2. Developing l{urnan
Poterrtial
The purpose of this chapter is to examine the concept of human
potential and to present methodologies for creating an organiza-
iional climate in which that human potential can develop. On
completion of this chapter, the reader will be able to:
1. Define human Potential.
2. Discuss the power of education in terms of human potential'
3. Describe three motivational factors influencing human be-
havior.
4. Differentiate between human beings and humans becoming'
5. Describe behavioral change within the context of development'
6. Differentiate between leaders and followers.
t. Match management practices with growth needs as defined
by Maslow.
)rlowhere in the world of nursing is it more possible to influence the
growth and development of other nurses than in nursing administration'
ihe nursing administrator creates an environment in which professional
practice can flourish or deteriorate. This chapter focuses on human po-
iential as an important concept in nursing administration. Inner-directed
individuals who are highly self-motivated will produce the answers to
the problems of productivity and dissatisfaction within nursing staff.
HUMAN POTENTIAL AND THE POWER OF EDUCATION
Nurses today want to be recognized as professionals. They want to be
recognized for their contributions to patient care, and they want the
right to control their professional practice within the limits of the law.
Unquestionably, these rights always involve maximizing human poten-
tial. Human potential means all of one's potentialities: knowledge, tal-
ents, capacities, creativity, wisdom, character, and genetic makeup'
l07
3. 108 cunnpxr nNl EMERGTNG cHALLEGES
The acquisition of technical skill alone does not provide the necessary tasks so
creativit5
base for the independent thinkin-s and action essential in today's nursing
practice. Men and women har,e a great deal of unrealized potential, and siened ta
helping staff discover that potentiai can be one of the most exhilarating ministrat
experiences for the nursing administrator. torr,,ard tl
The identification of needs for -ero.nvth, development, and utilization and thus
of potential is an important part of Maslow's self-actualization. This Pritcha
:eacher ir
concept was introduced in Chapter 4, "The Person in the Role of Nursing
Administrator." The fully functioning administrator encourages the de- iundamer
:nspires, r
velopment of human potential in self, peers, and subordinates. Optimal
lrocess, a
biopsychosocial functioning, so carefully nurtured in patients, needs also
ls also to
to be nurtured in oneself and one's fellow workers.
Howard McClusky (1) had a passionate belief in the power of education :ential of
same basi
to improve the condition of people's lives and to liberate them from the
and evalu
meanness of intolerance and self-interest. Lifelong learning and the ful-
Nursin
fillment of growth needs are indeed powerful tools in enhancing human
potential. Lifelong learning can hclp individuals become the persons nentors.'
roles, nur
they are best able to become. In most people, there is a large domain
periences
of unexpressed and underexpressed talent that could be developed
thc count
through educative means.
quently, c
McClusky (l) further theorized that failure to internalize the learner
administr
role as a central feature of the self is a major restraint in the adult's
direction
achievement of his or her potential. Studying, learning, and intellectual
rvill allor,r
adventure must become part of one's life in both work and social en-
vironments.
Striving to learn about employees and matching them with educa-
tional and work experiences can be one of the nursing administrator's
MOTIVI
most stimulating and rewarding challenges. Because the power of ed-
!lotivatio
ucation lies both in learning and in teaching abilities, the administrator
tivates or
needs to be a learner as well as a teacher. Satisfaction with work and
Herzberg'
assumption of responsibility for professional behavior flourish in an en-
gories: hy
vironment that fosters maximizing human potential through continued
The hygie
learning.
1. Comp
2. Super
CHANGING BEHAVIOR 3. Relat
The role of the nursing administrator as a teacher has been largely un-
4. Work
recognized. In fact, in their efforts to stay away from educational roles, 5. Salar
many administrators may lose sight of the fact that most education oc- 6. Relat
curs in noncredit or nonformal learning environments. Achieving one's 7. Perso
maximum potential involves learning new behaviors. Many adminis- 8. Relat
trators spend a great deal of time teaching others how to perform as- 9. Statu
signed tasks rather than delegating the responsibility for those tasks.
10. Secur
How much better it would be to teach individuals how to approach
4. DEVELOPING HUMAN POTENTIAL 109
tasks so that they can grow and develop while unleashing their own
.ecessary
creativity in resolving problems that contribute to the need for the as-
i nursing signed tasks. Understanding the logic and rationale behind various ad-
Ltial, and
ministrative strategies encourages the learner to have positive feelings
ilarating toward the ongoing project; as a result, the learner is less likely to resent
and thus negatively influence change.
.ilization Pritchard (2) suggests that the individual who has been a successful
ion. This
teacher in nursing can also be successful in administration. The same
Nursing
fundamental principles apply to both areas. Administrative leadership
rs the de-
inspires, encourages innovations, assists the nurse in the self-actualizing
Optimal process, and promotes and facilitates excellent nursing practice. To teach
eeds also
is also to inspire, to encourage creative effort, and to foster the full po-
tential of the individual. Both teaching and administration require the
:ducation
same basic principles for implementation: planning, organizing, leading,
from the and evaluating.
d the ful- Nursing administrators may perceive themselves as preceptors or
g human
mentors. These roles are in essence teaching-learning roles. Within these
) persons
roles, nursing administrators can open new doors to the intellectual ex-
: domain periences that favor creativity and productivity. Staff nurses throughout
eveloped the country have become increasingly critical of administration. Fre-
quently, one criticizes and belittles what one does not understand. One
e learner
administrative imperative is to plan to change behavior in the desired
re adult's
direction while recognizing the need to maximize staff potential that
tellectual will allow everyone to move forward together.
;ocial en-
lh educa- MOTIVATION
istrator's
uer of ed-
Motivation is an internal force that incites a person to action; what mo-
inistrator tivates one person will not necessarily excite another. According to
work and
Herzberg's (3) research, rewards can be listed under two broad cate-
in an en-
gories: hygienes, or extrinsic factors, and motivators, or intrinsic factors.
:ontinued
The hygienes include:
1. Company policy and administration.
2. Supervision.
3. Relationships with supervision.
4. Work conditions.
rgely un-
nal rclles, 5. Salary.
:ation oc- 6. Relationship with peers.
'ing one's 7. Personal life.
adminis- 8. Relationships with subordinates.
rform as- 9. Status.
rse tasks.
10. Security.
epproach
5. 110 CURRENT AND EMERGING CH-{L LErl9
The motivators include: -n a cerl
act will
l. Achievement. formanr
2. Recognition. ,, ariable
3. Work itself. is deterr
merit in
4. Responsibility.
iion tha
5. Advancement. linkage
6. Growth. rhe effor
Expec
If managers want to develop a highly motivated staff, says Herzberg, rors. Th,
they should focus on the true initiators of action: the motivators, or can be
intrinsic factors. These intrinsic factors are in keeping with the human :lersona
'
need theory of Abraham Maslow (4), which postulates that humans have consider
the need to gror.v and develop beyond basic coping needs. A satisfied s]'stems
need does not motivate. If all basic and safety needs are met, one can one cho<
move on to meeting belonging needs and so on up the ladder. Self-ac- adminis
tualization needs are never fully mct, and by definition, self-actualization Deci's
is a self-perpetuating, ongoing, and never finished process. tivator.
