Budgeting Flashcards
A document that details how financial resources will be allocated to ensure that the organization is able to conduct its daily business and achieve strategic goals.
Budget
4 Basic functions that budgets perform:
1- planning
2- Coordinating and communicating
3- monitoring progress
4- Evaluating performance
In this phase managers decide on goals to achieve during specified period, identify resources, predict revenues & expenses based on goals & assumptions.
Planning
During the planning phase, what are they doing?
-Setting goals
-predict revenues & expenses
-identify resources needed to achieve goals
(These create a budget assumption)
How long does a budget typically last.
1 year at a time.
Why should nurses be part of budget planning?
- help to determine resource allocation
- learn to be more cost conscious.
- appreciate how units should function
Why is coordination & communication important when planning a budget?
- many different groups gather to discuss resources
- gives opportunity to resolve issues & concerns
The function that the nurse manager is involved in daily and is the most vital function of a budget.
Compares actual performance against expected budget.
Monitoring progress
Monitoring progress measure…
the effectiveness of a budget.
Ongoing monitoring allows…
timely corrective action - if needed.
The difference between planned budget and actual results.
Variance
When is a variance favorable?
When results are better than expected.
When is a variance unfavorable
when results are worse than expected.
The process by which deviations from budgeted amounts are examined…
Variance analysis
Managers may be evaluated based on their budget performance… what may they receive.
A bonus.
- Job retention
- Career advancement
- salary decisions
Three types of budgets:
- Operating Budget
- Labor Budget
- Capital Budget
Allocates funds for daily expenses, such as salaries, utilities, repairs, maintenance, & pt. care supplies.
Operating Budget
A subset of operating budget; allocates funds for salaries, overtime, benefits, & staff development & training.
Labor Budget
Allocates funds for construction projects, long-life medical equipment (cardiac monitors, defibrillators, computers).
Capital Budget
4 Operational budget Expenses that are necessary:
- Salaries
- Utilities
- Equipment Maintenance
- Pt. care supplies
Revenues in the operational budget (4)
- Health insurance
- Medicare & Medicaid
- Pt. out of pocket payments
- Grants, other Govt. programs (teaching hospitals)
Purpose of Labor budget.
- detailed documentation of
- salaries
- wages
- benefits
Factors that affect personnel budget:
- salary rates
- overtime
- benefits
- staff development & training
- employee turnover
What is the largest expense in an operational budget?
Usually the labor budget.
A measurement of number of nursing hours worked in comparison with amount of patient care provided.
Productivity metric
Organizations expect the Nurse manager to control..
The number of worked hours vs. actual salary expense.
Why is the capital budget usually developed separately from the operating budget?
-they usually require multiple years to pay out.
Main requirements for a purchase to be considered part of the capital budget?
- useful life expectancy of more than a year
- costs more than a specific dollar amount
Capital purchases are often considered as…
Investments
Planning capital budgets will _______ nurse managers _________ skills.
Test
long-range planning skills
Which capital expenditures should be addressed with urgency?
those that ensure patient safety
Two Budgeting methods
1- Incremental Budgeting
2- Zero Based Budgeting
Most commonly used budgeting method.
simple & easy to apply.
Forward trend of CURRENT budget with adjustments for future growth.
Incremental Budgeting
Incremental budgeting’s primary strengths (2)
simplicity
-compatibility w/ most organizations
How is incremental budgeting simple
-takes current revenues & expenses adjusts for inflation or growth (OR decline) and applies it.
Weakness of incremental budgeting?
- doesn’t address past mistakes in the budget
- doesn’t take into account significant changes in departments (problematic when unit not run well)
Building a budget as if it is being prepared for the first time.
Zero-based budgeting
Strengths of a Zero-based budget
- accurate
- doesn’t build on previous incorrect assumptions
- process engenders buy-in by personnel.
- creative thinking
Weaknesses of a zero-based budget
- Time consuming (2-3 months)
- resource intensive
- May be too complex
- requires common frame of reference of all participants.
When does the development of a budget for a new fiscal year occur.
a few months ahead of start of fiscal year.
Must be developed and approved before effected.
Health care organizations usually have a __________for budget development.
defined procedure in place
What is the top-down approach
Upper management sets budget goals & imposes the goals on the rest of the organization.
What is the participatory approach
the people responsible for achieving the budget goals are included in goal setting.
What is the iterative approach
Combination of top-down & participatory.
Upper management sets strategic goals, unit leaders develop operating budgets that work in conjunction w/ strategic goals.
Unit of service
-provides the basis for allocating expenses & revenues.
EG: patient days, patient visits…
Steps in the budget development process (6)
1- Review plan & identify goals & objectives
2- Set budget assumptions
3- Gather info about past results & combine with budget assumptions to set expectations for future
4- Predict the units of service to be provided during budget period
5- Project expected revenues based on units of service
6- project expenses on basis of units of service.
What do budget assumptions address?
issues that affect the future performance of organization.
EX: supply pricing increase/decrease, salary range that ensures employee retention, health insurance costs, competitor pricing, patient census increase/decrease?
The process by which deviations from budgeted amounts are examined by comparison of actual performance results vs. expected or budgeted performance.
Variance analysis
How are variances evaluated?
Quantitative or Qualitative
This analysis focuses on numeric variances to the budget.
Ex: are you over/under budget for labor?
Quantitative
Analysis of budget variances focused on reconciling underlying budget assumptions with current conditions.
Ex: patient acuity rises higher than projected, labor usage is higher than allowed in budget.
Qualitative
When is labor budget variances presented?
Pay period basis.
Overall budget variances are presented when?
Monthly, quarterly or annually.
Overall budget variance compare the following:
- current performance against budget
- current performance against previous year’s performance
Primary types of costs ((6)
- Unit of service
- Direct cost
- Indirect cost
- Full cost
- Fixed Cost
- Variable cost
Basic measure of product or service being produced.
unit of service
costs that can be traced directly to production of unit of service
direct cost
costs that are incurred as a result of organizations operating expenses but are not r/t providing the unit of service
indirect cost
the total of all cost associated with a unit of service. Includes direct and indirect costs.
Full cost
Costs that do not change as the unit of service volume changes.
ex: administrative salaries
Fixed costs
Costs that vary directly with changes in the volume of units of service
variable cost.
