The document discusses various topics related to budgeting and financial management in healthcare organizations, including definitions of budgeting, the importance and principles of budgeting, types of budgets, essential requisites and steps in budgeting, advantages and disadvantages of budgeting, cost analysis, and auditing. Key points covered include defining a budget as a plan for spending, the importance of budgets for planning, control and accountability, and different types of budgets such as fixed ceiling, flexible, and zero-based budgets.

1. Mr. Visanth V S
Asso.Professor
Dept. of Psychiatric Nursing
IGSCON, Amethi, UP

2. BUDGETING
•Every organization has predetermined set of goals &
objectives which are attainable only with the help of
proper planning & execution of plans economically.
•Every organization prepare budget for its functioning.
•Literally the word budget means a leather bag to carry
official papers in. this word is derived from the old
English word “budgettee” which means a sack or
pouch.

3. Definitions of budget
1)A budget is a tool for planning, quantifying the plans and
controlling costs.
-Finkler, 1984
2) A budget is a plan that uses numerical data to predict the
activities of an organization over a period of time and it provides
a mechanism for planning each unit’s needs and contributions.
-Carruth and Noto, 2000

4. Importance of budget
• The budget is an essential management tool.
• The budget tells you how much money you need to carry out your
activities.
• The budget forces for rigorous in thinking through the implications of
your activity planning.
• The budget enables to monitor income & expenditure & identify any
problems.
• The budget is a basis for financial accountability and transparency.

5. Principles of budget
•Budget should provide sound financial management by
focusing on requirement of organization.
•It should focus on objectives & policies of organization.
•It should ensure the most effective use of scarce
financial and non financial resources.
•Budget requires that programme activities planed in
advance.

6. • 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.
• Budgeting should include coordinating efforts of various
department establishing a frame of reference for managerial
decisions, and providing a criterion for evaluating managerial
performance.
• Setting budget target requires utmost care to check against and
balance between too high and too low estimates.

7. •Budget period should be appropriate to the nature of
business or service and to type of budget.
•Budget is prepared and interpreted consistently
throughout the organization in the communication of
planning process
•Budget necessitates a review of the performance of the
previous year and an evaluation of its adequacy both in
quantity and quality
•While developing budget, provision must be made for
its flexibility.

8. Purposes of Budget
•Budget as a tool of financial control, it is
exercised at various stages.
•Budget is an instrument of organization as
policy, fiscal policy. It is device whereby
plans and policies are put into action.

9. • Budget is a tool of administration. When planning, co-
ordination, control, evaluation, reporting & review are
combined in a budgetary system it becomes effective tool of
administration management.
• Budget is also a tool of accountability.
• It has informative roles as it contains valuable information for
various activities.

10. • Budget is forecast of income and expenditure in constructing business
plan, attempt is made to show income & expenditure as shown below.
Business plan Income
Profitability
Business plan Express

11. Types of Budgeting
1
• Incremental budget
2
• Open ended budget
3
• Fixed ceiling budget
4
• Flexible budget

12. 5 •Roll- over budget
6 •Performance budget
7 •Programme budget
8 •Zero- based budget
9 •Sunset budget

13. 10 •Sales budget
11 •Production budget
12 •Cash budget
13 •Line- item budget

14. • Incremental budget: - It is based on estimated changes in present
operations, plus a percentage increase for inflation, all of which is added
to the previous year’s budget.
• Open ended budget: - It is a financial plan in which each operating
manager presents a single cost estimate for optimal activity level for
each programme in the unit, without indicating how the budget should
be scaled down if less funding available.
• Fixed ceiling budget: - It is a financial plan in which the upper most
spending limit is set by the top executive before unit and divisional
managers develop budget proposals for their areas of responsibility.
• Flexible budget: - It is based on the fact that operating conditions rarely
conform to expectations. Therefore a flexible budget consists of several
financial plans, each for a different level of program activity.

15. • Roll- over budget: - It is one that forecasts program revenues
and expenses for period greater than a year, to accommodate
programs that are longer than the annual budget cycle.
• Performance budget: - It is based on functions such as direct
nursing care, in-service education, quality improvement and
nursing research.
• Programme budget:- It is one where costs are computed for a
total program, such as ambulatory surgery program
• Zero- based budget:- It requires the manager to justify each
cost of every program, both old and new , in every annual
budget preparation.

16. • Sunset budget:- It is designed to “self destruct” within a prescribed
time period to ensure the cessation of spending by a predetermined date.
• Sales budget:- It is the starting point in a budgetary program, since sales
are basic activities which gives shape to all other activities.
• Production budget:- It is the budget that aims at securing the
economical manufacture of products and maximizing the utilization of
production facilities.
• Cash budget:- It is prepared by way of projecting the possible cash
receipts and payments over the budget period.
• Line- item budget:- Itemize workers, machines, supplies by groups. It
is primarily a device for controlling expenditures; it is used in planning
and decision making.