The work of David McClelland (5) must also be recognized as an im- as inforr
portant landmark in the field of motivation. He states that, to one degree people r
or another, there are three basic human needs in all individuals: overstin
compete
' Achievement: the need to excel, to achieve in relation to a set of stan- The skil
dards, to strive, to succeed erstimu
' Power: the need to make others behave in a way they would not have Overs
behaved othcrwise projects
' Affiliation: the desire for friendly and close relationship changcs
same tir
The nursing administrator needs to rccognize which needs are dom- guilty iI
inant in employees. In order to determine which needs are present, sev- Under
eral approaches may be used. One tool is a questionnaire that incor- or of ri1
porates questions about employee bcnefits, clinical career ladders, and fortable
promotion opportunities. Anothcr approach could be part of the annual of heav'
objective-setting process. Employees could be asked to write objectives Iation b
related to goals they wanl to achicve in the coming year. Some of these ample,l
objectives should be directed toward the employee's professional growth, in order
for example, completing a B.S.N. in order to be eligible for promotion. Havir
While some individuals are motivaled by the need to excrcise power, at a bal
others arc motivated by the need to achieve. The nursing administrator's the amc
challenge is to find avenues for these needs to be met. There is also a accomp.
strong need in slaff nurses for affiliation. Some observers suggest this tools as
motivation as the major reason why many more young women then Anotf
men enler nursing. classic r
Expectancy theory suggests that the strength of a tendency to action classic <
6. DEVELOPING HUMAN POTENTIAL 111
in a certain way is dependent on the strength of an expectation that an
act will be followed by an attractive outcome (6,7). Attractiveness, per-
formance-reward linkage, and effort-performing linkage are the key
variables in this approach to developing human potential. Attractiveness
is determined by what one would like to have, such as a promotion or
merit increase. Performance-reward Iinkage is the individual's percep-
tion that certain actions will lead to a desired reward. Effort-performing
linkage is the perception that a desired reward, such as a raise, is worth
the effort to achieve.
Expectancy theory also presupposes the importance of intrinsic fac-
{erzberg, tors. The theory holds that workers attempt to complete jobs they know
/ators, or can be accomplished and expend energy on those that will result in
re human personal benefit. However, in the world of nursing, employees may not
rans have consider many activities, such as care plans and patient classification
satisfied systems, to be meaningful activities; thus, the question arises as to how
, one can one chooses meaningful activities that also meet the goals of the nursing
'. Self-ac-
administrator to provide excellent nursing care.
ralization Deci's theory (S) highlights the concept of competence as a strong mo-
tivator. Elaborating on Herzberg's work, Deci describes intrinsic motives
as an im- as informing those activities for which there is no apparent reward. Most
ne degree people will actively look for stimulation in their work. When there is
als: overstimulation, the individual withdraws and seeks another area of
competence. Understimulation results in less than minimal competency.
:t of stan- The skillful administrator seeks an environment balanced between ov-
erstimulation and understimulation.
not have Overstimulation can result from the occurrence of numerous clinical
projects and changes at one time. Because staff need time to incorporate
changes into their functioning, three or four changes attempted at the
same time may result in very little lasting change. Also, staff may feel
are dom- guilty if they neglect their usual tasks for innovative endeavors.
senl, sev- Understimulation can be the result of an environment of no changes
rat incor- or of rigidity. At times, staff require a period of time to become com-
ders, and fortable with changes, but this must not continue idenfitely. A situation
re annual of heavy work loads and understaffing can also result in understimu-
rbjectives lation because staff are forced to give up the challenging tasks-for ex-
e of these ample, patient teaching, patient care conferences, and committee work-
rl growth, in order to meet minimal patient needs.
'omotion. Having staff involved in setting objectives can contribute to arriving
se power, at a balanced environment. However, staff may tend to overestimate
ristrator's the amount of work and underestimate the amount of time required to
is also a accomplish objectives. Trial and elTor are sometimes important learning
;ges1 this tools as a group of staff struggle to put a new clinical concept into place.
nen then Another useful concept in developing human potential is found in the
classic work in operant conditioning conducted by B.F. Skinner (9). The
to action classic operant conditioning process is portrayed as:
7. tt2 CURRENT AND EMERGING CHALLENGES
Stimulus -------) response --------) consequences -------J future response human br
to stimulation of Carl R,
of these i
Skinner's theory focuses on four variables: positive reinforcement, ex- It is that
tinction, punishment, and avoidance learning. This theory provides rather thi
guidelines for rewarding desirable behavior and for punishment as a career pla
negative reinforcer designed to stop negative behavior. The principles not simpl
of reinforcement theory can be used to modify behavior in a desired Contint
direction. For example, consider the case of a nursing administrator recognitic
who wants to have the staff conduct group patient teaching sessions but is an imp
none of the staff has enough confidence to volunteer. In such a situation,
mains int
staff could be reinforced for learning and practicing skills that would rvas almo
lead to conducting group sessions. an enorrn
Worker motivation appears to be a key factor influencing productivity studies hr
and quality of employee performance. Gordon (10) takes issue with mo- rvith adv:
tivation theorists who stress the responsibility of leaders and managers vision, m
to motivate followers or subordinates. Gordon maintains that people timed tes
have their own motives. The responsibility of the nursing administrator pation in
is to provide a motivating environment in which people can carry on tinue to I
the work of the organization. A motivating environment is one that pro- somethin
vides opportunities for personnel to (1) express and satisfy their own Develoy
motives and (2) contribute to the achievement of organizational goals. a perspe(
A nonmotivating environment produces disillusionment, job dissat- developn
isfaction, and role conflict. Role theory is structured on the observable hood, off
fact that there are prescribed relationships and activities for specified for stagn
roles; for example, a traffic police officer is expected to direct traffic, (17) has c
and a secretary is expected to type the boss's letters. There is little scribing
agreement in our society as to the expectations for the role of a nurse. scription
An ambiguous role, coupled with an abundance of diverse job descrip- opmenta
tions, compounds the problem and interferes with the maximum de- McCluskl
velopment of potential. Biology
Today's mobile, intelligent, aggressive, and talented nurses need not repre
leaders who can help them identify personai and professional goals. They out in ei
need administrators with enthusiasm, sensitivity, and creativity in pa- time is pt
tient care and nursing administration; administrators who understand ciety, car
the difficulties involved in simultaneously pleasing patients, physicians, for both r
and administrators. The nurse leader with such qualities seeks to create mendous
an environment in which professional nurses are motivated to practice full use o
at their highest level (11). Many r
ministral
part-tim<
DEVELOPMENTAL PSYCHOLOGY AND HUMANS staff. A sk
BECOMING a compol
rience. P
Developmental stages occur over the life span. The concept of deveioping, create ar
as opposed to that of aging, implies a human becoming rather than a signmenl
8. DEVELOPING HUMAN POTENTIAL 1 13
response human being. The essence of this distinction is captured in the words
of Carl Rogers (12): "I should like to point out one final characteristic
of these individuals as they strive to discover and become themselves.
ment, ex- It is that the individual seems to become more content to be a process
provides rather than a product." Career development is a lifelong process, and
nent as a career planning programs are based on the concept of humans becoming,
principles not simply being.
a desired Continued learning is the cornerstone of career development, and the
,inistrator recognition of staff members' learning abilities and educational interests
ssions but is an important part of administration. The potential for learning re-
situation, mains intact over the life span (13). Until the mid-1960s, however, it
rat would was almost universally assumed that adults past their twenties suffered
an enormous loss of intelligence and learning ability (14). More recent
'oductivity
studies have shown that the basic ability to learn changes little, if any,
: with mo-
with advancing age. Changes in physical status, reaction time, hearing,
managers vision, motivation, and speed of performance affect performance on
rat people timed tests (15). Retention of the ability to learn favors active partici-
rinistrator pation in a climate of positive motivation in which individuals can con-
r carry on tinue to pursue the enchancement of their skills and to seek to become
: that pro- something better than theY are.
their own Developmental theories are useful in providing the administrator with
,nal goals. a perspective on adult learning capabilities. Erickson's (16) theory of
ob dissat- development, although predominantly confined to the years of child-
rbservable hood, offers the potential for generativity and integrity, rather than
" specified
for stagnation and despair, in the last two stages of life. Robert Peck
:ct traffic, (17) has developed a remarkable picture of the second half of life in de-
:e is little scribing middle and old age as productive years. This now famous de-
rf a nurse. scription has stood the test of time, as it has been utilized by other devel-
b descrip- opmental psychologists, including Bernice Neugarten and Howard
imum de- McClusky.
