R. R.

COLLEGE OF NURSING

NURSING MANAGEMENT

FISCAL PLANNING

SUBMITTED TO; Mrs. Noorjan Lecturer

SUBMITTED BY; Mr. Shabin Thomas 2nd year M.Sc. Nursing

INDEX
SL NO. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Introduction Definition Features Purposes Principles Steps in budgeting Zero based budgeting Capital and revenew Mid term appraisal Budget estimate Performance based budgeting References CONTENT PAGE NO. 3 3 3 4 4 5 6 9 13 16 18 19

BUDGETING/ FISCAL PLANNING

Budgeting, though primarily recognized as a device for controlling, becomes a major part of the planning process in any organization. Literally the word budget means a leather bag or sachet to carry official papers in. now the term budget refers to the financial papers, certainly not to the sac. Budget is the heart of administrative management. It served as a powerful tool of coordination and negatively an effective device of eliminating duplicating and wastage.

Definition
Budget is a concrete precise picture of the total operation of an enterprise in monetary terms. Budget is an operational plan, for a definite period usually a year. Expressed in financial terms and based on expected income and expenditure.

Feature of budget
Budget should be simple in design and oriented to those who use it It should be flexible. It should be adjust various needs and conditions of the institutions It should be synthesis of past present and future It should be product of joint venture and co-operation of executives/ department heads at different levels of management. Budget is composed of two segment; that are income and expenditure. Income limits expenditure; hence income should be estimated prior to the estimation expenditure. A budget reflects the goals and aspirations of the faculty. Budget making involves the whole situation. Budget is foreward planning. Planned activities are vital for efficient and successful functioning. A budget gives direction- it is more than the list of the desired and approved expenditure. It is also the instrument of administration and management. It should have support of top management throughout the period of its planning and supplementation. Budget has a time period usually annual. It is important to secure the maximum participation of organization in preparation on of budget.
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Purposes of budget
To provide definite targets for income and expenditure of the department. To co- ordinate the activities of the different functional heads in the working of this departmental budget To enable a cash flow statement prepared month by month To aid management in formulating future policy decision to promote the growth and development of the organizations. To provide useful tool for the control of costs To provide a tool for communication and coordination within the organization. To improve financial planning and decision making To identify controllable and uncontrollable cost area.

Principles of budget
1. Budget should provide sound financial management by focusing on requirement of the organization. 2. Budget should focus on objectives and policies of the organization. It must flow from objectives and gives realistic expression to the way of realizing such objectives. 3. Budget should ensure the most effective use of scarce financial and nonfinancial resources. 4. Budget requires that programme activities planned in advance 5. Budgetary process requires consistent delegation for which fixed duties and responsibilities are required to be allocated to managers at different level of framing and executing budget. 6. Budgeting should include coordinating efforts of various departments establishing frame of reference for managerial decisions, and providing a criterion for evaluating managerial performance. 7. Setting budget target requires an adequate check and balance against the adoption of too high or too low estimate. Utmost care is a must for fixing targets. 8. Budget period must be appropriate to the nature of business or service and to the type of budget. 9. Budget is prepared under the direction and supervision of the administrator or finance officer. 10. Budget is to be prepared and interpreted consistently throughout the organization in the communication of planning process.

11. Budget necessitates a review of the performance of the previous year and an evaluation of its adequacy both in quantity and quality. 12. While developing a budget the provision should be made for its flexibility. STEPS IN BUDGETING While designing and implementing a planning programmed, the nurse administrator or manager should follow steps as given below. 1. Review the goals of the agency or hospital to identify activities of highest priority, because these are most likely to receive funding. 2. Review the objectives of the existing programmers and written for proposed programmers to ensure that achievement of these objectives will support agency. 3. Existing programmers are revised and proposed programmers designed to maximum goal accomplishment. 4. Manpower, capital and operating expenses are computed for each programmed, old and new. 5. Alternative methods are identified for realizing designated objectives and price of each alternative is determined. 6. Comparisons are made to determine which alternative is most cost effective. 7. A budget request is developed which details a fiscal plan for the preferred programmed indicates alternative methods for meeting the same objective, and explains why the recommended programmed is preferred. For nursing in hospital 8. Request the assistant nursing officers and supervisors to present their needs for the coming year by a specified date, and confer with those who have presented such need. 9. Review the budget appropriation and actual expenditure for the current year in conjunction with statistical data as to the numbers and distribution of patient, nursing hours, per patient by services, operations and others. 10. Ascertain whether any changes are contemplated such as opening new facilities for patients or changes in other departments, which affect the nursing services required. 11. Prepare the programme which the new budget is to cover in terms of the nursing hours to be given to the patients, the distribution of the hours among the various groups of personnel, the ratio of supervisors and head nurses to patients care and the provision for the administration of nursing unit.
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12. Determine the percentage of salaries of personnel who have both educational and nursing service function to be allocated to each function on the basis of time devoted to each. 13. Estimate the requirement for the coming year from the information supplied as the expenditure for supplies, equipments and repairs to date. 14. Prepare a summary of new needs, both personnel and material with data to support the request. The budget report submitted to thaw head of the nursing department after carefully reviewed by her/his associates.

