Budgeting Basics

Question 1

Budget

Answer 1

is a financial plan for the allocation of an organization’s resources

Question 2

Planning

Answer 2

is the most important function in the budgeting process

Question 3

Goal

Answer 3

quality, cost-effective care

Question 4

What resources are needed to reach the goals?

Answer 4

Staff
Supplies
Equipment
Facilities
Fixed expenses (salaried employee) vs. variable expenses (hourly employees)
Controllable (don’t change equipment) vs. non-controllable expenses (flu season, outbreak, census)

Question 5

Communication and Coordination

Answer 5

between departments to determine who absorbs what cost

Question 6

Monitoring – big job of nurse manager

Answer 6

Vital function of the budget
Nurse manager monitors on a daily basis
Compares actual performance against expected.
Measures the effectiveness of the budget

Question 7

Evaluating Performance

Answer 7

Manager’s performance evaluation
-Accountability and compliance
 -Staff bonus programs

Question 8

Types of Budgets

Answer 8

operating, labor, capital

Question 9

Operating Budget

Answer 9

Supplies
Volume of service (number of appts at Dr’s office)
Repairs, maintenance

Question 10

Labor Budget

Answer 10

Staffing mix (CNA, LPN, RN)
Nursing care hours per patient day 12 hr. vs 8 hr, clinic open 10 hrs/day, etc.
Productive (actual nursing care) vs. Nonproductive time (vacation days,

Question 11

Capital Budget

Answer 11

Major equipment

Facility additions

Question 12

Incremental Budgeting takes current revenues and expenses and assumes a small inflationary or growth factor:

Answer 12

Simple
Easy
Primary strength is its simplicity
Primary weakness it does not take into account significant changes that may need to be made

Question 13

Zero-based Budgeting - starts from zero each budgeting period as though the budget were being prepared for the first time:

Answer 13

Strengths: Does not build on previous/incorrect assumptions, Complexity of the process yields a number of beneficial results, Encourages clinical and financial personnel to work together
Weaknesses: Extremely time consuming and resource intensive, Requires common frame of reference by all participants

Question 14

Budget Development Process - Review the Organization’s Plan

Answer 14

Identify goals and objectives
Set budget assumptions on which to base decisions with questions such as:
Are supply prices likely to increase/decrease and by what %?
What salary range will ensure that the organization is able to recruit and retain quality employees?
What will the health insurance plan cost in the coming year?
What are the competitors offering in terms of new services?
Is the patient census likely to increase or decrease over the next year?

Question 15

Budget Development Process - Gather information about past results

Answer 15

Combine that with budget assumptions

Set reasonable expectations about future performance

Question 16

Budget Development Process - Define units of service (patient –days, patient visits)

Answer 16

Predict the units of service that will be provided during the budget period
Project expected revenues on the basis of units of service
Project expenses on the basis of units of service

Question 17

The budgeting process is continual

Answer 17

Variance analysis
Cost concepts: 
Unit-of-service
Direct costs – supplies, nursing care
Indirect costs – “overhead” - security, housekeeping etc.
Full cost – total cost
Fixed cost – administrative salaries
Variable costs – changes with the units-of-service

Question 18

Nursing’s Impact on Cost and Quality

Answer 18

Ensure appropriate discharge instructions and proper follow-up to reduce costly readmissions
Engage in robust evidence-based practice programs that will lead to increased quality and lower costs
Proactively evaluate staffing patterns and care delivery models along with delegating non-nursing tasks to ancillary personnel

Question 19

Nursing’s Impact on Cost and Quality cont’d

Answer 19

Identify the most cost-effective medical-surgical supplies that can replace more expensive products
Contribute to reduced complications, reduced length of stay and improved quality
Prevent hospital-acquired conditions such as injuries from falls and hospital-acquired infections