Biology may influence the determination of societal roles, but it should
rses need not repress the development of human potential. Work may be carried
,oals. They out in either a meaningless or meaningful way. A meaningful use of
rzity in pa- time is possible only within the context of a meaningful life. In our so-
nderstand ciety, career reentry for women may still occur after the age of 40 and,
rhysicians, for both men and women, career change may occur at 50. This has tre-
s to create mendous implications for the nursing administrator who seeks to make
o practice lull use of a nursing resource in a creative way.
Many options are available in nursing, and the creative nursing ad-
ministrator takes advantage of the various combinations of full-time,
part-time, or intermittent employment patterns currentlv available for
staff. A skills inventory completed at the time of employment can provide
a composite picture of an employee's educational life and r'vork expe-
rience. Periodic review of utilization of skills with the employee can
,eveloping, create an environment for reward and creative planning for future as-
rer than a signment (18).
9. 114 CURRENT AND EMERGING CHALLENGES
DEVELOPING LEADERS AND FOLLOWERS provide tl
the nursi
An important part of leadership is the ability to identify potential leaders. strategies
The willingness to nurture a potential leader at the risk of developing for coach
competition for one's own role is the mark of outstanding leadership. develop n
The nurturance of followers of institutional goals is one of the major It must
challenges in organizations, for it is easier to set up personal friendships highly per
and loyalties. Identifying potential leaders based on personal friendships lies in the
is a pitfall that nursing administrators should avoid. Since friendship to life an<
tends to blind one to a friend's faults, it is difficult for the nursing ad- career der
ministrator to objectively evaluate the performance of a friend. psycholop
Nurses skilled in clinical practice or education are often moved into career int
administrative positions without the benefit of administrative prepa- cess they
ration. Programs designed to develop administrators require integration Kleinkr
with institutional performance improvement. To improve organizational opment P
performance, it is necessary to develop the institution or the institutional tunites fo
unit. The development of individual administrators is an important part interestin
of the overall schcma. cludes nu
Nelson and Schaefer (19) argue that the development of individual responsih
administrators and institutional development are highly interdependent direct tht
tasks requiring an approach that integrates the needs of both the in- self-knolt
stitution and the individual. Such an approach involves the setting of
institutional goals by top management, followed by the development of
participating administrators to move toward those goals. Translated to
nursing, programs designed to improve the administrative capability
of clinical directors and head nurses do not improve the performance
of the nursing department unless they are planned to integrate with UNDERS
nursing dcpartment goals.
Values
The nursing administrator can encourage self-development efforts by Needs
Skills and
establishing, with the employee, individual performance objectives and Previous c
periodic performance evaluation. The administrator's attention to his lnterperso
Decision-r
or her own self-development further encourages such behavior in others.
A positive climate for developing leadership can emerge from rcquiring
administrators to assume the responsibility for the growth and devel-
opment of their stalf and assigning individuals to administrative re- UNDERSTANI
sponsibilities appropriate for their experience and interests. Thc active
involvement of the supervisor is balanced with the encouragement of
[;;
Educatior
I
lFrnanctal
self-evaluation and personal goal setting. I Proiected
The concept of supervision as a professional growth-producing process I Employm
is not new, but, except in public health nursing, it is not widely practiced I
in the nursing field. The supervisory process requires that each staff FIGURE
member receive one-to-one guidance much more often than once a year and J.O.
for performance evaluation. The nursing administrator sets the cxample Septemb
for this process through conferencing on a regular basis with each em- Americar
ployee who reports directly to him or her. The conferences, of coursc, with perr
10. DEVELOPING HUMAN POTENTIAL 115
provide the opportunity for exchange of information, but they also give
the nursing administrator timc to review objectives, perlormance,
I leaders. strategies, and problcms with cach key person. This time is also used
veloping for coaching the cmployee so that he or she can gain new skills and
rdership. develop new approaches to old problems.
re major It must bc recognized that each individual's capacity to dcvelop is a
endships highly personalized process and that the best tool for self-development
endships lies in the ability to accurately assess developmental necds in relation
'iendship to life and carcer goals. Thorne, Fee, and Carter (20) suggest that ideal
rsing ad- career dcvelopment should match job requircments with the individual's
d. psychological makeup, educational background, experiential skills, and
rved into career interests. Figure 9.1 portrays the individual career planning pro-
/e prepa- cess they propose.
tegration Kleinknecht and Hefferin (21) also propose a model for career devel-
rizational opment programs that can help nursing administrators identify oppor-
titutional tunites for restructuring nurses' work experiences to make them more
'tant part interesting and challenging. Figure 9.2 portrays that model, which in-
cludes nursing administrator, professional nurse, and career counselor
rdividual responsibilities. The program focuses on assisting nurses to develop and
ependent direct their or,vn careers as well as on guiding them toward attaining
h the in- self-knowledge of:
;etting of
pment of LIFE MANAGEMENT
rslated to
Mid-life transitions
apability, Management style in organization
.ormance Leisure, retirement
-ate with Financial management
UNDERSTANDING SELF Separation, divorce, death
Marriage, family, parenting
Values Alcohol and drug abuse
:fforts b1' Needs Self'understanding, interpersonal
communication, and intimacy
tives and Skills and abilities
Health
Previous career history
on to his lnterpersonal style Stress
Decision-making style Sexuality
in others. Handicaps
-equirin-e
rd devel-
'ative re- - DERSTANDING ENVIRONMENT
TAKING ACTION
he active i Career job options
Self-development
lntegrated Work experience
ement of Educational options knowledge of Education
trinancial considerations self and Additional training
)rojected skill needs environment for Job enrichment
g proccss Employment opportun ties decision making Job-keeping skills
practiced -Job'seeking skills
ach stall
ce a |eat-
FIGTRE 9.1 Indrriclu:il r:.rrcl nlanninS procL-ss. (From L-1. Thorn, F.X. Fee,
erampl.- ' :- J.O. Carter dcr.'lc,p:t.:: , ,'-.';,'lut a:ir e apprr-rach. .1c':a-gclrettl Rcllett,
S::tJnbe-r l9Sl p -19 . 1-:l :'. 1 1rn.i're:srin Publrcaiions Dir ision,
:ach ei::- r:i--iirinD lana=:rnren: .:,- -:. -:: ;.,. ',-,ri. lr :-:ch:. r->r11 !'d. Reprinred
i C r)U].:- '. . . a- :1.