ZERO BASED BUDGETING:

A zero based budget is one where your total income minus your total expenses equals zero. Zero based budgeting is an approach to budgeting that starts from the premise that no costs or activities should be factored into the plans for the coming budget period, just because they figured in the costs activities for the current or previous periods. Zero budgeting is a method of budgeting in which all expences must be justified for each new period. A zero budgeting starts from a zero base and every function within an organization is analyzed for its needs and costs. Budget are then built around what is needed for the upcoming period, regardless of whether the budget is higher or lower than the previous one.

Definitions
ZBB is formally defined as operating planning and budgeting process which requires each managers to justify his entire budget request in detail and shifts the burden of proof to each manager to justify why he should spend any money. This procedures requires that all activities and operations be identified in decision packages which will be evaluated and ranked in order of importance by systematic analysis. Budgeting method for a corporation or government in which all expenditures must be justified each year, not just amounts in excess of the previous year.

Steps involved in implementing ZBB

1. Identification of decision units (DU): The decision units will be based on the level of responsibility. Normally DUs are identified as different departments. However the basic criteria should be that it is capable of carrying out different programmes or activities to achieve one objective. Thus those are responsibility based subject centers which are identified as units or submits of an organization and which are under the change of different senior officers. They have certain responsibility for producing goods or services, or for carrying out certain activities spending the funds of the organization to achieve the goals or targets laid for them. 2. Preparation of decision packages: The decision package is the building block of the ZBB concept. A number of decision packages make up one decision unit. These are the activities or programmes on which the manager in charge can take decision to carry out or drop. These DPs are nindependent activities , each capable of being measured in terms of costs incurred, targets completed and objectives achieved. The DPs will contain the following information; General and reference information Goals of DU Description of the programme and activity Specific measure of performance or targets Benefits expected from the performance Consequences of not approving the package. Projected or expected costs. Activity-costs and benefits for all alternatives studies including the recommended one. 3. Evaluation and ranking packages in the order of importance of decision packages:

Evaluation of packages is carried out on the basis of benefits and costs. The measure of importance is benefit cost ration (BCR). The alternative in each program or activity which provide the best BCR is taken at the first instance. Further the BCR should be more than the minimum level. The value should be one more.
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4. Allocation of resources to each unit: Allocation of resources to each unit based upon ranking. Thus, emphasis is placed upon resource allocation according to the contributions of each unit. ADVANTAGES OF ZERO-BASED BUDGETING 1. 2. 3. 4. 5. 6. Efficient allocation of resources, as it is based on needs and benefits. Drives managers to find cost effective ways to improve operations. Detects inflated budgets. Municipal planning departments are exempt from this budgeting practice. Useful for service departments where the output is difficult to identify. Increases staff motivation by providing greater initiative and responsibility in decision making. 7. Increases communication and co-ordination within the organization 8. Identifies and eliminates wasteful and obsolete operations. 9. Identifies opportunities for outsourcing. 10. Forces cost centres to identify their mission and their relationship to overall goals. DISADVANGES OF ZERO-BASED BUDGETING 1. Difficult to define decision units and decision packages, as it is time consuming and exhaustive. 2. Forced to justify every detail related to expenditure . 3. Necessary to train managers. Zero-based budgeting must be clearly understood by managers at various levels to be successfully implemented. Difficult to administer and communicate the budgeting because more managers are involved in this process. 4. In a large organization, the volume of forms may be so large that no one person could read it all. Compressing the information down to a usable size might remove critically important details. 5. Honesty of the managers must be reliable and uniform. Any manager that exaggerates skews the results.

