad organizational goals . Focuses budget decisions on results and outcomes . Promotes effective communication among departments. Provides incentives to management and employees.

25. Principles of Budgetary Process: Establish broad goals: Provides overall direction and serves as a basis for decision-making. Develop approaches to achieve goals: Define specific policies, programs, and strategies to attain long-term objectives. Develop a budget: Prepare a financial plan consistent with strategies and available resources. Evaluate performance and modify: Continuously assess program and financial performance and make necessary adjustments.

26. Steps in Budgetary Process: Step 1: Budget Proposal: The budget estimate is usually prepared by the accounts section of the institution. They centralize records of revenue, income, and expenditure. Each department also keeps track of money received, sanctioned, and spent, ensuring accurate documentation of financial resources. Step 2: Budget Approval: Once prepared, the budget must be approved. In government-funded hospitals, extramural approval passes through higher authorities such as the Joint Secretary, Health Secretary, and Parliament, with final approval by the Prime Minister. Intramural approval occurs within the organization, first by the head of the hospital and then by the head of the institute.

27. Step 3: Budget Allocation: After approval, the budget is allocated to departments and organizations. Funds are sanctioned in installments based on hospital funding policies, past performance, actual expenditure from previous years, and future plans. This ensures that resources are distributed according to organizational needs. Step 4: Budget Monitoring: Monitoring involves regular review of budget reports to track expenses, cash flow, and deviations from the plan. A budget monitoring committee, including representatives from each department and a financial advisor, evaluates forecasts, spending, and financial performance to maintain accountability.

28. Benefits of Budgetary Process: Provides financial control and resource management. Promotes accountability among staff. Helps in planning and prioritizing activities. Ensures alignment of resources with organizational goals. Serves as a basis for performance evaluation. Limitations of Budgetary Process: Can be time-consuming. May reduce flexibility. May focus too much on financial targets. Requires skilled personnel. May not account for unexpected changes.

29. COST-BENEFIT ANALYSIS Cost-Benefit Analysis (CBA) helps evaluate whether a proposed system, project, or investment provides value to the organization and society. CBA is primarily used by governments and organizations to make social, economic, and financial decisions. It measures both tangible and intangible costs and benefits of adopting a particular course of action, such as constructing a dam, building a bypass, or implementing an information system. It is particularly useful in areas where market prices do not exist or cannot fully capture social and environmental impacts. Definition: Cost-Benefit Analysis is defined as: "A method of evaluating a project or program by comparing all the costs involved with the anticipated benefits to determine its feasibility or value."

30. Purpose of CBA: CBA addresses questions like: Is the project financially worthwhile? Is it the best alternative among other options? Should it be undertaken at all?

31. Process of Cost-Benefit Analysis CBA involves three key steps: Identification of Costs & Benefits – List all costs and benefits related to the project, task, or system. Evaluation of Costs & Benefits – Assess tangible (e.g., hardware costs) and intangible (e.g., improved decision-making) aspects, as well as fixed, variable, direct, and indirect elements. Choice of System – Select the alternative with the lowest costs and highest benefits .

32. Example: A hospital wants to build a special care room. It costs ₹10,00,000 to build and ₹2,00,000 each year to run. The hospital charges ₹5,000 per day, and the room is used 300 days a year. This makes ₹15,00,000 in a year. After paying the costs, the hospital earns ₹3,00,000 extra. This means the room is a good investment for the hospital. Net Profit = Total Income − Total Cost / ₹15,00,000 - ₹10,00,000 = ₹3,00,000 Particulars Amount (₹) Room Construction Charge 10,00,000 Expected Income per Year 15,00,000 Net Profit 3,00,000