Start your day

with hope,
but end it with
accomplishment.

BUDGETING FOR
NURSING SERVICE

Healthcare
organizations
are
increasingly
focused
on
costcontainment and efficacious use of
financial resources. Todays nursing
leaders require budgeting knowledge
in order to efficiently manage
operations in the patient care
environment and meet financial targets.

Budgets
A budget is a detailed financial plan,
used to carry out organizational goals. The
budget includes proposed earnings and
expenditures as well as details about how
resources( money, time, and people) will be
acquired and used. The purpose of the budget
is to project future plans and costs.

Operating budget-deals primarily with salaries,

supplies, and contractual services It is the financial
plan for the day to day activities of the organization
containing a statement of expected revenues and
expenses for the fiscal year.
Revenue Budget- includes expected income based
on volume and mix of patients, rates, and discounts.
Expense Budget- includes salary and non-salary
items that reflect patient care objectives and
planned activities for the nursing unit.

Cost and Profit

Cost Center-the smallest area for which
costs are accumulated. They may produce
revenue, such as laboratory and radiology
or not produce revenue, such as nursing.
Profit Center- a unit where performance is
measured in terms of profit the difference
between revenues and expenses

Classification of Costs
Fixed Costs-expenses that remain the same
such as rent or insurance premiums.
Variable costs-expenses that change with
changes in volume and acuity.
Mixed Costs-may vary with volume but not
directly.
Direct Costs-affect patient care.

Salary (Personnel) Budget

The personnel budget projects the salary
costs that will be paid and charged to the
cost center. It accounts for replacement of
staff
for benefit time, overtime, shift
differentials, orientation, on-call hours,
bonuses and premiums, and salary
increases.

Variance Analysis
The difference between the amount that was budgeted for a specific
revenue or cost and the actual revenue or cost that resulted during
the course of activities is known as the variance.
There is an established level at which a variance needs to be
investigated.
A variance may be favorable or unfavorable and may be related to
patient volume, efficiency in relation to nursing care hours provided,
rates in hourly rates paid, or in non-salary expenditures
Position Control- a tool to monitor actual numbers of employees to
the number of FTEs budgeted.

Why you need budgeting skills

oAbsolutely essential management skill
oFinancial viability
oQuality patient care
oUnit operational efficiency
oStaff satisfaction
oLeadership expectation
oMost nurse managers do not come into
the job with these skills

Department

Patient Nurse ratio

ICU/CCU/NNN,
Burnt

General Wards

Isolation ward

Paediatric
Emergency

and

O.P.D (each)
Dressing
(each)
OT

1
Room

1
3

Capital Budgeting
Process

Identify immediate needs

New services
New technology
Broken equipment

Identify Long-term needs

New services
New patient populations
New technology
Improved technology
Equipment replacement plan
Elimination of rentals

Give what they want

Get input
MDs (Intensivists, surgeons,
cardiologist,specialists)
RN Staff
Respiratory Therapy
Ancillary staff

Vendors
Develop (compliant) vendor relationships
throughout the year
Be aware of contracted vendors
Become knowledgeable about products
Ask for demos
Ask for references (and check them)
Evaluate the literature provided to you
Drive a hard bargain
Dont forget trade-in value
Consider contract for training costs

Hidden Sources
Investigate sources of funding
Technology committees
Specialty funds
Workplace safety funds
Patient safety funds
Equipment used in Clinical Trials
Vendor trials
Contingency Funds

Make a convincing case

How does this equipment improve
quality of patient care?
Is it a regulatory compliance issue?
Will it improve patient safety?
Will it improve staff safety?
Will it save you money in the long
run?

Final Advice
Be mindful of deadlines
Allow enough time for each step of the
process
Vendor response time
Paperwork
Local/regional/corporate approvals
Fiscal year

Budget Variance
in the
Operating Budget
WHY ARE
YOU
OVER
BUDGET?

Budget Variance
Payroll budget
Non-payroll budget

Non-payroll Operating Budget

Supply Costs

Equipment Costs

Operational Costs

Non-payroll costs
Unit upkeep / construction
Operational Costs
Education
Conference fees
References materials
Employee recognition

Non-payroll (cont.)
Transportation
Traveler housing
One-time expenses
Lost patient belongings

Supply Costs
Ask yourself,
Is there a change in the supply
OR
a change in the patients?