CAPITAL AND REVENUE:

Capital expenditure budget is prepared for assuring planned timely capital investment in the business to ensure the availability of capital at the right time over longer period. Revenue and expense budget is expressed in financial terms and takes the nature of a Performa income statement for the future. It may be prepared in a detailed form or in and abstract statement.

Meaning
Capital budgeting
Capital budgeting of determining which potential long term projects is worth undertaking, by comparing their expected discounted cash flows with their internal rates of return. Capital budgeting is the process of evaluating and selecting long-term investments that are consistent with the goal of shareholders (owners) wealth maximization.

Capital expenditure
It is an outlay of funds that is expected to produce benefits over a period of time exceeding one year.

IMPORTANCE OF CAPITAL BUDGETING

1. Capital budgeting decisions are of paramount importance in financial decision making. In the first place, such decisions affect the profitability of a firm. They also have a bearing on the competitive position of the enterprise mainly because of the fact that they relate to fixed assets. The fixed assets represent in a false, the true earning assets of the firm. They enable the firm to generate finished goods that can ultimately be sold for profit. The current assets are not generally earning assets. Rather they provide a buffer that allows the firms to make sales and extend credit. True, current assets are important to operations, but without fixed assets to generate finished products that can be converted into current assets, the firm would not be able to operate. 2. A capital expenditure decision has its effect over a long time of span and inevitably affect the companys future cost structure.

3. Capital investment decisions, one made, are not easily revisable without much financial loss to the firm because there may be no market for second hand plant and equipment and their conversion to other uses may not be financially viable. 4. Capital investment involves costs and the majority of the firms have scares capital resources. This underlines the need for thoughtful, wise and correct investment decisions, as an would not only result in losses but also prevent the firm from earning profits from other investments which could not be undertaken for want of funds.

Difficulties
The benefits from investments are received in some future period. The future is uncertain. Therefore an element of risk is involved. For instance, a decision to acquire an asset that is going to last for 15 years requires a 15 year forecast. A failure to forecast correctly will lead to serious errors which can be corrected only at a considerable expense. Costs incurred and benefits received from the capital budgeting decisions occur in different time periods. They are not logically comparable because of the time value of money. It is not often possible to calculate in strict quantitative terms all the benefits or the costs relating to a particular investment decision.

Capital budgeting process

It refers to the total process of generating, evaluating, selecting and follow-up on capital expenditure alternatives. Capital budgeting is a complex process which may be divided into following phases. Identification of potential investment opportunities Assembling of proposals investment Decision making Preparation of capital budget and appropriations Implementation Performance review

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Identification of potential investment opportunities

The capital budgeting process begins with the identification of potential investment opportunities. Usually the planning body (it can be an individual or a committee, formal or informal) develops estimates of future sales which serve as the basis of setting production targets. This information in turn helps one to identify required investments in plant and equipment.

Assembling of proposals investment

Investment proposals identified by the production department and other departments are usually submitted on a standardized capital investment proposal form. Generally, most of the proposals are routed through several persons before they reach the capital budgeting committee or some other body which assembles them. The purpose of this is primarly to ensure that the proposal is viewed from different angles. It also helps in creating a climate for the coordination of interrelated activities. Investment proposals are usually classified into various categories for facilitating decision making, budgeting and control. An illustrative classification is given below; Replacement investments Expansion investments New product investments Obligatory and welfare investments

Decision making
A system of rupee gateways usually characterizes the capital investment decision making in practice. Under this system, executives are vested with the power to okey investment proposals up to certain limits. For example in one company, the plant superintendent can okay investment outlays up to rupees 100,000, the works manager up to rupeess. 2,000,000. Investments requiring higher outlays need the approval of the board of directors.

Preparation of capital budget and appropriations

Projects involving smaller outlays and those that can be decided by executives at lower levels are often covered by a blanket appropriation for expeditious action. Projects which need larger outlays are included in the capital budget after necessary approvals. Before undertaking such projects, an appropriation order is usually required. The purpose of this check is mainly to ensure that the funds position of the firm is satisfactory at the time of
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implementation of the project. Further, it provides an opportunity to review the project before implementation.