Il!-;-I]ll!:]1,
11. 116__ CURRENTAND EMERGING CHALLENGES
MEETI]
POTEN
Nothing
,4;N
I career l
as burno
inson (22
action /
/ plan / ptan / expendit
/ '----/
z;
/ manasement
I structure l
oRGANlzATloN
/
I
, Mutual
aclion
olannins,
career /
'counseling
'
I
___/
INDIVIDUAL
situation
much m<
create a
trator w.
statrsrl
"c stress an
In this
/ ,"..onn", examplei
I needs | /- by Masl<
assessment / / losophy
,/ / Manage <
| ,i"''ll
goals of
also incl
r
mentor I
FIGURE 9.2 A dynamic career development program. (From M.K' Kleinknecht, view, gu
and E.A. Hefferin. Assisting nurses toward professional growth: a career de- nition ar
vefoprnenr mcrdel. Tlrc Joumal of Nursing Adntittistration. July/August 1982, 11,
p. 32. Reprinted with permission.) for devel
. Personal values, interests, and goals related to life and career planning.
. Endeavors and accomplishments related to life and work history. SUMMI
' Life and work decision-making skills'
' Personal and professional growth needs and potentials. By takin
' Career concerns and objectives. (p. 34) an envir,
maximiz
Nursing career development programs serve a dual purpose: to help account
The wor
meet specific needs of the organization and the individual nurse and to
provide the potential for expanding the reservoir of talent and motivation oretical
within the nursing division (21). and sub<
The followers of today will be the leaders of tomorrow. Setting the
pace for the growth and development of the staff involves presenting
an image of excitement and enthusiasm for excellence in the nursing STUDY
department. Technology changes daily, but the need for nurses to develop
and grow within a physically exhausting environment presents a major 1. Defin
challenge to the nursing administrator. The nursing administrator has
2. Discu
the responsibility to provide leadership in creating a climate in which
nurses can practice at their highest level of expertise while continuing 3. Discu
to develop as individual professional practitioners. The nursing admin- new t
istrator alone cannot create this climate but has the knowledge and skills 4. List tl
to lead the nursing division to this end' and d
12. DEVELOPING HUMAN POTENTIAL II7
MEETING NEEDS AND MAXIMIZING HUMAN
POTENTIAL
Nothing mars the maximum development of human potential as much
as burnout of either the nursing administrator or staff members. Lev-
inson (22) describes the special kind of exhaustion that can follow the
of intense energy with few visible results. People in such
"*p.rrjit.r.e angry, helpless, trapped, and depleted' The experience is
situations feel
much more intense and devastating than ordinary stress. In seeking to
create a professional practice climate, the successful nursing adminis-
trator will seek to prevent burnout in self and staff by alleviating job
stress and dissatisfiction in the early stages whenever possible.
In this regard, Stubbs and Parker (23) have developed work setting
examples u.rd -u1ugement practices to meet human needs as developed
by Maslow. Their methodology translates to nursing as a caring phi-
) losophy on the part of administration. It includes caring about the career
gouls of staff and about how those goals mesh with the organization. It
also includes caring about professional development opportunities,
mentor relationships, and a creative environment that provides for re-
einknecht, view, guidance, reinforcement, and rewards for work as well as recog-
career de-
t 1982, 11,
nition and advancement. This philosophy can well serve as the guide
for developing a motivating nursing environment'
lanning.
Lstory. SUMMARY
By taking a human approach, the nursing administrator can create
an environment in which the development of human potential can be
maximized. In order to do this, the administrator must take into
e: to help account the dilference between human beings and humans becoming.
'se and to The work of Abraham Maslow and Howard Mclusky provides a the-
rotivation oretical basis for the development of human potential in self, peers,
and subordinates.
:tting the
resenting
e nursing
STUDY QUESTIONS
o develop
sa major 1. Deline human potential and discuss its relationship to education.
rator has
in which 2. Discuss the role of the nursing administrator as teacher and learner.
rntinuing 3. Discuss how achieving one's maximum potential involves learning
rg admin- new behaviors.
and skills 4. List the hygienes (extrinsic factors) and motivators (intrinsic factors)
and discuss how they are utilized in your operating environment.
13. 118 CURRENT AND EMERGING CHALLENGES
5. Discuss the importance of performance-reward linkage and effort- 21 Kleinl
performing linkage in expectancy theory. Be sure to include the im- growtl
July/A
portance of staff opinion in the performance of individual operations.
22. Levinr
Discuss how to identify and develop a potential leader, with attention 1981,
to a career development plan. 23. stubbr
Econo
REFERENCES
1 McClusky, H.Y. Education for aging: the scope of the field and perspectives
for the future, in Grabowski, S.W., and Mason, W.D., eds., Edttcation for the
Aging. Syracuse, N.Y.: ERIC Clearinghouse, 1974.
2. Pritchard, R.E. A philosophy of teaching applied to administration. The
Jountal of Nursing Administration, September 1975, 5(7),3840.
3. Herzberg, F., Mausner, 8., and Snyderman, B.The Motivation to Work. New
York: Wiley, 1959.
4. Maslow, A.H.Toward aPsychology of Being. New York: Van Nostrand,1962.
5. McClelland David. The Achieving Society. New York: Van Nostrand, 196l .
6. Vroom, Y.H.Work and Motivatiort. New York: Wiley, 1964.
7. Robbins, S. P. The Administratire Process,2d ed., Englewood Cliffs, N.J.:
Prentice-Hall, 1980.
8. Deci, E.L. Intrinsic Motivation New York: Plenum, 1975.
9. Skinner, B.F. Science and Human Behavior. New York: Macmillan, 1953.
10. Gordon, G.K. Motivating staff: a look at assumptions . The Journal of Nursing
Adminis tration, Novemb er 1982, I 2(l 1), 27 -28.
1 1. Nyberg, J. The role of the nursing administrator in practice. Nursing Admin-
istration Quarteily, Summer 1982, 6(4), 67*73.
12. Rogers, C. Freedom to Leant. Columbus, Ohio: Charles E. Merrill, 1969.
13. Arenberg, D.L. and Robertson, E.A. The older individual as a learner, in
Grabowski, S.M., and Mason, W.D., eds., Education for the Agizg. Syracuse,
N.Y.: ERIC Clearinghouse, 197 4.
14. Thorndike, E.L., Bergman, E.O., Tilton, J.W., and Woodward, E. Aduh
Learning. New York: Macmillan, 1928.
15. Zahn, I.C. Differences between adults and youth affecting learning. Adult
Education, Winter 1967 , 17, 67-77 .
16. Erikson, E. Childhood and Society. New York: Norton, 1963.
17. Peck, R.C. Psychological developments in the second half of life," in
Newgarten, 8.L., ed., Middle Age and Aging. Chicago: University of Chicago
Press,1968.
18. Smith, M.M. Career development in nursing: an individual and professional
responsibility. Nursing Outlook, February 1982, 30(2), 128-131.
19. Nelson, G.M. and Schaefer, M.J. An integrated approach to developing ad-
ministrators and organizations. Jounnl of Nursing Administratiorz, Febr"uary
1980, 1o(2),3742.
20. Thorn, LM., Fee, F.X., and Carter, J.A. Career development: a collaborative
approach. Management Review, September 1982, 7 1 (9), 27 -28 , 28-41 .
14. DEVELOPING HUMAN POTENTIAL II9
d effort- 21 Kleinknecht, M.K. and Hefferin, E.A. Assisting nurses toward professional
growth: a career development model. The Joumal of Nursing Administratiort,
: the im- July/August 1982, l2(7 and 8), 30 36.
