Budgeting

Kuldeep Vyas M.Sc. N. CHN Page 1

BUDGETTING
INTRODUCTION:-
Budget is the heart of administrative management. It served as a
powerful tool of co-ordination and negatively an effective device of eliminating
duplicating and wastage. Budgeting, though primarily recognized as a device for
controlling, becomes a major part of the planning process in any organization.
Budget is a formal expression of policies, plans, objectives and goals laid down in
advance by top level authorities of the organization as a whole in a given period of
time. It involves forecast and future performance and also it contributes to control by
anticipating cash needs, planning, necessary financing and establishing the standards
for measuring the current performance. Lastly budgeting presents an opportunity for
evaluation programmes and policies thereby identifying obsolete or unnecessary
activities and giving a call for their discontinuance. It is this sense pre- audit.
MEANING:-
Literally the word ‗budget means a leather bag or sachet to carry
official paper in. From that association, it came to mean those papers themselves, more
particularly the paper containing the financial proposals for the year.
The word ―budget‖ derived from the old English word ―budgettee‖ means a sack or
pouch which the chancellor of the exchequer used to take out his papers for laying
before the parliament, the Government, the financial scheme for the ensuring year.
Now the term budget refers to the financial papers not the sack.
ABOUT BUDGET:-
 Budget is a concrete precise picture of the total operation of an
enterprise in monetary terms. HM Donovan
 Budget is an operational plan, for a definite period usually a year.
 Budget disciplines and streamlines administration & goes hand
in hand with programme planning.
 Budget is a formal expression of polices, plan, objectives and
goals laid down in advance by top level authorities of the
organization as a whole in a given period of time.

BUDGET----A TOOL FOR EFFECTIVE ADMINISTRATION:-
When budget becomes really an effective toolof administrative management, the
executive must have adequate power. The following principles should be followed-
 Executive programme: Budget should go hand in hand with programming
under the direct supervision of chief executive.
 Executive responsibility: the chief executive must observe the economy in
the execution of the programme.
 Reporting: Budgetary process like preparation of estimates, legislative action
and the budget execution must be based on full financial & operating reports
coming from all levels of administration.
 Multiple procedures: The method of budgeting may vary according to the
nature of operation.
 Flexibility in timing: should have provisions to accommodate necessary
changes in the light of changing economic situation.
 Two-way budget organization: Traffic between central offices & the agency
offices responsible for budgeting and programming should move in two-way
rather than one way street.
BUDGET------A TOOL FOR LEGISLATIVE CONTROL
The budget is the most important tool of legislature control over the
public purse. Legislative control signified that no tax can be collected without its prior
authorization and no expenditure incurred without its prior approval. Harold A Smith
explains the principles of legislative as follows:-

 Publicity: The main stages of the budget process, which includes executive
recommendation legislative consideration and action & budget execution,
should be made public.
 Clarity: The budget should be understandable to every citizen.
 Budget unity: All receipts should be recovered into one general fund for
financing all expenditure.
 Detailed speciation: Receipts & appropriation should be specific for to
transfer the items
 Prior authorization: Budget execution should stay strictly within the
legislative authorization & should be checked by an auditing agency reporting
to the legislature.
 Accuracy: It should be accurate as possible, & there should be no padding of
expenditure estimates or providing for hidden reserves by underestimating
revenue.
PURPOSE OF BUDGETING:-
 Budget supplies the mechanism for translating fiscal objective into
projected monthly spending pattern.
 Budget enhances fiscal planning & decision making.
 Budget clearly recognizes controllable and uncontrollable costareas.
 Budget offers a useful format for communicating fiscal objectives.
 Budget allows feedback of utilization ofbudget.
 Budget helps to identify problem areas and facilities effective solution.
 Budget provides means for measuring & recording financial success
with 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+ co-operation of executives/department
heads at different levels of management.
 It should be in the form of statistical standard laid down in specific numerical
terms.
 It should have support of top management throughout the period of its planning
supplementation.
IMPORTANCE OF BUDGET:-
Budget is a Numerical description of expected income & planned
expenditure for an organization for a specified period of time. It is a concrete, precise,
picture of the total operation of an enterprise/organization/institution in monetary term,
i.e. finance.
The following point serves the importance of budget:-
 Budget is needed for planning for future courseof action 7 to have a control over
all activities in the organization.
 Budget facilities coordinating operation of various department & sections for
realizing organizational objectives.
 Budget serves as a guide for action in the organization.
 Budget helps one to weigh the values & to make decision when necessary on
whether one is of a greater value in the programme than the other.
PRINCIPLES OF BUDGET:-
Budget is an operational plan for a definite period, usually a year,
expressed in financial terms 7 based on expected income & expenditure.
1. Budget should provide sound financial management by focusing on
requirements of the organization.
2. Budget should focus on objectives & policies of the organization. It must flow
from objectives & give realistic expression to the way of realizing such
objectives.
3. Budget should ensure the most effective use of scarce financial and non-
financial resources.
4. Budget requires that programme activities planned in advance.

