BUDGET

INTRODUCTION
One of the primary objectives of management accounting is to provide information to
management for planning and control. A widely used device for managerial control is the
budget. Because the amount and quality of Nursing Services depended on budgetary plans,
nurses should become proficiency will provide the resources necessary for the safe and
effective nursing care.

DEFINITION
A budget is an estimate of future needs arranged to an orderly basis covering some or
all the activities of an enterprise for a definite period of time.
T.N.Chhabra
Budgeting is the formulation of plans for a given period in numerical terms.
Harold Koortz.
A budget is a plan that uses numerical data to predict that activities of an organization
over a period of time.
Bessie.

PURPOSE OF BUDGET
1. Budget supplies the mechanism for translating fiscal objectives into project monthly
spending pattern.
2. Budget enhances fiscal planning and decision making.
3. Budget clearly recognizes controllable and uncontrollable cost areas.
4. Budget offers a useful format for communication fiscal objectives.
5. Budget allows feed back of utilization of budget.
6. Budget helps to identify problem areas and facilitates effective solution.
7. Budget provides means for measuring and recording financial success within the
objectives of the organization.

FEATURES OF BUDGET

It should be flexible.

It should be synthesis of past, present, future.

It should be product of joint venture for co-operation of executives department

heads or different level of management.

It should be in the form of statistical laid down in specific numerical terms.

It should have support of top management throughout the period of its planning and
implementation.

IMPORTANCE OF BUDGET

Budget is needs for planning for future course of action and to have a control over all
activities in the organization.

Budget facilitates co-ordinating operation of various departments and section for

realizing organizational objectives.

Budget serves as a guide for action in the organization.

Budget helps one to weight the value and to make decision when necessary or
whether one is of a greater value in the programme that the order.

PRINCIPLE OF BUDGET

Budget should provide sound financial management by focusing on requirement of

the organization.

Budget should focus on objectives and policies of the organization. It must flow from
objectives and give realistic expression to the way of realistic such objective.

Budget should ensure the most effective use of scarce financial and non financial
resources.

Budget requires that programme activities planned in advance.

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.

Budget should include co-ordinating efforts of various departments establishing a

frame of reference for managerial decision and providing certain criteria for
evaluating managerial performance.

Selling budget target requires an adequate checks and balance against the adoption of
too high or too low estimate, almost care is a must for fixing targets.

Budget period must be appropriate to the nature of business or service and to type of
budget.

Budget is prepared under the direction on the supervision of the administration or

financial officer.

Budget are to be prepared and interpreted consistently throughout the organization in

the communication in the planning process.

TYPES OF BUDGET
1.

INCREMENTAL BUDGET
It is one based on estimated changes in present operation, plus a percentage increase

for inflation, all of which is added to previous year budget.

2.

OPEN ENDED BUDGET

Is a financial plan in which each operating manager presents a single cost estimate for

each programme in the unit, without indicating how the budget should be scaled down if less
funding is available.
3.

FIXED CEILING BUDGET

Is a financial plan in which the upper most spending limit is set by top executive

before the unit and divisional managers develop budget proposals for their areas of
responsibility.
4.

FLEXIBLE BUDGET
Consist of several financial plans, each for a different level of programmes activates.

It is based on the fact that operating conditions rarely conform to expectations.

5.

ROLL OVER BUDGET

Is one that forecasts programmed revenues and expanses for a period greater than a

year. To accommodate programmed that greater target than annual budget cycle.
6.

PERFORMANCE BUDGET
It is one based on functions, which allocate function, not division. Eg. Direct Nursing

care, in service education, quality improvement, nursing research.

7.

PROGRAMMED BUDGET
Is one which costs are computed for a total programmed, i.e, grouping total coasts for

each services programmed eg. MCH, FP and UIP etc. These base budgets requires the nurse
manager to examine, justify each cost of every programmed both old and new in every annual
budget preparation.
8.

SUNSET BUDGET
It is designed to Self Destruct within a prescribed time period to ensure the

cessation of spend in by a predetermined date.

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SALES BUDGET
Is the starting point in a budgetary programmed, since sales are basic activates which

give shape to all other activities. Sales budget are compiled in terms of quality as well as of
values.
10. PRODUCTION BUDGET
It is the budget that aims at securing the economical manufacture of products and
maximizing the utilization of production facilities Revenue and expanse Budget.
It is expressed in financial terms and takes the nature of a perform income statement
for the future. It may use prepared in a detailed form or in an abstract statement showing the
items of profit and loss under classified headings.