:ations.
22. Levinson, H. When executives burn out. HarvardBusiness Review, May/June
rttention r98t, s9(3),73-81.
23. Stubbs, I.R. and Parker, E.R. Motivating for management effectiveness.legal
Economics, September/October 1979, 5(5), 38-40.
'spectives
on for the
.tion. The
/orft. New
nd,1962.
rd,1961.
iffs, N.J.:
n,1953.
f Nursing
qAdmin-
,1969.
:arner, in
Syracuse,
, E. Adult
ing. Adtlt
I life," in
rf Chicag<r
ofessional
oping ad-
February
.aborative
-41.
15. budgetin
10 understa
mate.
The pr
fostered
Managtng Firscal demonst
an essen
involved
Dollan
nancial c
to budge
Agnes M. Buback and Nancy V. Moran sional se
nursing r
charges.
tivities o
to quant
The purpose of this chapter is to present fiscal management con- It is clr
cepts in relationship to nursing administration. Emphasis is on and poli
health care reimbursement issues, selected principles of managing into one
fiscal resources, tools of fiscal management, and types of budget ment ski
techniques. On completion of this chapter, the reader will be able delivery
to: financial
l. Describe selected reimbursement issues and relate them to isting rer
nursing administration. tinued dr
2. Describe the concept of financial management'
3. Identify the key concepts of accounting and budgeting.
4. Differentiate types of budgets and selected budgeting tech- REIMB
niques.
5. Discuss the pervasiveness of the budget as a management tool The curr
and its impact on clinical nursing practices. care envi
6. Relate the budgeting process to the nursing process. in manal
health cr
strategie
Why should nursing service administrators become involved in budg-
eting and financial mangement? In the recent past, these functions were
willingly and gladly relegated to financial officers or hospital admin- Growth
istrators who prepared, monitored, and evaluated the nursing budget In 1963,
and assumed total responsibility for the broad area of financial man- tional pr
agement. increase<
Fortunately, nursing service adminstrators saw the error of having economy
nonnursing personnel assume critical financial functions. Nursing itures wr
budgets usually make up the largest proportion of a hospital's operating creased l
budget. Thus, because money is power, it has become incumbent upon (1). Most
the nurse adminstrator to acquire a fairly sophisticated level of skill in icaid-Me
120
16. ,1,ANAC]Nq-ET$Q4LSEEoIJB9ES UL
budgeting and financial management, as well as an awareness and
understanding of the evcr-changing health care reimbursement cli-
mate.
The precarious nature of the health care reimbursement climate has
fostered increasing fiscal conservatism in most hospitals. As a result,
demonstrating the value of nursing services in terms of cost has become
an essential activity in which all nursing adminstrators must become
involved.
Dollars do influence clinical nursing practice. During the current fi-
nancial crisis facing many hospitals, nursing budgets remain vulnerable
to budget cuts. Nursing services commonly are not isolated as profes-
sional services, and neither is reimbursement for them. Charges for
nursing care remain relatively hidden in room rates or other grouped
charges. In addition, costing out and justifying nursing services are ac-
tivities only recently being undertaken by nursing leaders in an effort
to quantify and qualify nursing.
nt con- It is clear that through a variety of environmental, social, economic,
sison and political changes, the role of the nurse administrator is evolving
naging into one that requires a high level of budgeting and financial manage-
budget ment skill. Such skill, if properly applied, may ultimately enhance the
be able delivery of nursing care through judicious maintenance of human and
financial resources, vigilant monitoring to most effectively utilize ex-
hem to isting resources, and aggressive pursuit of resources to ensure the con-
tinued development of clinical nursing practice.
F
5'
g tech- REIMBURSEMENT ISSUES
:nt tool The current reimbursement climate has a profound effect on the health
care environment. Therefore, it is important for nursing adminstrators,
in managing nursing services, to be knowledgeable about the history of
health care expenditures and reimbursement trends and to develop
strategies for coping with the financial uncertainties of the future.
in budg-
ions were
ll admin- Growth of Health Care Expenditures
rg budget In 1963, health care expenditures made up 5.6 percent of the gross na-
cial man- tional product (GNP). Between 1965 and 1973, health care expenditures
increased at an annual rate of l0 percent, while the remainder of the
of having economy grew at a rate of 6 to 7 percent. In1979, health care expend-
Nursing itures were $212.2 billion, or 9 percent of the GNP. This proportion in-
cperating creased to 10.5 percent of the GNP in 1982, or a total of $322.4 billion
)ent upon (1). Most of this growth is attributable to the impact of the 1966 Med-
of skill in icaid-Medicare legislation.
17. 122 CURRENT AND EMERGING CHALLENGES
is the acl
Retrospective Reimbursement
up to wi1
Retrospective, cost-based, reimbursement was the methodology em- Clearly
ployed by most third-party payers prior to 1983. After services were experienc
provided, hospitals r.r'ere paid on the basis of expenses incurred. Clearly, unprofiti
this system did little to provide inccntives for controlling unnecessary control s
costs. Due to the significance of health care cost increases, governmental What z
regulation became the strategy for cost control in the 1970s. enue los:
Public Law 92-603 was enacte d in 197 3 in an attempt by the govern- ficiency,
ment to impose regulations on Medicare providers. This legislation in- strategy
cluded institutional budget and financial planning requirements and insuranct
mechanisms for accountability. desirable
activitie:
Prospective Reimbursement
Implica
The current approach to reimbursement is the prospective approach.
That is, hospitals are reimbursed a flat, illness-specific amount deter- Althougt
mined before services are rendered. Clearly, this method offers incentives average
to avoid unnecessary services and extended hospital stays. this reas
The concept of prospective reimbursement was introduced into the tificatior
Medicare program via the Tax Equity and Fiscal Responsibility Act of many nu
1982 (TEFRA). This act may be the most significant piece of legislation ultimate
affecting health care to date. It was expected to generate a savings of quantify
92.6 billion between 1984 and 1987 through a complex set of formulas One pr
based on diagnosis-related groups, or DRGs (2). acuity, r.r
care cal(
nursing
Diagnosis-Related Groups These nt
identify
Researchers at Yale University have developed 467 DRGs, 356 of which
This li
are to be used to determine a hospital's case-mix adjustment. These
as it is tl
groups are based on the assumption that patients can be homogeneously
the reim
grouped into various clinical categories that require similar use of re-
their kn<
sources. Considerations in the classification process include principle
order to
diagnosis or procedure, presence or absence of surgical procedures, age
Severe
of the patient, and presence and complexity of complications or co- from the
morbidities.
maintair
The DRG system works as follows. After assignment to DRG categories,
Since he
a case-weighted cost per Medicare discharge is calculated to determine
continut
the maximum amount of Medicare reimbursement. Hospital target rates
nurse w(
are then calculated and increased by an inflation factor. If the hospital's
advocati
cost per case exceeds its designated target rate, Medicare pays the target
be accor
rate. Some percentage of the excess cost is reimbursed only if the case
sional nr
is approved as an outlier, but the actual cost is not recovered.