5. Budgetary process requires consistent delegation for which fixed duties &
responsibilities are required to be allocated to managers at different level for
framing & executing budget.
6. Budget should include coordinating efforts of various departments establishing
a frame of reference for managerial decisions, & providing a criterion for
evaluating managerial performance.
7. Setting budget targets requires an adequate checks & balance against the
adoption of too high or too low estimates.
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 and
financial officer.
10. Budgets are 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 bothin quality and quantity.
12. While developing a budget, the provision should be made for its flexibility.
WHO SHOULD BE INVOLVED IN BUDGETTING?
Budgeting is a difficult and responsible job. Your organization’s ability to do what it
has planned to do and to survive financially depends on the budgeting process.
Whoever does the budgeting must:
 Understand the values, strategy and plans of the organization or project;
 Understand what it means to be costeffective and costefficient
 Understand what is involved in generating and raising funds.
To ensure you have all these understandings, it is usually a good idea to have a small
budgeting team. This may only mean that one person does a draft budget which is then
discussed and commented on by the team.
Where staff is competent to take full responsibility for the financial side of the
organization or project, the following would normally be involved in the budgeting
process:
 The Finance Manager and/or Bookkeeper;

 The Project Manager and/or Director of the organization or department.
Where staff lacks confidence to do the budgeting, then Board members can be brought
in.
Some Boards have a Finance Committee or a Budget Sub-Committee. It is a good idea
to have someone on your Board with financial skills. S/he can then help the staff with
budgeting.
The budget is the business of everyone in the organization. At the very least, senior
staff should understand the budget, how it has been drawn up, why it is important, and
how to monitor it.
Where an organization has branches and/or regions, or several departments, then each
branch, region or department should draw up the budget for its own work. These
budgets then need to be consolidated (put together) in an overall budget for the
organization. Each branch, region or department should be able to see how its budget
fits into the overall budget, and should be able to monitor its budget on a monthly
basis. Financial monitoring works best when those closest to the spending take
responsibility for the budget.
CLASSIFICATION OF BUDGET:-
Budget consistmainly three sections:-
 Manpower budget: - includes wages and other benefits provided for regular and
temporary workers.
 Capital expenditures: - includes purchase of land, buildings and major equipment
of considerable expenses and long life.
 The operating budget: - includes the costof supplies, minor equipment, repair and
overhead expenses.
Budgets can be classified according to Time, Function, and Flexibility.
ACCORDING TO TIME:
1. Long Term Budget
2. Short Term Budget
3. Current Budget
4. Rolling budget

