BUDGET

MEANING OF BUDGET
One of the primary objectives of management accounting is to provide information to
management for planning and control.
A widely used device for managerial control is the budget. Because the amount and quality
of Nursing Services depended on budgetary plans, nurses should provide the resources
necessary for the safe and effective nursing care
DEFINITION
A budget is an estimate of future needs arranged to an orderly basis covering some or all
the activities of an enterprise for a definite period of time.
T.N. Chhabra
Budgeting is the formulation of plans for a given period in numerical terms.
Harold Koontz
A budget is a plan that uses numerical data to predict the activities of an organization over
a period of time.

Bessie.

PURPOSE OF BUDGET
Budget supplies the mechanism for translating fiscal objectives into project monthly
spending pattern.
Budget enhances fiscal planning and decision making.
Budget clearly recognizes controllable and uncontrollable cost areas.
Budget offers a useful format for communication fiscal objectives.
Budget allows feedback of utilization of budget.
Budget helps to identify problem areas and facilitates effective solution.
Budget provides means for measuring and recording financial success within the
objectives of the organization.

FEATURES OF BUDGET
It should be flexible.
It should be synthesis of past, present, future.
It should be product of joint venture for co-operation of executives department
heads or different level of management.
It should be in the form of statistical laid down in specific numerical terms.
It should have support of top management throughout the period of its planning
and implementation
IMPORTANCE OF BUDGET
Budget is needs for planning for future course of action and to have a control over all
activities in the organization.
Budget facilitates co-ordinating operation of various departments and section for
realizing organizational objectives.
Budget serves as a guide for action in the organization.
Budget helps one to weight the value and to make decision when necessary or
whether one is of a greater value in the programme that the order.
PRINCIPLES OF BUDGET
Budget should provide sound financial management by focusing on requirement of
the organization.
Budget should focus on objectives and policies of the organization. It must flow from
objectives and give realistic expression to the way of realistic such objective.
Budget should ensure the most effective use of scarce financial and non financial
resources.
Budget requires that programme activities planned in advance.

 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.
Budget should include co-ordinating efforts of various departments establishing a
frame of reference for managerial decision and providing certain criteria for
evaluating managerial performance.
Selling budget target requires an adequate checks and balance against the adoption of
too high or too low estimate, almost care is a must for fixing targets.
Budget period must be appropriate to the nature of business or service and to type of
budget.
Budget is prepared under the direction on the supervision of the administration or
financial officer.
Budget is to be prepared and interpreted consistently throughout the organization in
the communication in the planning process.
TYPES OF BUDGET

Incremental budget or zero based budget : This is a budget prepared using a

previous periods budget or actual performance as a basis with incremental amounts
added for the new budget period

Open ended budget: this is a budget which is subjected to any change at any time.
There is no set upper limit of cost; it can change according to needs and
circumstances.

Fixed ceiling budget: Fixed budgets are budgets that are drafted on the basis of
specific criteria, and do not allow any room for any changes or variations in activity at
any point during the period of time covered by those budgets.

Flexible budget: A flexible budget is a budget that adjusts or flexes for changes in the
volume of activity. The flexible budget is more sophisticated and useful than a static
budget, which remains at one amount regardless of the volume of activity.

Roll over budget: A rollover budget is a budget in which the funds, if not spent in a
particular month, roll over into that budget for the following month, adding to the
allocation for that particular month.

Performance budget: A budget that reflects the input of resources and the output of
services for each unit of an organization. This type of budget is commonly used by the
government to show the link between the funds provided to the public and the
outcome of these services.

Programmed budget: is the budgeting system that, contrary to conventional

budgeting, describes and gives the detailed costs of every activity or programme that
is to be carried out in a budget. Objectives, outputs and expected results are described
fully as are their necessary resource costs, for example, raw materials, equipment and
staff. The sum of all activities or programmes constitutes the Programme Budget.

Sales budget: an estimate of future sales, often broken down into both units and
currency. It is used to create company sales goals.
o A projection of how much a business will generate in profit for the year. This
is not true form of determination for profit margin.

Production budget: an estimate of the number of units that must be manufactured to

meet the sales goals. The production budget also estimates the various costs involved
with manufacturing those units, including labor and material. Created by product
oriented companies.

CLASSIFICATION OF BUDGET
Classified on the basis of :

Coverage of functions Master & Functional budget.

Natured and activity covered Capital & Revenue budget.

Period of Budget long term and short term budgets.

Flexibility adopted Fixed and flexible budget

A) MASTER & FUNCTIONAL BUDGET

A mastered budget is prepared for the entire organization incorporating the budget of
different functions. e g. When we refer to the annual budget of Govt. of India. It
incorporates the budget out lays of different ministries.