Nursir
However, an incentive is built into this program if the hospital's actual
pro[essi<
cost per case is below its target rate. In this event, Medicare payment
18. MANAGING FISCAL RESOURCES 123
is the actual cost per case plus 50 percent of the variance fiom the target,
up to within 5 percent ol the target rate.
ogy em- Clearly, the possibility exists undcr this system that hospitals may
)es were cxperience substantial losses of revenue for a variety of reasons, including
Clearly, unprolitable case mix, inefficiency of operations, and poor financial
LQCQSSbIJ control systems.
rnmental What are the strategies that hospitals may employ to minimize rev-
enue losses? One is to offset thc losses through greater operational ef-
3 govern- ficiency, for examplc, through staffing or supply reductions. Another
lation in- strategy is to attcmpt to shift rcvenue losses to other payers, including
ents and insurance carriers and private pay (self-responsible) patients. Other, less
desirable approaches include obtaining revenue from nonpatient care
activities and reducing the quality and accessibility of services (3).
Implications for Nursing Services
pproach.
.nt deter- Although nursing services are included in the calculation of a hospital's
ncentives average target cost, they do not receive separate reimbursement. For
this reason, hospital administralors are beginning to pressure for jus-
into the tification of nursing services. This is not enlirely unwelcome news to
ity Act of many nursing service administrators who believe it is important and
:gislation ultimately politically helpful to be able to clearly and precisely identify,
avings of quantify, and justify nursing activities.
formulas One proposed method of justifying nursing services is based on patient
acuity, which is related to DRG categories. Twenty-three major nursing
care categories have been developed and subdivided into 356 general
nursing care stralegies, which correlate with the DRG classifications.
These nursing care strategies includc detailed nursing care plans thai
of which
identify both the direct and indirect care needs of the patient (4).
rt.These
This linkage with the DRG process is an important one for nursing,
as it is the first major rational eff<-rrt to correlate nursing services with
3eneously
:se of re- the reimbursement system. Nursing service adminstrators must increase
principle their knowledge and application of this new reimbursement system in
ures, age order to effectively plan and managc nursing services.
ns or co- Several other important consequences for nursing services will result
from the change in reimbursement systems. Hospitals will develop and
ategories,
maintain a strong focus on efficiency of services and cost containment.
etermine Since health care is a highly labor-intensive industry, nurse staffing will
:get rates continue to be pressured through, demands for increased individual
rospital's nurse work load and efficiency of performance, and perhaps a movement
he target advocating the use of less expcnsive labor. Such cost containment may
'the case be accomplished at the expense of decreasing the proportion of profes-
sional nurses (5).
l's actual Nursing service administrators have a critical role in providing strong
payment professional leadership and increased professional cohesion in idcnti-
19. r32 CURRENT AND EMERGING CHALLENGES
Variable costs, on the other hand, fluctuate in some manner with ac- comple;
tivity levels. For example, the number of disposable supplies used-and trators.
therefore the expense related to those supplies-will probably rise or the futu
fall as surgical patient days increase or decrease. If they vary to the it difficr
same degrei as volume, variable costs may be referred to as proportional services
costs. Some variable costs only partially vary with changes in activity
levels. Payroll expenses, for instance, may decrease when patient days Zero-Br
fall but may not do so in the same proportion or percentage'
An obvious advantage of the flexible budgeting technique is that it is The zerr
more sensitive to how expenses vary with volume changes. More ap- Presider
parent opportunities may be provided for controlling costs as more is to budg
tno*n utbttt how costs will fluctuate as activity levels change. amount
The behavior of varying costs may, however, not be easy to identify charactr
without committing considerable time for study. Managers need to have rebuildi
a somewhat deeper knowledge of finances in order to effectively par- Every
ticipate in and benefit from a variable budgeting system. The time re- each bu
quiied for budget development may also be considerably longer than this goa
that required by other budget techniques. at least
develop,
tional dt
Planned Programmed Budgeting System benefit r
During the 1960s, Robert McNamara introduced the Planned Pro- Since
grammed Budgeting System (PPBS) in the Department of Defense. This est oper
iystem consisis of three components: planning, programming, and to "buy
budgeting. First, a plan that includes multiyear objectives and alter- process
natiie methods of achieving the objectives is defined. Substantive, or the flonr
long-range, objectives as well as fiscal objectives are included, giving to force
rise-to -,rttiy"ur fiscal projections. A program that includes methods develop
for achievingthe objectives is outlined. Activities necessary to yield the The tr
attainment of tn" specific objectives or outputs and the costs associated extensiv
with producing the desired results are then compiled' Finally, financial develop
fo.ecasts and a process to facilitate administrative control of the entire plement
program are applied. ing to p
Resources are generally allocated on the basis of the defined program
and the associated services, supplies, and so on that are required to
meet the objectives or output. Such requirements may cut across tra- RELAT
ditional divisional lines but be assigned to a single administrator or PROCI
director. An example of a hospital setting in which a PPBS might be
utilized is the emeigency room service. Specific objectives might be de- Budgeti
veloped, activities necessary to meet the objectives delineated, and re- it is inte
,o,r..", assigned from multiple departments to accomplish the objec- framew<
tives. Administrative responsibility would then be under the control of erally, a
the emergency room service director. ducing t
In geneial, FfeS -uy facilitate price establishment for services, out- that are
put, Ir products. Moreover, it facilitates the organizational linking of examinz
resources to outcomes, products, or services. However, PPBS involves the focu
20. MANAGING FISCAL RESOURCES 131
tivity be
lo insure
o
c
o
o
U
the cash
nization.
lhe least Volume (number of services) FIGURE 10.3 Fixed budget.
the most
r balance
amount are established and are not altered throughout the budget period
) predict regardless of whether changes in volume (number of services rendered)
;ash bal- occur (see Figure 10.3).
mine the From the brief description above, it is readily apparent that this ap-
fore, this proach is fairly straightforward to prepare and manage. It is easily
ensuring understood by most managers regardless of their level of financial so-
phistication, and it is highly adaptable to accounting systems. Variances
y budget can be compared to a constant. Perhaps the greatest potential advantage
budgets, of the fixed budget in our current reimbursement climate is that the
the other technique is in harmony with the intent of allocating a fixed amount of
resources (dollars).
The less desirable consequences of the fixed budget include the fact
that it is not or cannot easily be adjusted for actual changes in activity
levels. It is further difficult to analyze variances caused by changes in
volume or price if actual activity levels vary.
:chniques
e become
;, such as Flexible Budgeting
ny event, The flexible, or variable budget, was characteristic of the 1970s. It has
'rinciples been described as a series of fixed budgets based on varying forecasts
and cons or activity levels. Various cost expenses are identified according to how
they behave in relation to volume. Mechanisms exist within the flexible
cribed in budget approach to adjust forecasts and actual budget during the fiscal
:ide with period on the basis of changes or varying activity levels and the asso-
,, a single
ciated costs. Although most health care institutions do not fully imple-
lescribed ment this technique, most are concerned with identifying how costs vary
with volume changes.
The first cost category usually identified during the flexible budgeting
process is fixed costs, which are costs of time. These costs accumulate
over the fiscal period irrespective of volume or output. Examples of such
and still costs include depreciation, insurance premiums, and the like. They occur
budgets. regardless of whether patient days, acuity, or other work load indices
-time es- increase or decrease.
:d) dollar
21. t3a CURRENT AND EMERGING CHALLENGES
It is important that the statistical forecasting of patient activity be
carefully considered in development of the commodity budget to insure
accuracy of the planning function.
o
q
o
Cash Budget o
U
The final budget component, as illustrated in Figure 10.2, is the cash
budget, which delineates the cash flow in and out of the organization.