ACCORDING TO FUNCTION:
1. Sales Budget
2. ProductionBudget
3. Costof ProductionBudget
4. Purchase Budget
5. Personnel budget
6. Capital Expenditure Budget
7. Cash Budget
8. Master Budget
ACCORDING TO FLEXIBILITY:
1. Fixed Budget
2. Flexible Budget
BUDGETTING PROCESS:-
Every head of the office is required to prepare budget estimates
in respect of salaries of establishment, contingent expenditure and various other
expenses, rent of building etc. In hospital requirements in respect of medicines, diet
equipment, hospital contingencies, surgical dressing, clothing, linen etc. are also
needed to be worked out.
For budget preparation will include:-
 Forecasting: - Related to making decisions on purchase, expansion,
advertising, services, working capital needs etc.
 Accounting: - Needed to compare the budget information with actual
accomplishment.
 Lines of authority: - Budget preparation, operation and supervision
 Need/require clearly defined lines of authority.
 Budget committee:- Needs an organization—
 To receive and approve all forecast, departmental budgets, periodic
report showing comparison of actual and budgeted income and
expenditure.
 To request for special studies of deviations from the budget and
consider revision of budget to meet changed conditions.

 Business policies: - clearly defined business policies serve as basis for budget
preparation.
 Statistical information: - In the form of figures, i.e. estimates regarding the
budget terms are essentials for budget.
 Top level management: - support is essential to ensure successfulinstillation of
the budget programme.
 Period of budget; - Length of budget period (usually a year) should be
specified.
STEPS IN BUDGETING; -
 Review the goals of the agency or hospital because these are most likely
to receive funding.
 Review the objectives of the existing programme and written for proposal
programme to ensure that achievement of these objectives.
 Existing programme are revised and proposal programme designed to
maximum goal achievement.
 Manpower, capital and operating expenses are computed for each
programme old and new.
 Alternative methods are identified for realizing designated objectives and
price of each alternative is determined.
 Comparisons are made to determine which alternative is most cost-
effective.
 Budget requests is developed for the preferred programme indicates
alternative method for meeting the same objective, and explain why the
recommended programme is preferred.
 Officers and supervisors to present their need for the coming year by a
specified date.
 Review the budget appropriation and actual expenditure for the current
year.
 Prepare the programme with new budget.
 Determine the percentage of salaries of personnel.
 Estimate the requirements for coming year from the information supplied
as the expenditure for supplies, equipment and repairs to date.
 Prepare a summary of new needs, both personnel and material with data to
supportthe request

BUDGET PLAN:-
It is for the top, management to define the planning premises and
Provide procedural details. In the committee after discussion, the members have the
opportunity to plan amongst themselves. A best possible plan combining the talents of
the entire group thus emerges; the approach enhances communication, coordination
and harmony of various operational plans and efforts.
BUDGET CONTENT: -
The budget consists of a master budget supported by various
functional and supporting budgets. The master budget consists of:-
 Revenue & Expenditure budget.
 Balance sheet budget.
 Funds flow budget.
The master budget is supported by functional/departmental
budgets. Some of the important functional budgets are: Purchase, personel,
engineering and research. The functional budgets are in two parts. Part one deal
with the departmental costs. Items over which the departmental head has full
control-such as material used, departmental manpower, maintenance expenditure
etc. these are not specifically identified with the department such as salaries of
hospital administration, general maintenance etc. Part two deal with their
performance expressed in terms of numbers to the extent possible.
The initial draft budget contain proposal for additional manpower,
equipment, space and any other resources or changes in rate structure or operating
system. Then these are discussed with the top management, who after deliberating
and considering all aspects either accept, reject or suggest changes to the draft
budget. Once the budget is accepted, the departmental manager is committed to
achieve the targets set.

BUDGET PERIOD:-
The budget period indicates the time span covered by a budget.
It is generally one year, coinciding with the financial year, such as in construction
or film industry, each job could have a separate budget to coincide with the time
required to complete the assignment. These are consolidated in annual budget.
Others are supplemented by long range plan, which covers 3 to 5 years period.
PROBLEMS, DISADVANTAGES, LIMITATION OR BUDGETARY
CONTROL:-
 Inaccuracy---- Budget figures are expressed in monetary terms.
 Personal bias ----Imperfection in human judgments.
 Non-availability of cooperation ----inefficient employee.
 Rigidity
 Results are not attainable.
 Consistency ----The budgets are not prepared a fresh every year.
 Time consuming process.
 Ineffective budgetary control.
 Discourage the initiatives.
 More paperwork.
SOME BUDGETING ISSUES:-
1. Budgeting price increases:- Budgets are prepared in advance. There are likely
to be price increases between the time of preparation and the time when the
amount is spent or received. Take this into account when you do your budgeting
by estimating what the costs or value will be when the expenditure is made or
the income received.
If there is likely to be an increase in costs then make sure that you also estimate
for an increase in what you charge in fees for services or in sales of products.
You need to keep your calculations for your budget because some donors may
be willing to provide a supplementary grant if you can show clearly that you
calculations were based on a smaller rate of inflation than actually proved to be
the case.
2. The level of detail needed:- On the one hand, the less detail you give, the more
flexible you are. On the other hand, leaving the budget too open makes it less
useful as a management tool. This does not mean that every single thought and
detail should be included in the budget line items.