A functional budget is prepared incorporating a major function and its sub functions
since an organization may have a number of functions, numerous functional budgets
are prepared. E g., production budget, cash budget in an organization.

B) CAPITAL & REVENUE BUDGET

An organization activities involve two process. Creating facilities for carrying out
activities and actual performance activities.

Creating facilities for carrying out

activities include capital expenditure whole returns accrue over a number of years.
For such activities, capital budget is prepared which is essentially a list of what
management believes to be worthwhile projects for acquisition of new assets together
with the estimated cost of each project.
Revenue budget involves the formation of target for a year or so in respect of various
organizational activities such as production, marketing, finance, etc., Thus a revenue
budget includes expenditure and earning for a specific period like one year.
C) LONG TERM AND SHORT TERM BUDGET

Many organizations integrate their yearly budgets with long term projection of
business activities and along with yearly budget; they prepare budgets for a longer
period of 2-3 years. When one budget period is over budgets are prepared for the next
year and subsequent 2-3 years.

The short term budget is for a year and is divided into a number of periods for
effective implementation. e g. Cash budgets are prepared on yearly basis as well as on
monthly or quarterly basis to facilitate better cash management.

D) FIXED AND FLEXIBLE BUDGETS

Generally, organizations prepare budgets which pertain to only certain projected fixed
volume of operations for a year or so such budget are known as fixed or static
budgets.

When an organizations volume of business can be predicted with fair

amount of precision, the fixed budget is satisfactory.

A budget which is designed to change in accordance with the activities of the

organization is known as flexible budget. It considers several level of activity and
assures that labour, material or facilities used in production and hence cost vary with a
known relationship to the actual volume of activity.

TYPES OF BUDGETING
There are mainly two types of budgeting.
1. Performance Budgeting
2. Zero base budgeting.
1) PERFORMANCE BUDGETING
A performance budgeting is an input/output budget or costs and results budget. It
shows costs matching with operations.

Performance budget emphasis on non

financial measures of performance which can be related to financial measures in

explaining changes and deviation from planned performance.

Performance

measurement are useful for evaluating past performance and for planning future
activities. Performance budgeting, results into the following.
It correlates the financial and physical aspects of every programme or activity.
It improves budget formulation, review and decision making at all levels of the
organization.
It facilitates better appreciation and review of organizational activities by the top
management.
It makes possible move effective performance audit.
It measures progress towards long term objectives.
2) ZERO BASE BUDGETING

 This was applied for the first time in preparing the divisional budgets of Texas
instruments of the USA in 1971.
Zero base budget is based on a system where each function, irrespective of the fact
whether it is old or new, must be justified in its entirely each time a new budget is
formulated. It requires each managed to justify his entire budget in detail from
scratch that zero base.
The process of zero base involves four basic steps.

Identification of decision units,

Analysis of each decision unit in the context of total decision package.

Evaluation and ranking of all decision units

Allocation of resources to each unit based upon.

BENEFITS OF ZERO BASE BUDGETING

Effective allocation of resources.

Improvement in productivity and cost effectiveness.

Effective means to control costs.

Eliminator of unnecessary activities.

Better focus or organizational objectives.

Saving time of top management.

BUDGET PROCESS
Indian method

Annual method i.e., annual budget will be made in India.

Month

Made by :

Starts from Sep/Oct of current years.

Directorate of health and family welfare.

PROCESS
Review the goals of agency of Hospital.

Review Objectives of existing programme.

Revise the existing programe.

Manpower, capital and operating expenses are computer or each programme, old and
new.

Alternative methods are identified for realizing designated objectives.

Comparison is made to determine which alternative is most cost effective.

Budget is develop.

FUNCTION OF BUDGET IN NURSING

Identifies the importance of and develops short a long range fiscal plans that reflects
unit needs.

Articulate and documents units needs effectively to higher administrative levels.

Assess the internal and external environment of the organization in forecasting to

identify driving forces and barriers of fiscal planning.

Demonstrate knowledge of budgeting and uses appropriate technique.

Provide opportunities for subordinates to participate in relevant fiscal planning.

Co-ordinates unit level fiscal planning to be congruent with organizational goals and
objective.

Accurately assesses personal needs using predetermined standards or an established

patient classification system.

Co-ordinates the monitoring aspects of budget control.

Ensure that documentation of clients need for services in clear and complete for
facilitate organizational reimbursement.

ROLE OF NURSE ADMINISTRATOR IN BUDGETING

Is visionary in identifying of forecasting short and long term unit needs, thus inspiring
proactive rather than reactive fiscal planning.