CLASSIFICATION OF BUDGET
Since budget express plans and an organization may have different types of plans,
there may be different types of budgets. These may classified on the basis of :1. Coverage of functions Master & Functional budget.
2. Natured and activity covered Capital & Revenue budget.
3. Period of Budget long term and short term budgets.
4. Flexibility adopted Fixed and flexible budget

MASTER & FUNCTIONAL BUDGET

A mastered budget is prepared for the entire organization incorporating the budget of
different functions. For et. When we refer to the annual budget of Govt. of India.

It

incorporates the budget out lays of different ministries.

A functional budget is prepared incorporating a major function and its sub functions
since an organization may have a number of functions, numerous functional budgets are
prepared. Eg., production budget, cash budget in an organization.

CAPITAL & REVENUE BUDGET

An organization activities involve two process. Creating facilities for carrying out
activities and actual performance activities. Creating facilities for carrying out activities
include capital expenditure whole returns accrue over a number of years. For such activities,
capital budget is prepared which is essentially a list of what management believes to be worth
while projects for acquisition of new assets together with the estimated cost of each project.
Revenue budget involves the formation of target for a year or so in respect of various
organizational activities such as production, marketing, finance, etc., Thus a revenue budget
includes expenditure and earning for a specific period like one year.

LONG TERM AND SHORT TERM BUDGET

Many organization integrate their yearly budgets with long term projection of
business activities and along with yearly budget; they prepare budgets for a longer period of
2-3 years. When one budget period is over budgets are prepared for the next year and
subsequent 2-3 years.
The short term budget is for a year and is divided into a number of periods for
effective implementation. For eg. Cash budgets are prepared on yearly basis as well as on
monthly or quarterly basis to facilitate better cash management.

FIXED AND FLEXIBLE BUDGETS

Generally, organizations prepare budgets which pertain to only certain projected fixed
volume of operations for a year or so such budget are known as fixed or static budgets. When
an organizations volume of business can be predicted with fair amount of precision, the fixed
budget is satisfactory.
A budget which is designed to change in accordance with the activities of the
organization is known as flexible budget. It considers several level of activity and assures
that labour, material or facilities used in production and hence cost vary with a known
relationship to the actual volume of activity.

TYPES OF BUDGETING
There are mainly two types of budgeting.
1. Performance Budgeting
2. Zero base budgeting.

PERFORMANCE BUDGETING
A performance budgeting is an input/output budget or costs and results budget. It
shows costs matching with operations.

Performance budget emphasis on non financial

measures of performance which can be related to financial measures in explaining changes

and deviation from planned performance.

Performance measurement are useful for

evaluating past performance and for planning future activities.

Performance budgeting,

results into the following.

It correlates the financial and physical aspects of every programme or activity.

It improves budget formulation, review and decision making at all levels of the
organization.

It facilitates better appreciation and review of organizational activities by the top

management.

It makes possible move effective performance audit.

It measures progress towards long term objectives.

2)

ZERO BASE BUDGETING

This was applied for the first time in preparing the divisional budgets of Texas

instruments of the USA in 1971.

Zero base budget is based on a system where each function, irrespective of the fact
whether it is old or new, must be justified in its entirely each time a new budget is formulated.
It requires each managed to justify his entire budget in detail from scratch that zero base.
The process of zero base involves four basic steps.

Identification of decision units that is cluster of activities or assignments within a

managers operation for which he is accountable.

Analysis of each decision unit in the context of total decision package.

Evaluation and ranking of all decision units to develop the budget request.

Allocation of resources to each unit based upon.

BENEFITS OF ZERO BASE BUDGETING

Effective allocation of resources.

Improvement in productivity and cost effectiveness.

Effective means to control costs.

Eliminator of unnecessary activities.

Better focus or organizational objectives.

Saving time of top management.

BUDGET PROCESS
INDIAN METHOD
Annual method i.e., annual budget will be made in India.
Month

Made by :

Starts from Sep/Oct of current years.

Directorate of health and family welfare.

PROCESS
Review the goals of agency of Hospital.
Review Objectives of existing programme.
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Revise the existing programe.

Manpower, capital and operating expenses are computer
for each programme, old and new.
Alternative methods are identified for realizing designated objectives.
Comparison is made to determine which alternative is most cost effective.
Budget is developing.