It is important to the financial health of any business that the least
costly method of financing cash needs be determined and that the most
advantageous investment opportunities for any temporary cash balance
surplus be identified (6).
amounl
A properly prepared cash budget enables management to (1) predict
regardl
the timing and amount of future cash flows, net cash flows, cash bal-
occur (r
ances, and cash needs and surplus and (2) systematically examine the
From
cost implications of various cash management decisions. Therefore, this
proach
tool assists in both protecting a hospital's cash position and ensuring
undersl
that it invests its assets appropriately. phisticz
It is important to note that the cash budget is not a primary budget can be ,
in and of itself. It is derived from the operating and capital budgets, of the I
not from fundamental operating forecasts and decisions, as are the other
techniq
master budget components. resourc
The I
rhat ir i
TYPES OF BUDGETING APPROACHES levels. l
volume
In developing a budget, an enterprise may utilize a variety of techniques
or approaches. Some of these, such as zero-based budgeting, have become
familiar through frequent use in the news media, while others, such as Flexibl
volume-adjusted budgeting, are not quite so widely known. In any event,
The fler
it is helpful for the nursing administrator to know the basic principles been dr
underlying the major techniques as well as some of the pros and cons or acti,
associated with each. they be
In this section, several budgeting approaches are briefly described in budget
rather pure form. Thus, the descriptions may or may not coincide with period
the realities of budgeting in any given institution. That is to say, a single ciated <
corporate entity may use variations or combinations of the described ment tt
techniques in order to meet its purposes. with vc
The f
Fixed Budgeting process
over tht
Fixed budgeting is often viewed as the traditional approach and still costs in
seems to be the most common technique utilized for nursing budgets.
regardl
In general, a fixed budget is developed based on a single, one-time es- increasr
timate of work load or activity. Expenditures for a specific (fixed) dollar
22. MANAGING FISCAL RESOURCES t29
udget, a Capital Budget
al struc-
for a re- The capital budget identifies expenditures on assets whose returns are
Lzation's expected to extend beyond one year (6). Definitions of capital equipment
oughout vary among institutions but may typically be defined as major movable
policies, equipment items that have a unit cost greater than or equal to $500 and
rt be ac- a life expectancy of two or more years. Nursing administrators typically
nization participate in the development of this budget by assessing and sub-
ssful. Fi- mitting patient care unit equipment needs. Capital construction budget
:dgeable items are costs related to the acquisition and maintenance of the physical
nitoring, plant. Although nursing administration involvement is seldom sought
in development of the capital budget, the benefits of participation may
be well worth the administrator's efforts of seeking participation.
umerous Operating Budget
not have The operating budget is a plan of revenue and expenditures geared to
the cash a certain level of services to be rendered for a particular period of time.
y for the In most institutions, the operating budget consists of two distinct com-
mponent ponents: the revenue budget and the expense budget. The revenue budget
re capital includes revenue and statistical projections, while the expense budget
e admin- encompasses payroll and commodity elements.
nent and The revenue budget defines the plan that quantifies future income
the level based on statistical forecasts of activity. This linkage of dollars to patient
he devel- activity indicators is an important area for nursing involvement. Pre-
istrators, dicted levels of patient activity directly influence the plans for nurse
a typical staffing reflected in the payroll budget.
Expense budgets incorporate all institutional expenditures, most no-
tably payroll and commodity components. The payroll budget identifies
all anticipated payroll expenditures for the fiscal year by department
or other specific grouping. It includes the following elements: (1) regular
salaries, indicated by appointment hours as well as dollars; (2) special
salary items (e.g., overtime pay, temporary and agency salaries, holiday
pay, shift differential, on-call pay); (3) fringe benefits, (e.g., health in-
surance premiums, retirement plans); and(4) miscellaneous payroll ex-
penses such as prerequisites and tuition refund payments. The payroll
budget tends to occupy more of the nursing administrator's time in
planning, developing, monitoring, and evaluating than do the other
budgets.
The commodity budget identifies all nonpayroll expenditures that do
not meet the institution's definition of capital equipment. It may include
the following items: postage, telephone and telegraph services, travel
epenses, equipment depreciation charges, repairs and maintenance,
general and office supplies. medical and surgical supplies, and phar-
maceutical supplies.
23. L23 CURRENT AND EMERGING CHALLENGES
In order to develop and execute a meaningful and relevant budget, a
set of organizational prerequisites must exist. The organizational struc-
Capital
ture of the institution must be effective and stable. Provisions for a re- The ca1
sponsible accounting system must be operational. The organization's expecte
goals and objectives should be well-defined and disseminated throughout vary an
the organization to maintain a constant focus on the mission, policies, equiprr
plans, programs, anci priorities. Adequate statistical data must be ac- a life er
cumulated and distributed to appropriate persons in the organization partici,
for the financial control and evaluation functions to be successful. Fi- mitting
nally, the organization must develop a cadre of fiscally knowledgeable items at
managers who are able to contribute to the development, monitoring, plant. I
and evaluation of the financial plans. in deve
be well
Types of Budgets
The master budget of an organization may be composed of numerous Operatit
budget subsets. Nursing service administrators typically do not have
significant involvement in all budget components-for example, the cash The ope
a certai
budget-but do have substantial responsibility and authority for the
development and monitoring of others, such as the payroll component In most
ponents
of the operating budget. Still other budget subsets, such as the capital
includer
budget, may require the nursing administrator's input, but the admin-
istrator may have no authority or responsibility for development and encomp
control. Institutional policies and practices normally dictate the level The r
based or
of nursing administration participation; however, in view of the devel-
opment of substantive financial skills by many nursing administrators, activity
these practices are being challenged. Figure 10.2 illustrates a typical
dicted I
staffing
schema of master budget components.
Exper
tably pa
all anti<
or other
salaries
salary il
pay, shi
CAPITAL BUDGET CASH BUDGET su.rance
Capital equrpment Receipts
penses s
Capital construction Disbursements budget
Net cash
plannin
budgets
OPERATING BUDGET The cr
Payroll not mee
Commodity (supply) the follr
Revenue
Statistical expense
general
FIGURE 10.2 Master budget model.
maceuti
24. UANA_GM.G_II$E4! 3E!A!3cE_s- _- ) ?7
unit for which costs can be determined
Cost center'. organizational
for the
Variable cosl: expense that changes in relation to volume (output)
changes (e.g., surgical supplies)
rctivity- Fixed cost'. expense that is a function of time and is not related to
changes in volume (e.g., equipment depreciation)
e entity Direct cosl: expense that can be traced specifically to a given cost ob-
jective (e.g., salaries)
an item Indirect cost: an expense that cannot be related to a cost objective
(e.g., equipment depreciation)
vo sides Full-time equfualent (FTE): unit of staffing measurement related to time
worked by a full-time (40-hour-per-week) employee in a period of one
'ding of year
: period Fiscal year: the 12-month budget year designated by an institution;
may or may not coincide with the calendar year.
income, Variance: difference, expressed in dollars or percentage, between
Ie same budgeted amount and actual expense
Profit center: organizational unit for which costs can be determined
and revenue produced
ounting Accounts receivable: funds owed to a provider, usually for patient care
well as services rendered
e, of the Accounts payable: frnds owed to other institutions, usually for supplies
I frame-
ill begin
tasks of THE CONCEPT OF BUDGETING
lso pro-
rospital A budget may be viewed as a descriptive plan as well as a process. As
:e in to- a plan, a budget may be (1) a numerical depiction of the activities of
the institution derived from written objectives and the behaviors needed
to achieve the objectives, (2) a financial description of department ob-
jectives and activities, and (3) a financial plan serving an as estimate
of and control over operations to occur in the future. As a process, a
I have a budget may be (1) the process of allocating limited resources to unlimited
of fiscal demands and (2) the process of relating expenditures to revenues to ser-
rent ac- vices rendered and then evaluated.