Change in supply cost

New product
Change in cost of product
Change in vendor
Change in contract price
Substitute product
Stocking Issues

Change in Patient
Change in volume
Change in patient population
Individual patient need

Equipment Cost
Purchases
Rentals
Maintenance
Vendor change
Contract Change
Consider capitated costs for rentals

Payroll Budget

Simply put
What you pay the people who
take care of the patients

Payroll Budgeting Tips

Budget to full-time equivalents (FTEs)
and dollars
Account for inflation and salary
increases
Factor in contractual obligations
Estimate non-productive time
Account for anticipated changes in
patient volume and acuity

Payroll budget
Volume
Acuity
Overtime Pay
Penalty Pay
Registry and Traveler Pay
Payroll Variance
Volume
HPPD
CPPD

Volume
January Patient Days
Budgeted = 310 Actual = 434 Variance =
124
To calculate volume variance:
Variance days/budgeted days
124/310 = .4
Conclusion:
You are 40% over your budgeted volume!

Summary of Variance
Examine Payroll and Non-payroll costs

Look at both in relation to volume

Non-payroll
Supply cost
Equipment costs
Other operating costs Payroll
Payroll
OT and Registry Usage
Training Costs
Concisely explain why

Developing a Staffing Matrix

Required information
Predicted/budgeted average daily
census (ADC)
Historical trends
Population changes/changes in case
mix
Changes in service/specialty offerings

Hours Per Patient Day

HPPD = number of hours worked in the 24
hour period divided by the
midnight census
Example
NOC shift staffed with 4 RNs
DAY shift staffed with 5 RNs and a NA
PM shift staffed with 5 RNs and a NA
Midnight census = 8
HPPD = (16 employees x 8 hours) / census
of 8 = 128/8=16

Cost Per Patient Day

CPPD =
[(Total RNs * 8 hours) * hourly salary +
(Total LVNs * 8 hours) * hourly salary +
(Total NAs * 8 hours) * hourly salary)]
/divided by midnight census

Developing a Position Control

Document
Required information
Budgeted Average Daily Census (ADC)
Required full-time equivalents (FTEs) in each
job category (from staffing matrix)
Current hired FTEs in each job category per
shift
Current Posted FTEs in each job category per
shift
Historical use of non-productive time

ANALYSIS
1. What can we determine from this position
control document?
2. Have we budgeted for enough staff?
3. Do we currently have enough staff?
4. What additional positions would we need to
post?

Step one: Review past

performance:

1. As a starting point, the nurse

executive will require to review the
following

a. The financial records from prior

financial periods as a basis for
planning.
b. The present activities of the
nursing division.

c. The activities that the division plans

to institute during the projected
financial period.
d. Those activities the division plans
to delete during the projected
period.

 Step two: Review the

organization's goals and
projections:
The nurse executive has to study the
organization's goals and financial
projections thoroughly. - Items in the
major budgetary report that affect
the nursing department should be
determined

 Step three: Review of the

variances with higher levels of
management :
Once the goal statement is finished,
it, (together with the actual versus
budget analysis done earlier), should
be reviewed with higher level
management

 The departmental goals proposed should

be carefully considered; as well as the
variances, their causes, and proposed
corrective actions should be reviewed.
Once the final statement for the
department is in place, the new
budgeting process can begin in earnest.

 Step four: Actual preparation of

the budget:
The actual preparation of a new
budget can be done based on a
previous budgetary plan, or newly
proposed plan (if a newly developed
or modified service).

 To complete the budget, a budget

worksheet is essential. Worksheet is
"a tool used by managers to prepare
their budget". It includes a number
of columns including information
about:

a) Historic information with old

budget.
b) Actual numbers with comments
explaining the variances.
c) Revenue and costs.

What have you learned?

Capital Budget
Identify short and long-term needs
Work effectively with vendors
Plan ahead and allow lots of time
Analysis of Operating Budget variance
Payroll
Non-payroll
Staffing Matrices
Position Control

The quickest way to get what you want is

to help others get what they want.

SHIFT TO POPULATION BASED CARE AND INCREASING

COMPLEXICITY OF PATIENT CARE

THE GREAT THING IN THIS WORLD

IS NOT SO MUCH WHERE WE STAND
BUT IN WHAT DIRECTION WE ARE
GOING