Budget estimate, revised estimate, performance budget

MEANING OF BUDGET: Budgeting though primarily recognized as a device for controlling, becomes a major part of the planning process in any organization. Literally, the word budget means a Leather bag or sachet to carry official papers in. The word budget is derived from the old English word budgette means a sack or pouch which the chancellor of the exchequer used to take out his papers for laying before the Parliament, the government, financial scheme for the ensuing year. According to Dimock Budget is balance estimated expenditure and receipts for a given period of time. In the hands of the administrator the budget is the record of the past performance, a method of current control and projection of future pans .

Budget estimate
Financial planning responsibilities need to be identified before budget preparation begins. The governing board, administrator, budget director, steering committee, and department heads are often involved in the budgetary process. The governing body is responsible for the general planning function. It selects the budget steering committee, determines the budgetary objectives, and reviews and approves the master budget. The administrator is responsible for the formulation and execution of the budget, by correlating the governing boards goals with the guidelines for budget preparation and supervising the budget preparation. The budget director is responsible for the budgeting procedures and reporting. He or she establishes a completion time table, has forms prepared, and supervises data collection and budget preparation. The budget director serves as the chairperson of the steering committee, which approves the budget before it is submitted to the governing board. Department heads prepare and review goals and objectives and prepare the budgets for their departments. The first step in the budget process is the establishment of operational goals and policies for the entire agency. The governing board should approve a long-range plan of 3 to 5 years that reflects the communitys future health needs and other community health care providers activities. Because the situation changes over time, flexibility is built into the plan. The operational goals must be translated into quantifiable management objectives for the organizational unit. A formal plan for budget preparation and review including assignment of responsibilities and time tables must be prepared. Historical, financial, and statistical data must be collected monthly so that seasonal fluctuations can be observed. Departmental budgets need to be prepared and coordinated. During this phase, units of service, staffing patterns, salary and nonsalary expenses and revenues are forecasted so that preliminary rate setting can be done. Next, departmental budgets are revised, and the master budget is prepared. At this point, operating, payroll, no salary, capital and cash budgets can be incorporated into the master budget. Then the financial feasibility of the master budget is tested, and the final document is approved and distributed to all parties involved.

During the budget period, there should be periodic performance reporting by responsibility centers. In India usually annual budget estimates for coming financial year are prepared in the months of September/October of the current year. Since budget proposals for next year are required, to be submitted by the Directorate of Medical, Health and FW on October 25 current year to the State Government. SO the exercises of the budget preparation started at the District level. Every head of the office is required to prepare budget estimates in respect of salaries of establishment, contingent expenditure and various other items, i.e. POI/repairs to vehicles telephone, office expenses, rent of building, etc. in hospitals requirements in respect of medicines, diet, equipment, hospital contingencies, surgical dressings, clothing, linen, etc are also needed to be worked out. Only cost of sanctioned posts and existing budget items are included in budget estimates. For new items,, separate proposals with full details are required to be made on a form called schedule of new demands. The estimates should be accompanied by explanatory notes, and every major increase or decrease from current years allotments must be clearly and precisely explained. The budget estimates should give closest possible attention to his work. All likely factors should be taken into consideration while preparing estimates. Preparing budget estimate Income or Actual last Current year Budget next year expenditure year Budget Actual Proposed Approved

Item no: 1. 2. 3.

Steps in budget estimate preparation:

1. Preliminaries:
i) Formulate the budget objectives ii) Form budget committee and appoint a budget officer: Budget needs budget committee in an organization 1. To receive and approve all forecasts, departmental budgets, periodic reports showing comparison of actual and budgeted income and expenditure. 2. To request for special studies of deviations from the budget and consider revision of budget to meet changed condition. iii) Formulate budget timetable iv) Draw an organization chart specifying who will provide key information and who can be held accountable for performance. v) Create a data base It will contain:

Summary of financial statements for previous one or two years. Gather information about other hospitals to which ones patients may look as alternatives. Create a database of the hospital providing information about space, physical layout, number of beds, operation theatres, diagnostic centre, total and effective capacity, specialist doctors, manpower, power, water, parking space, limiting factors, etc. vi) Capacity in terms of units of service of income generating capacity centres, with case mix index. y y y

2. Estimation of income:
The sources of income are: 1. Charges for hospital services: payable by the patients either on their own or through third parties. The services could be broadly categorized under a. nursing home beds. b. Ancillary services such as operation theatre, diagnostic centres. c. Outpatient department. d. Other operating income like blood bank, ambulance, canteen etc. e. Miscellaneous income like rent from hospital properties, scrap sales. 2. Investment income: a. Interest from fixed deposits. b. Dividend income from share. 3. Donations: in kind or crash, for general or specific purposes, and through cash boxes, charity shows, donation drives. 4. Grants: to meet expenditure on specific activities or specialized programs, and to cover deficit on current account. 5. Transfer of restricted funds to general revenue income Forecasting income: It is a statement of and/ or a quantitative assessment of future conditions about a particular subject (eg. Income) based on some specific assumptions. One could forecast income for the budget year after adding a percentage to the previous year. Estimating income for the budget year would involve: 1. Assessment of the likely demand from existing and potential customers. 2. Make a conscious effort to optimize use of available resources; and 3. Estimate the income considering the above two factors. The following information is required to be able to make a realistic estimate of future income: 1. Capacity of each department in terms of number of shift per day and number of working days in a year. 2. Current level of activity/capacity utilization for the previous. 3. Any new developments in the catchments area of the hospital, which are likely to have a bearing on demand for hospital services. 4. Steps proposed by the hospital management to augment hospital revenues such as revision in rates, purchase of new equipment and working extra hours. 5. Patients profile classifying patients under medical and surgical, linking categories of patients to demands made for various services.

3. Budgetary plan:
The budgetary plan is made based on the operating costs, the funds available and the cash available within the institution. The plan is made based on: 1. Operating expenditure forecast: Recurrent (operating) costs are required for the operation or maintenance of facilities and services. The more important costs are for salaries and wages, supplies like drugs, dressings, reagent, fuels etc., utilities including electricity, water, telephone, etc., and equipment maintenance and purchase of spare parts. 2. Capital budget: Funds should be available for expenditure on capital items. These are required for:  Growth, with new facilities being provided, and  Replacement of obsolete, worn out equipment, furniture and machinery. The new facilities may be by way of buildings, plant and machinery or equipment. There will be many competing requirements. Funds are never available to meet all the demands. Choice has to be made. The needs may be classified as essential and desirable. 3. Cash budget: Enough cash must be available to meet the obligations as and when they arise. There is need to maintain the right flow of cash. Unnecessary cash in hand must be avoided; it must be invested to yield optimum returns. This is done by cash planning. Cash receipts and disbursements must be estimated: amounts and time. Among the receipts will be the revenue for patient services. The major item among disbursements is the pay roll. Salaries have to be paid on pay day. Along with salaries, other items like contributions to provident fund have to be met. Payments have to be met for electricity and water so also insurance premiums, taxes on vehicles and property, and service contracts. Payments have to be made for supplies and expenses. Most of these payments are usually made at the beginning of the month. Good planning will help in an even flow of cash as required. REVISED ESTIMATE: In calculating quarterly GDP, a third estimate published approximately three months after the end of a quarter. It includes information not available at the time of the advance estimate or preliminary estimate, as well as any necessary data revisions. This is called revised estimate. However, it is still subject to scrutiny and potential alteration. PERFORMANCE BUDGET: This is based on functions, which allocate functions, not divisions. Eg. Direct nursing care, in service education, quality improvement, nursing research. Performance budgeting is generally understood as a system of presentation of public expenditure in terms of functions, programes, performance units, viz. activities1 projects, etc., reflecting primarily, the governmental output and its cost. It is essentially a process which brings out the total governmental