ound or Viewing a budget as both a plan and a process suggests the following
ms may set of objectives for a budget in an institution:
r section
initions ' To provide a quantitative expression of policies, plans, programs, and
priorities
ent and ' To provide a mechanism of evaluating financial performance with
amiliar: policies, plans, and programs
' To provide a useful tool for the control of costs
Ls actual
' To create and reinforce cost awareness throughout the organization
25. 126 CURRENT AND EMERGING CHALLENGES
Cost t
Six basic accounting principles comprise useful information for the
nursing service adminstrator: Varia
changes
1. Entity concept: the hospital (or any business) is viewed as an activity- Fi-x.ed
driven entity capable of taking economic actions. changes
2. Transactions concept: all transactions that have an effect on the entity Direct
must be reflected in accounting reports and records. jective (
3. Cost valuation concept: the most useful basis of valuation of an item Indire
is the price paid for the item. (e.g., eq
4. Double entry concept: accounting records should reflect the two sides Full-ti
of every transaction (i.e., changes in assets and liabilities). worked
5. Accrual concept: the accounting system requires the recording of year
revenue when realized and the recording of expenses in the period Fiscal
in which they contribute to operations. may or
6. Matching concept: to accurately present and determine net income, Variat
revenue and expense items must be brought together in the same budgete
accounting period. (6) Profit
and revr
This text provides only an introduction to the practice of accounting Accou
to differentiate it from the concept of financial managment as well as services
to illustrate what is probably the most notable tool, or technique, of the Accou;
financial management process. Mastery of the basic conceptual frame-
work and definitions of financial management and accounting will begin
to prepare the nursing service adminstrator for the herculean tasks of THE C(
forecasting and preparing the nursing service budgets. It will also pro-
vide him or her with the necessary broad view of the world of hospital A budge
finances within which the effective nurse manager must practice in to- a plan, :
day's health care environment. the insti
to achie'
Fundamental Fiscal Concepts and Definitions jectives
of and c
As previously indicated, contemporary nursing managers must have a budget n
solid foundation in the fundamental concepts and definitions of fiscal demandr
terms in order to effectively participate in financial management ac- vices rer
tivities. For individuals who have no finance or business background or Viewir
skills, it is important to note that the definitions of many terms may set of ob
vary according to the institutional setting. It is the intent of this section
to provide an overview of the most common concepts and definitions ' To pro
before proceeding to develop the concept of budgeting. priorit
There are numerous terms related to financial management and . To pro
budgeting with which the nursing administrator must become familiar; policie
' To pro
Annualize: to project yearly data based on less than 12 months actual
' To crei
information
26. )tive ap- l. Planning
iccess or External environment Organizational environment
d future l4arketing
f--C.rd-_l t cr,""t;-l t P*p*=_l f-t.rr-l
A. Assessing the l-R"ilgi*-l tfip"ifti-l f-Fil'f.t-l [-uffil
I labor
of I
environment
|lect*"rrgi*i I l-undrng I
I Pnlici.s ll I
r *::;"-:;---1Fhfid]
I Protessronar I
r-*,'*_l fP..;d,,"n I
structure I
rent, the t
- R"il-l tlr.@
I--P"rrti';l
,ial man-
both the
;, imple- R;;;J
Goals and objectives
IP"tt'C---_l I I tlr.--;r
lTasksandl l-l
I
;sociated B. Programming
t fi"".---_l I I ll vateriats ll
lffil
activrtres
Ls chang-
adminis- t Fr.r;"d;rbilty I L__.1
possible.
rncial of-
rtive and
hose em- f;,-,-;,1
r-'tl
[ffi:rl.-l
t'*-ll
order to C. Budgetine I I l.".no,oe"tl lc,pitu,ouogetl lr
ristrators I fE'p"t1] I I I I I
I ll ll
llaatancesneetll
:ial man-
llr'"a;rl
; various ll. lmplementing
tems. Al- Working capital Noncurrentassets,liabilities Residualequities
rethodol- --..l nec"i".bb.l
f-c"-t-d, I tr*;t'."t'l fs.--rt"ro",,l
unting to
Fil;b'l f- Bril"!"s.l
I caeitat I
financial [-
"*a,",*
iJSH::L I Liabilities I t-Gr-l fApp'"p'htill
[-L.i-, I TEqrD."rt I l-c'""6--l
t c""t.*G--l
I-otn*--_l
lhe art of
'eting, in lll. Controlling
ystem, or General controls Report characteristics
rment the R"p*til e.*trok_l
f
ragement
and prac- reffitn."ntl T r'.*r.t* I Type of reports
F;*,'__lt
I
h.f",".";;l
svstem I
External
I Policiesancl ll-l
I procedures lll Accountinc ll f;il.un."m"dtb;_l
___-->
l-o*"""rtb"-l ll
t_l
oPe'ationat ll T- op"'"d;l
Kaluzny,
.
t Services.
r-l
ll
t-l
Other ll fotn",---l
:mission.)
27. 124 CURRENT AND EMERGING CHALLENGES
fying, defining, and evaluating standards of nursing care. Effective ap- l. Planning
plication of the leadership function will certainly affect the success or
failure of nursing services to thrive during both the current and future
trends in reimbursement.
A. Assessinl
environm
FINANCIAL MANAGEMENT
Armed with fundamental knowledge of health care reimbursement, the
nursing administrator is ready to consider the concept of financial man-
agement. In a broad sense, financial management encompasses both the
acquisition and the utilization of funds and includes planning, imple-
menting, and controlling functions (see Figure 10.1).
Historically, the arena of financial management has been associated B. Programr
with the complex world of accountants. This traditional view is chang-
ing, however, as it has become necessary for nursing service adminis-
trators to provide quality services in the most efficient ways possible.
This is not to minimize or negate the roles of a hospital's financial of-
ficers, but, rather, to highlight and advocate a strong consultative and
collegial relationship between nursing administrators and those em-
ployed in financial administration within the organization. In order to C. Budge
maximize the effectiveness of these relationships, nursing administrators
must be conversant with the basic concepts and tools of financial man-
agement.
A variety of financial management tools abound, including various ll. lmplemer
quantitative methodologies and accounting and reporting systems. Al-
though it is beyond the scope of this chapter to define these methodol-
ogies, it is important to delineate a working definition of accounting to
stimulate further study and to avoid confusing accounting with financial Obtair
management. and u
resout
Basic Accounting Principles
Berman and Weeks (6) define the practice of accounting as "the art of
collecting, summarizing, analyzing, reporting, and interpreting, in lll. Controllin
monetary terms, information about the enterprise." It is the system, or
tool, that provides managers with the data necessary to implement the
decision process called financial management. Financial management
has a broad operational scope, of which accounting principles and prac-
tices are but one informational piece.
FIGURE 10.1 Over-view of financial management functions. (From A.D. Kaluzny,
D.M. Werner, D.G. Warren, and W.N. Zuman, Management of Health Services.
Englewood Cliffs, N.J.:, Prentice-Hall,@ 1982,p.291. Reprinted with permission.)