Is knowledgeable about political, social and economic factors that shape fiscal
planning in health care today.

Demonstrate flexibility in fiscal goals setting in a rapidly changing system.

Anticipates recognized and actively problems solve budgetary constraints.

Influences and inspires group members to become active in short and large range
fiscal planning.

Recognizes when fiscal constraints have resulted in an ability to meet organizational

or unit goals and communicate this insight effectively, allowing the chain of
command.

Ensure that client safely is not jeopardized by cost constraints.

ADVANTAGES

Maximizing of profit: it helps the organization in increasing profit. The allocation of

resources should be such that it increases profit and decrease expenditure.

Co-ordination: The major strength of budgeting is that it coordinates activities
across departments.

Tools for measuring performance: it provides a tool to measure the performance of

top level managers and their capabilities.

Determining weakness: it helps to determine the sensitive areas and weakness in an

organization.
Corrective action: Budgets provide a tool for corrective action through allocations.
Reduces cost: it helps to reduce cost within an organization
Budgets translate stretegic plans into action. They specify the resources, revenues and

activities required to carry out the strategic plan for coming year.
Budgets provide an excellent record of organizational activities.
Budgets improve communication with employees
Budgets improve resource allocation, because all requests are clarified and justified
Provide a method of allocating and using resources within the organization
Help to monitor and control operations
Promote forward thinking
Show employees an overall picture of the direction of the organisation which can

motivate staff
Help to co-ordinate different departments and align them towards shared objectives
Provide a framework for delegation.

DISADVANTAGES

Budgets can demotivate employees because of lack of participation. If the budgets are
arbitrarily imposed top down, employees will not understand the reason for budgeted

expenditures, and will not be committed to them.

Budgets can cause perceptions of unfairness.
Budgets can create competition for resources and politics.
A rigid budget structure reduces initiative and innovation at lower levels, making it

impossible to obtain money for new ideas.

Budgets can be seen as pressure devices imposed by management, thus

resulting in:
a) Bad labour relations
b) Inaccurate record-keeping.
Departmental conflict arises due to:
a) Disputes over resource allocation
b) Departments blaming each other if targets are not attained.
It is difficult to reconcile personal/individual and corporate goals.
LIMITATION OF BUDGETING

Planning, budgeting or forecasting is not an exact science; it uses appropriately and

judgment which may not be 100% accurate. At best a budget is an estimate no one
knows precisely what will happen in the future.

The success and utility of budgeting depends on the co-operation and participating of
all members of management. All person should direct their effort according to the
plan. Many time budgeting has paid only lip services to its executing.

A budget is only a tool and neither eliminates nor takes over the place of management.
A budget cannot be substituted for management but should only be used by
management for accomplishing managerial functions.

The establishment of a budgeting process takes time. Also sometime too much is
expected from a budget and in case expectation are not fulfilled the blame is put on
the budget.

An efficient budgeting programme requires that responsible person

should understand the philosophy, objective and essential of budgeting.

BUDGET PLAN FOR HOSPITAL

S.
No
.

Items

Previous year

Current year

Future year

2013-14

2014-15

2015-16

Income

Expenditure

Income

Expenditure

Income

1.

Opening

15,00000

16,00000

17,00000

2.

balance
Admission

40,00000

48,00000

50,00000

3.

fees
Transport

1,50000

1,80000

2,00000

4.

services
Medical

10,00000

12,00000

12,00000

5.
6.
7.
8.

equipments
Funds
Pharmacy
Salaries
Provident

10,00000
11,00000

11,00000
12,00000

11,00000
12,25000

9.

Expenditure

22,00000
10,00000

22,00000
10,00000

24,00000
12,00000

funds
Maintenanc

3,00000

3,00000

3,00000

e
10. Tax
11. Laboratorie

9,00000
6,00000

10,00000
6,00000

9,00000
7,00000

s
12. Miscellane

6,00000

7,00000

8,00000

ous
Total

87,00000 56,00000

100,8000 58,00000

104,25,000

63,00000

BALANCE SHEET
S.

Balance Sheet

No.
1. Income
2.