One way to deal with this is to have different versions of the budget for
yourselves and for donors and potential donors. The donor version would be
more flexible and less detailed, and the management version so less.
3. Contingency amounts:- A contingency amount is an amount that you put aside
to deal with unforeseen events. While budgets should be informed guesses, there
is still an element of ―guessing‖ in them. The future is uncertain and
organizations and projects have to survive in uncertain times. Because of this,
some organizations allow for a ―contingency‖ line item in their budgets – usually
about 10% of the overall annual budget.
However, many donor agencies do not like this and refuse to fund a
―contingency‖ line item, possibly because they believe that organizations and
projects should be more accurate in their budgeting. One way to deal with this is
to build contingency amounts into the major line items in your budget, allowing
for an additional 10% over and above your calculations.
4. Budgeting income generating projects:- In overall budget for the project or
organization, include the costs in the line items reflecting expenditure, and the
income in line items reflecting income. However, for management purposes you
will want to be able to monitor in greater detail than this, in order to establish at
what stage a break-even point is reached. Bookkeeping records should be set up
in such a way as to make it easy for management to access this information.
5. Timeframes:- Organizational budgets (for the whole organization) are usually
calculated for a year at a time (based on the financial year of the organization).
This also applies to ongoing departmental budgets. Once you have an annual
budget, it is best to break it down into months, for management purposes. A
monthly breakdown facilitates monitoring (see the sections on budgeting for
monitoring and watching your cash flow).
When you present a budget that covers several years, make sure that this budget
is based on a medium-to long-term plan, and is not simply an uninformed guess.
Budgets for specific, time bound projects may be calculated for the whole life of
the project. For monitoring purposes it is probably best to break this overall
project budget into years (where the project runs over several years). You may
then also decide to break it up into months.
RESPONSIBILITY OF NURSE ADMINISTRATOR IN BUDGET:-
 Participation in planning budget.
 Consult & take assistance of his/her subordinates in determining the
needs of the unit for the ensuing year on the basis of information
received.

 Request sufficient funds to suggest a sound programme provision,
expansion of programme to attract and hold qualified staff to provide for
expansion of physical facilities.
 The administrators have to support the budget.
 She is responsible for budget & should cover the routine budget control.
ROLES:-
 Is visionary in identifying or forecasting short & long term unit needs, thus
inspiring proactive rather than reactive fiscal planning.
 Is knowledgeable aboutpolitical, social & economic factor.
 Demonstrate flexibility in fiscal goals setting in a rapidly changing system.
 Anticipates, recognize & creatively problems-solves budgetary constraints.
 Ensures that client safety is not jeopardized by costconstraints.
FUNCTIONS:-
 Identifies the importance of, & develops short & long range fiscal plan that
reflects unit needs.
 Articulates and documents unit needs effectively to higher administrative level.
 Assess the internal and external environment of the organization in forecasting.
 Demonstrate knowledge of budgeting and uses appropriate technique.
 Participate in relevant fiscal planning.
 Coordinates the monitoring aspects ofbudget control.
CONCLUSION:-
As a nurse, only one picture comes in our mind, with the patient
lying on the bed & the nurse holding injection, but now it is not like that, along with
the knowledge of disease conditions, psychological support, health education, we have
to have the knowledge of budget planning, maintenance and proper use of it.

Budgeting

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