Implementation
Translating an investment proposal into a concrete project is a complex, risky, and time consuming task, delays in implementation which are common, may lead to substantial cost overruns. For expeditious implementation at reasonable cost, the following will helpful: Adequate formulation of projects: the major reason for delay is inadequate formulation of projects. In other words, if necessary homework in terms of preliminary studies and comprehensive, detailed formulation of the project has not been done, many surprise and shocks are likely to spring on the way. Hence the need for adequate formulation of the project cannot be over emphasized. Use of the principle of responsibility accounting: assigning specific responsibilities to project managers for completing the project within the defined time frame and cost limits is helpful for expeditious execution and cost control. Use of network techniques: for project planning and control, several network techniques such as PERT( program evaluation review technique) and CPM ( Critical Path Method) are available. With the help of these techniques, monitoring of a project becomes easier.

Performance review
Performance review or post completion audit, is a feedback device. It is a means of comparing actual performance with projected performance. It is concluded most appropriately when the operations of a project has stabilized and is useful in several ways: It throws light on how realistic were the assumptions underlying the project It provides a documented log of experience that is highly valuable for decision making. It helps in uncovering judgemental biases. It includes a much needed caution amongst project sponsors.

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MID TERM APPRAISAL:

Mid term appraisal takes mid-course stock of the economy with particular references to the projected macro-economic aggregates. The MTA lower the growth projections for the plan identify less than adequate investment as the main bottleneck. The MTA makes an assessment of the public finances and highlights the total investment for the plan initially estimated. Financial institutions appraise a project from marketing, technical, financial economic and managerial angles. The principle issues considered and the criteria employed in such appraisal are : Market appraisal: the importance of the potencial market and the need to develop a suitable marketing strategy cannot be over emphasized. Hence efforts are made to ; Examine the reasonableness of the demand projections by utilizing the findings of available surveys, industry association projections, planning commission projections, and dependent market surveys (which may sometimes be commissioned). Assess the adequacy of the marketing infrastructure in terms of promotional effort, distributuoin network, transport facilities, stock levels etc. Judge the knowledge, experience, and competence of the key marketing personnel. Technical appraisal: the technical review done by financial institutions focusing mainly on the following aspects: Product mix Capacity Process of manufacture Engineering know- how and technical collaboration Raw materials and consumables Location and site Building Plant and equipments Manpower requirements Break- even points.

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The technical review is done by qualified and experienced personnel available in the institutions and/ outside expets. Financial appraisal: the financial appraisal seeks to assess the following: Reasonableness of the estimate of capital cost: while assessing the capital cost estimates, efforts are made to ensure that; a) Padding or under- estimation of costs is avoided b) Specification of machinery is proper. c) Proper quotations are obtained from potential suppliers d) Inflation factors are considered Reasonableness of the estimate of working results; the estimate of working result is sought to be based on a) A realistic market demand forecast b) Price computations for inputs and outputs that are based on current quotations and inflationary factors c) An approximate time schedule for capacity utilization. d) Cost projections that distinguish between fixed and variable costs. Adequacy of rate of return; the general norms for financial desirability are as follows; Internal rate return :15% Return on investment : 20- 25 % after tax Dept- service coverage ratio :1.5- 2.0 In applying these norms, however a certain degree of flexibility is shown on the basis of the nature of the project, the risks inherent in the project, and the status of the promoter. Appropriateness of the financing pattern: the institutions consider the following in assessing the financial pattern: A general dept- equity ratio norm of 1:1 A requirement that promoters should contribute a certain percentage of the project cost Stock exchange listing requirements. The means of the promoter and his capacity to contribute a reasonable share of the project finance. Economic appraisal: the economic appraisal looks at the projects from the larger social point of view. The methodology adopted by financial institutions for the purpose of economic evaluation is labeled as partial little mirrles approach. In addiction to the calculation of the economic rate of return as per this approach,
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they also look at two other economic indicators; (1). Effective rate of protection, (2). Domestic resource cost. Managerial appraisal; inorder to judge the managerial capability of the promoters, the following questions are raised: How resourceful are the promoters? How sound is the understanding of the project by the promoters? How committed are the promoters? Resourcefulness : this is judged in terms of prior experience of the promoters. The progress achieved in organizing various aspects of the project, the skill with which the project is presented, and the ability to raise committed capital and unforeseen shortfall in financing. Understanding; this is assessed in terms of the credibility of the project plan and the detailes furnished to the financial institutions. Commitment; this is gauged by the resources applied to the project and the zeal with which the objectives of the project, short term as well as long- term, are pursued. Managerial review also involves an assessment of the calibre of the key technical and managerial personnel working on the project, the schedule for training them, and the remuneration structure for rewarding and motivating them.