operations through a classification by functions, programmes and activities. Through suitable narrative statements and workload data that form an integral part of the presentation, it indicates the work done, proposed to be done and the cost of carrying these out. The main thrust of performance budgeting has been on providing output-oriented budget information within a long range perspective so that resources could be allocated more efficiently and effectively. Its emphasis is on accomplishment rather than on the means of accomplishment. The purpose of government expenditure is more important than the object of expenditure under performance budgeting. Thus performance budgeting is a programme of action for any given year with specific indicators regarding tasks, the means of achieving them and the cost of achieving them. It tries to define the physical and financial aspects of each programme and activity and thereby establish the relationship between output and inputs. Performance budgeting has to operate within the framework of clearly defined objectives which are to be achieved through successful implementation of various programmes and activities undertaken by the concerned agency. Performance budgeting, therefore, involves the development of more refined management tools, such as work measurement, performance standards, unit costs, etc.

Objectives:
Performance budgeting seeks to: 1. correlate the physical and financial aspects of programmes and activities; 2. improve budget formulation, review and decision-making at all levels of management in the government machinery; 3. facilitate better appreciation and review by the legislature; 4. make possible more effective performance audit; 5. measure progress towards long-term objectives as envisaged in the plan; and 6. bring annual budgets and developmental plans together through a common language.

Components of Performance Budget

The performance budgets have certain vital ingredients that need to be constantly kept in view: 1. a programme and activity classification that represents the range of work of each organisation; 2. a framework of specified objectives for each programme; 3. a stipulation of the targets of work or achievement; and 4. suitable workload factors, productivity and performance ratios that justify financial requirements of each programme.

Formulation of Performance Budget

Each performance budget will in the first instance indicate the organisational structure and the broad objectives that govern the approaches and work of the administrative agency. This is followed by a Financial Requirements Table. This Table is the most important part of the performance budget and has three basic elements:  a programme and activity classification indicating the range of work of the agency in meaningful categories  object-wise classification showing the same amount distributed among the different objects of expenditure such as establishment charges; and

 sources of financing indicating the budgetary and account heads under which the funds are being provided in the budget.

Steps in performance budgeting

Four basic steps are involved in the introduction of performance budgeting: i) Establishing a meaningful classification of public expenditure in terms of functions, the establishment, improvement and extension of activity schedules for all measurable activities of the government; ii) The establishment of work output, employee utilisation, standard or unit costs by objective methods, i.e. bringing the system of accounting and financial management into accord with the classification; and iii) The creation of related cost and performance recording and reporting system. iv) Resource allocation: v) Budget execution: Resource allocation is followed by budget execution. Budget execution must ensure achievement of objectives and for that the following budgetary and managerial considerations must be kept in view: y Communication of the grants to the various subordinate agencies well in time y Ensuring the initiation of action for implementing the schemes provided for in thebudget y Overseeing the regular flow of expenditures y Prevention of cost over-runs; and y Time phased plan for expenditure and work. vi) Appraisal and vii) Evaluation.

Conclusion:
The calculation of budget estimate is important in managing the projects being undertaken by the organization. The estimate is done based on the objectives to be fulfilled and the requirements of the organization. The allocation of the budget for a financial year should be done carefully for the effective management of the institutions. So it is important for us to understand how to calculate budget estimate keeping in mind all the requirements and characteristics of the budget.

References:
1) 2) 3) 4) 5) http://financial-dictionary.thefreedictionary.com/Revised+Estimate http://www.egyankosh.ac.in/bitstream/123456789/25369/1/Unit-11.pdf Basavanthappa B.T. Nursing Education, 2nd edition, Jaypee Publications, 2009, New Delhi. Francis C.M, Mario C De Souza. Hospital administration, 3rd edition, Jaypee Publishers, 2004. Kulkarni. G.R, Libert Anil Gomez, Salyashankar P. Finance management for hospital administration. Jaypee Publishers, 2009. 6) www.ncbi.nlm.nih.gov/pmc/.../pubhealthreporig00153-0040.pdf