Expenditure

2013-14

2014-15

2015-16

87,00000

100,80000

104,25000

56,00000

58,00000

63,00000

Balance amount

31,00000

42,80000

BUDGET OF IHBAS HOSPITAL ,DELHI

41,25000

INCOME & EXPENDITURE ACCOUNT FOR THE YEAR ENDED ON 31/3/2012

(Amount in Rupees)
FOR THE YEAR ENDED

FOR THE YEAR ENDED

31/3/2012

31/3/2011

Grant-in-aid received from Govt of Delhi

6500,00,000.00

5500,00,000.00

Interest on Term Deposits & saving A/C

185,24,044.00

116,73,061.87

Miscellaneous Receipts

94,86,301.00

16229151.73

INCOME

Total

57,79,02,213.60

EXPENDITURE
Administrative Services & Office Expenses

155884,552.26

95996413

Salary & Other Benefits to Employees

2523,65,089.00

234114593

Dietary Items

73,07,734.43

51,51,632.45

General Store Items

270,30,774.48

174,25,982.77

Medicines and Drugs

295,97,679.00

147,56,362.14

Traveling & Conveyance Expenses

12,96,943.00

18,00,561.00

Maintenance of Equipment

31,66,943.00

16,05,614.00

Publication & Periodicals

51,98,710.00

10,99,091.00

Diesel & Petrol

16,17,049.00

6,82,380.00

Patient Welfare Exp.

42,84,379.00

45,39,158.00

Legal & Professional Charges

7,43,100.00

5,63,500.00

Maintenance of Existing Building

458,99,690.00

320,07,163.00

NABH Expenses

4,99,019.00

3,85,600.00

Repairs of Motor Vehicles

2,32,843.00

1,27,491.00

Rent & Taxes

40,46,308.00

86,18,536.00

Capital Expenditure upto31st march

2009
Equipment (2011-2012)

NIL
214,84,772.00

231,52,422.00

Furniture

840,414.00

1,11,608.00

Freez

NIL

15,400.00

L.C FDR for CT Machine

7,50,517.00

75,08,194.00

NET INCOME OVER

EXPENDITURE

6,83,52,526.68

12,82,40,512.24

67,96,02,391

57,79,02,213.60

Total

RESEARCH ABSTRACT

Budgeting research: three theoretical perspectives and criteria for selective

integration.
Article from: Journal of Management Accounting Research | January 1, 2003 |Covaleski,
Mark A.; Evans, John H., III; Luft, Joan L.; Shields, Michael D. |
Abstract: Budgeting is one of the most extensively researched topics in management accounting and
has been studied from the theoretical perspectives of economics, psychology, and sociology. Thus,
budgeting offers opportunities for research that chooses between competing theories from these
perspectives or combines theories from different perspectives if they are compatible, to create more
complete and valid explanations of the causes and effects of budgeting practices. In the first part of
the paper we analyze budgeting research in the three theoretical perspectives, focusing on important
similarities and differences across perspectives with respect to the primary research question, levels
of analysis, assumptions about rationality and equilibrium, budgeting and nonbudgeting variables,
and causal-model forms. In the last part of this paper we identify four interrelated criteria for
selective integrative research and provide an example of using these criteria for research on
participative budgeting.

Budget Technology & Innovation

Innovation needs investment. E.ON has recognized the sign of the times and has significantly
increased its overall expenditure in new technologies. By making new investments in
demonstration projects, in R&D expenditure and in developing basic research at universities,
E.ON is facing the growing challenge of finding technical solutions for the energy system of
the future In 2011, E.ON invested around EUR 107 million in the research and
implementation of innovative technical solutions.
The variety of topics to match the requirements of tomorrows energy system has led to a
readjustment of major areas of research: In 2010, the main focus was based on activities in
centralized generation. For 2011, the budget reflects the increasing importance of growth
areas within the whole value chain.

REFERENCES

 Neelam Kumari, Madhu Sharma. Text book of Nursing Service & Adminstration.
published by P.V Books Edition 1st (2011)Pp 319-333
Ann Boyle Grant .Nursing Leadership Management & Research Published by
Springhouse Notes. Edition 1st Pp 92
Wolper F. Lawrence, Health Care Administration, edition 3rd , published by Jones
and Barlett, Pp20-21
Kapoor Renu, Textbook of Health Economics for nurses, published by Lotus
Publishers, Edition 1st (September 2009), Page number 25 34.

INDEX

S.NO
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.

CONTENT
Meaning & Definitions of Budget
Purpose of Budget
Features and Importance of Budget
Principles of Budget
Types of Budget
Classification of Budget
Types of Budgeting
Budget Process
Functions of Budget
Role of Nurse Administrator in Budgeting
Limitation of Budgeting
Budget Plan for Hospital
Research Abstract
References

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MHR DAV INSTITUTE OF NURSING

JALANDHAR
Nursing Management

TOPIC: Budget Preparation of Hospital

SUBMITTED TO

SUBMITTED BY

Respected Ms. Ravneet Kaur

Meenakshi

Lecturer

M.Sc (N) II Year

Mental Health (Psychiatric) Nursing

Medical Surgical Nursing