FUNCTION OF BUDGET IN NURSING

Identifies the importance of and develops short a long range fiscal plans that reflects
unit needs.

Articulate and documents units needs effectively to higher administrative levels.

Assess the internal and external environment of the organization in forecasting to

identify driving forces and barriers of fiscal planning.

Demonstrate knowledge of budgeting and uses appropriate technique.

Provide opportunities for subordinates to participate in relevant fiscal planning.

Co-ordinates unit level fiscal planning to be congruent with organizational goals and
objective.

Accurately assesses personal needs using predetermined standards or an established

patient classification system.

Co-ordinates the monitoring aspects of budget control.

Ensure that documentation of clients need for services in clear and complete for
facilitate organizational reimbursement.

ROLE OF NURSE ADMINISTRATOR IN BUDGETING

Is visionary in identifying of forecasting short and long term unit needs, thus inspiring
proactive rather than reactive fiscal planning.

Is knowledgeable about political, social and economic factors that shape fiscal
planning in health care today.

Demonstrate flexibility in fiscal goals setting in a rapidly changing system.

Anticipates recognized and actively problems solve budgetary constraints.

Influences and inspires group members to become active in short and large range
fiscal planning.

Recognizes when fiscal constraints have resulted in an ability to meet organizational

or unit goals and communicate this insight effectively, allowing the chain of
command.

Ensure that client safely is not jeopardized by cost constraints.

LIMITATION OF BUDGETING

Planning, budgeting or forecasting is not an exact science; it uses appropriately and

judgment which may not be 100% accurate. At best a budget is an estimate no one
knows precisely what will happen in the future.

The success and utility of budgeting depends on the co-operation and participating of
all members of management. All person should direct their effort according to the
plan. Many time budgeting has paid only lip services to its executing.

A budget is only a tool and neither eliminates nor takes over the place of management.
A budget cannot be substituted for management but should only be used by
management for accomplishing managerial functions.

The establishment of a budgeting process takes time. Also sometime too much is
expected from a budget and in case expectation are not fulfilled the blame is put on
the budget.

An efficient budgeting programme requires that responsible person

should understand the philosophy, objective and essential of budgeting.

BUDGETS FOR GOVERNMENT OF INDIA

Indias budget : Indias public finance system follows the British pattern. The Indian
constitution establishes the supremacy of the Parliament specifically the Lok Sabha
in financial matters.

Proposal for taxation or expenditures, however, may be initiated only within the
council of ministers specifically by the ministers of Finance.

Ministers of finance is required submit to parliament, usually on the last day of

February, a financial statement detailing the estimated receipts and expenditure of the
Central Govt. for the forthcoming fiscal year and financial review of the current fiscal
year.

The Lok Sabha has one month to review and modify the Governments budget
proposals. If by April 1 the beginning of the fiscal years, the parliamentary discussion
of the budget has not been completed, the budget a proposed by the minister of
finance goes into effect, subject to retroactive modifications after the parliamentary
review.

On completion of its budget discussion, the Lok Sabha passes the annual
appropriation act, authorizing the executive to spend money, and the finance act,
authority the executive to impose and collect taxes.

Supplementary requests for funds are presented during the course of the fiscal year to
cover emergencies, such as war or other catastrophes.

The bills forwarded to the Rajya Sabha (Council of State the upper house of
parliamentary) for comment Lok Sabha, however, is not bound by the comments, and
the Rajya Sabha cannot delay passage of money bills. When signed by the president,
the bills become Law.

SUMMARY
So far we have discussed about definition, purposes, features, importance, principles,
types of budget, budget process, rate of administration in budgeting, function of budget in
nursing, limitations of budget, etc.,

BIBLIOGRAPHY

C.M. Prasad. Principles & Practice of Management 6th edition, 2004, Sultan Chand
& Sons Publication Page No. 214 18.

Chabra, 2003 Principles Practice of Management, 8th Edition; Darpar Rai and Co.,
New Delhi.

Francis, C.M. Soyza,M. C. de, (2000) Hospital Administration 3rd edition, Jaypee
Brothers, New Delhi 270 281.

Heinz Weitrich and Harold Knootz, Management 10 th edition.

Mc Graw Hill

Publication Page No. 519 602.

Jawahar Lal, Cost Management, 5th edition, Mc Graw, Hill publication page - 519602.

Jha. S.M. 2005 Hospital Management Ist edition : Himalaya Publishing House,
Mumbai. Pg. 344 368.

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