17. Essential Requisites Of Budgeting
• Fore casting : Sound forecasting may be related to making
decisions on purchases, expansion, advertising, services,
working capital needs etc.
• Accounting : Well conceived accounting system must be
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 : Budget needs budget committee in an
organization.

18. •Business Policies : clearly defined business policies
serve as basis for budget preparations.
•Statistical Information : In the form of figures re
estimates regarding the budget terms are essential for
budget.
•Top level management : Support is essential to ensure
successful installation of the budget programme.
•Period of budget : Length of the budget period should
be specified.

19. Steps In Budgeting
• Assess the goals of the institution
• Assess objectives of the present and proposed programs
• Assess all old and new programs for computation of
manpower, capital and operating expenses.
• Identify alternative methods for realizing the objectives.
Determine the price of each alternative.
• Compare alternatives to determine the most cost effective.
• Develop the budget

20. Advantages of Budgeting
• It helps plan for detailed program activities
• Budgeting compels and motivates management to make an
early and timely study of its problems.
• Budgeting provides a valuable means of controlling income
and expenditure of a business as it is a “plan for spending.”
• Budgeting provides a tool through which managerial
policies and goals are periodically evaluated.
• Budgeting helps in directing capital and other resources
into the most profitable channels.

21. • The use of budgeting in an organisation develops an attitude of
“cost consciousness”, stimulates the effective use of resources,
and creates an environment of profit-mindedness throughout the
organisation.
• Budgeting encourages productive competition, provides incentive
to perform efficiently and gives a sense of purpose to each
individual in the organisation.
• Budgeting provides a systematic and disciplined approach to the
solution of problems in the organisation.
• Budgeting, if executed in nearly every enterprise, helps the total
national economy by providing stability of employment,
economic use of resources and effective prevention of waste.

22. Disadvantages of Budgeting
• A budget may become an end in itself instead of the means to
achieve an end.
• It may gain autocratic control of the organization.
• Over-budgeting is a big danger
• Forecasting is required but is uncertain
• Skill and experience are essential for successful budgetary
control
• Budgetary planning is expensive and time consuming

23. CostAnalysis
•“Cost benefit analysis is a procedure by which all cost
resulting from installing and operating a system are
determined and converted to a financial unit [rupees],
all resulting benefits of system are determined and
converted to a financial unit [rupees] amount and
ratio is calculated to reflect the relationship of cost to
benefits.”

24. • Cost benefit analysis [CBA] is measurement of the
relative costs and benefits associated with a particular
project or task.
• Cost benefit analysis [CBA] is tool with great
potential for the decision makers so long as he or she
recognizes the difficulty in determine the true costs
and benefits of various alternatives.
•This tool can especially useful when trying deciding
between alternative expenditure of money.”

25. Auditing
•Audit has been defined as an independent appraisal
activity within an organization and for the review of
accounting, financial and other operations as a basis
of service to the management.
•“A systematic examination of financial statements,
records and related operations to determine adherence
to generally accepted accounting principles,
management policies or stated requirements”.

26. Functions of Audit
• It reviews and appraises the soundness, adequacy and
application of accounting, financial and operating cost.
• It assesses the extent of compliances with established
policies, plans and procedures of the organization.
• It assesses the extent to which the organization assets are
accounted for and to safeguard the same from losses of all
kinds.
• It assesses the quality of performance in carrying out assigned
responsibilities

27. Types ofAudit
•There are basically two types of audit:
1) Internal Audit 2) External Audit
•Internal Audit: is conducted by the organization,
within the organization from amongst the staff as a
part of their control activity.
•External Audit: is conducted by people employed on
deputation from outside the organization

28. Steps of Auditing Procedure
• 1) A committee is formed for auditing
• 2) The committee should thoroughly familiarize himself with
the related accounting system, procedures
• 3) The committee designs the appropriate form for collection
of the data and prepares audit schedule.
• 4) This data is compared with an existing standard and a
summary note is made with the suggestions and
recommendations.
• 5) Auditing is a continuous procedure.

29. • 6) Audit report is submitted to the administrator. , information
manuals, organizational chart, accounting documents etc.
• 7) The administrator considers each comment carefully and
communicate it to the related department or personnel.
• 8) The concerned person reports back to the administrator
informing him about the adoption of recommendation or
reasons for not adopting the same.
• 9) After the administrator is satisfied with the result, he reports
it back to the internal auditors.
• 10) These then become the basis of follow up at the time of
next audit.