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Budget estimate
Definition- Budget estimate
Approximation of the cost of an activity, job, program or project, prepared for budgeting and planning purposes only. Not accurate enough to provide a basis for a firm commitment, it represents only the budget maker's understanding of the scope and expense of what needs to be done.

Estimation Techniques in Project Management

Project managers can use many estimation techniques to stay within the budget. According to CIO magazine, an estimation or cost is one of the three main constraints in the project management triangle. The other two parts are time and scope. The best estimations will keep the project management triangle balanced. Set Accuracy Levels
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Before stating a budget, determine how accurate the estimate must be. A rough order of magnitude estimate depends on past project estimates. It requires more research than simply stating a ballpark estimate off the top of your head. A detailed estimate requires using actual information about the project, such as the number of laborers, to come up with the budget. This estimation technique requires more work than a rough order of magnitude estimate but is much more accurate.

Bottom-up Estimate
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This estimating technique requires finding the cost of lower level tasks and then adding up all the costs for a total project budget. This is one of the most accurate ways to estimate a budget because it is easier to figure out costs for small tasks than for large ones. For example, you can estimate the cost of each item on a grocery list to get an estimate of the entire list's total. Typical costs in projects include hourly labor rate, equipment cost and cost of materials.

Top-down Estimate
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Top-down estimates are when you decide on a total maximum budget then figure out how much of the budget will go towards each task. This
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technique is often used when a client seeks bids from many vendors. Vendors submit a total budget and, if chosen for a project, provide more details on how the money will be used. Phased Estimate
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Estimating the phases of a project is a compromise between top-down and bottom-up estimating. Estimating a phase is more detailed than coming up with a total maximum budget but less detailed than breaking down each task's cost. When each phase is completed and the budget is used, each successive phase budget becomes more accurate because project managers use past phase information for the new budget.

Parametric Estimate
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These estimates are based on assigning a dollar amount to a basic unit of work. This is an accurate estimation method because you use past information from similar projects to create a new rate and basic unit of work. For example, a book editor can look at past projects and charge for editing based on dollars per hour or page as the basic work unit.

Cash Flow Schedule

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The cash flow schedule helps project managers see when money is used or available during the project. This ensures that each phase or time period has enough money to complete the work. You can use project management software, such as Microsoft Project, to track cash flow on the project timeline. Carefully plan the cash flow schedule so that money is spent wisely.

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Performance-based budgeting
Introduction
Today, when the management of money is more important than ever for public and private entities, budgeting plays an enormous role in controlling operations efficiently and effectively. Budgeting in itself is a familiar process to even the smallest economic unit the household - but it needs to be divided into two different classes: budgeting for public entities and private entities. Performance-based budgeting (PBB) Performance budgets use statements of missions, goals and objectives to explain why the money is being spent. It is a way to allocate resources to achieve specific objectives based on program goals and measured results. The key to understanding performancebased budgeting lies beneath the word result. In this method, the entire planning and budgeting framework is result oriented. There are objectives and activities to achieve these objectives and these form the foundation of the overall evaluation. According to the more comprehensive definition of Segal and Summers performance budgeting comprises three elements:

the result (final outcome) the strategy (different ways to achieve the final outcome) activity/outputs (what is actually done to achieve the final outcome)

Segal and Summers point out that within this framework, a connection exists between the rationales for specific activities and the end results and the result is not excluded, while individual activities or outputs are. With this information, it is possible to understand which activities are cost-effective in terms of achieving the desired result. As can be seen from some of the definitions used here, Performance-Based Budgeting is a way to allocate resources for achieving certain objectives CONCLUSION Budgeting is an arm of management, since the budget makers hold in their hand the power to extract a justification for the money that is being asked for and a subsequent power to control the actions of those who piecemeal come to draw from the funds. The close examination of results in nursing service comparison with money expended, especially over the years, may offer some employable guides to cost of performance.

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References:
1. BT Basavanthappa, Nursing Administration,First Edition, Jaypee

Publications,New Delhi,2000, 2. Hersly P, Blanchard K H. Management of organizational behaviour utilizing human resources. 7th edition. New Delhi: Prentice Hall of India; 1998. 3. Marquis BL, Huston CJ. Leadership roles and management functions in nursing. 6th edition. New Delhi: Lippincott Williams & Wilkims; 2008. 4. Wise y, Patricia S. Leadership and managing in nursing. 1st edition. St. Louis: Mosby; 1995. 5. www. Google.com 6. http://www.investropedia.com/terms/z/zbb.asp.

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