Budgeting

Question 1

Budget

Answer 1

Financial plan for the allocation of the organization’s limited resources and a control for ensuring that results comply with the plan. Details how financial resources will be allocated to ensure that the organization is able to conduct daily business and achieve strategic goals. Dynamic action plan that guides allocation of resources & expenditures and influences the nurse manager’s decision making on a day to daily, weekly, and monthly basis.

Question 2

Budget assumptions

Answer 2

Statements that reflect issues affecting the future performance of the organization; used as the framework for developing the budget, addresses questions, such as the following: Are supply prices likely to increase or decrease? What salary range will ensure that the organization is able to recruite & retain quality employees? What are the competitors offering in terms of new services? Is the patient census likely to increase or decrease over the next year?

Question 3

4 budgeting functions

Answer 3

1) Planning
2) Coordinating & communicating
3) Monitoring progress
4) Evaluating performance

Question 4

Planning

Answer 4

*Most important function of the budgeting process.
*Participating in the budget process to determine resource allocation is a fundamental responsibility of the nurse manager
Nurse managers:
- Decide on goals to achieve
- ID resources needed to achieve goals
- Predict revenue & expenses based on these goals & budget assumptions

Question 5

Coordinating & Communicating

Answer 5

• Many different groups within an organization come together to discuss the resources necessary to accomplish the goals of a business unit.
• Provides opportunity for individuals from various parts of the organization (e.g. finance, nursing) to discuss concerns & resolve issues

Question 6

Monitoring Progress

Answer 6

• Vital function of the budget
• Nurse manager will be most involved with on a daily basis
• Through comparison of actual performance against expected, or budgeted, performance, an organization measures the effectiveness of its budget (variance)

Question 7

Variance

Answer 7

The difference between the planned budget and actual results.

Question 8

Variance analysis

Answer 8

The process of analyzing the differences in the planned budget results and the actual results; involves quantitative and qualitative analysis.

Question 9

Favorable variance

Answer 9

Results are better than expected

Question 10

Unfavorable variance

Answer 10

Results are worse than expected

Question 11

Evaluating Performance

Answer 11

• May be used as a part of manager’s eval & may include a staff bonus structure
• Performance evals based on budget results can motivate managers to effectively control budgets and will serve as a basis for salary decisions & career advancement for the manager
• Lack of staff ownership & involvement in the unit’s operation usually leads to problems for the manager

Question 12

Operational Budget

Answer 12

Allocates funds for daily expenses, such as salaries, utilities, repairs, maintenance, & patient care supplies
- Represents revenues & expenses for an operational unit, e.g. a product line, unit, department, overall organization

Question 13

Labor Budget

Answer 13

• Subset of the operating budget
• Allocates funds for salaries, overtime, benefits (e.g. PTO, health insurance,) & staff development & training
• Always the largest expense in an operational budget
• Nurse managers must control # worked hrs vs actual salary expense, must understand 12 mo. historical trend for labor hrs & pt days
• Used to provide productivity metric (must also factor in acuity)

Question 14

Capital Budget

Answer 14

Allocates funds for construction projects &/or long-life medical equipment.

• Huge expense, brings in revenue, long-term investment
• Usual life expectancy of >1yr, over a minimum $ amount
• Nurse manager must be able to plan ahead
• Staff are vital to successful capital planning bc their “frontline” equipment needs must be made known to management for purchase considerations

Question 15

Incremental Budgeting

Answer 15

• Most common, relatively simple
• Extrapolates from the previous yr’s budget & adjusts for future growth or decline in revenues or expenses to determine the budget for the next year
• Compatible with most corporate organizational practices
• Extremely efficient & effective when applied to a well-run department that is supporting organizational goals
• Primary weakness: Doesn’t take into account significant changes that may need to be made within a department,. Doesn’t address past mistakes.

Question 16

Zero-Based Budgeting

Answer 16

Begins as though the budget were being prepared for the 1st time.

• Used less frequently than incremental
• Very precise
• Doesn’t build on previous/incorrect assumptions
• Encourages close collaboration between clinical & financial personnel.
• Primary weakness: Extremely time consuming & resource intensive

Question 17

top-down approach (budget development)

Answer 17

Upper management sets budget goals & imposes those goals on the rest of the organization.

Question 18

participatory approach (budget development)

Answer 18

The people responsible for achieving the budget goals are included in goal setting.

Question 19

iterative approach (budget development)

Answer 19

Combination of the top-down & participatory approach. Upper management defines strategic goals & then unit leaders develop their operating budgets to incorporate their individual goals in conjunction with the organization’s strategic goals.

Question 20

Steps for developing a budget?

Answer 20

1. Review the organization’s strategic plan to ID goals & objectives.
2. Set budget assumptions on which to base budgeting decisions.
3. Gather info about past results & use the info in combination with budget assumptions to set reasonable expectations about future performance.
4. Predict the units of service that will be provided during the budget period.
5. Project expected revenues based on the units of service.
6. Project expenses based on the units of service.

Question 21

variance analysis

Answer 21

The process by which deviations from budgeted amounts are examined by comparison of actual performance results vs. expected, or budgeted, performance.

• Quantitative or qualitative analysis.
• Nurse managers are best positioned to determine why variances have occurred, bc variances are almost always r/t a clinical issue.

Question 22

quantitative analysis (variance analysis)

Answer 22

Focuses on numerical variances to the budget.

Question 23

qualitative analysis (variance analysis)

Answer 23

Focuses on reconciling the underlying assumptions on which the budget was based with current conditions. (e.g. acuity)

Question 24

service unit or unit of service

Answer 24

Basic measure of the product or service being produced.

• patient days –> hospital
• home visits –> home health agency
• patient visits –> clinic

Question 25

direct costs

Answer 25

Traced directly to production of the unit of service.

• nursing care
• supplies to provide direct patient care

Question 26

indirect costs

Answer 26

Overhead. Incurred as a result of the organization’s operating expenses but not directly r/t providing the unit of service.

• salaries for administrative personnel
• security, housekeeping, building maintenance

Question 27

full cost

Answer 27

Total of all costs associated with a unit of service, includes direct & indirect costs

Question 28

fixed costs

Answer 28

Do not change as unit of service volume changes.

- administrative salaries

Question 29

variable costs

Answer 29

Vary directly with changes in volume of units of service.

- Cost of immunizations varies directly w/ # pts who receive immunizations @ ambulatory clinic.