FISCAL PLANNING (BUDGETING)

Introduction

Budgeting is the heart of administrative management. It serves as a powerful

tool of co-ordination and negatively an effective device of eliminating
duplication and the wastage. These are served by devices such as justification of
estimates, supervision of the use of appropriate funds, timing of the rate of
expenditure and the like.

Definition:

A budget may be a simple plan of ones personal finances, or it may be a

complex document used by large organization.

According to TN Chhabra ―a budget is an estimation of future needs

arranged according to orderly basis covering some or all activities of an
enterprise for a definite period of time.

According to Dimock ―Budget is a 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.

Feature of budget

oriented to those who use it.

institution.

-operation of executives/
department heads at different levels of management.
 and expenditure.
Income limits expenditure; hence income should be estimated prior to the
estimation expenditure.

ns of the faculty.

al for efficient and

successful functioning.

- it is more than the list of the desired and approved

expenditure. It is also the instrument of administration and management.

the period of its

planning and supplementation.

important to secure the

maximum participation of organization in preparation on of budget.

Purposes of budget:

1. To provide definite targets for income and expenditure of the department.

2. To co-ordinate the activities of the different functional heads in the working

of these departmental budget.

3. To enable a cash flow statement prepared month by month.

4. To aid management in formulating future policy decision to promote the

growth and welfare of the organizations.

5. To provide useful tool for the control of costs.

6. To provide a tool for communication and co ordination within the

organization.

7. To improve financial planning and decision making.

8. To identify controllable and uncontrollable cost area.

Importance of budget:

Budget is a numerical description of expected income and planned

expenditure for an organization for a specified period of time. It is a concrete,
picture of the total operation of an enterprise/ organization/ institution in
monetary term, i.e., finance.

The following point serves the importance of budget:

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

us departments and
sections for realizing organizational objectives.

s as a guide for action in the organization.

sections for realizing organizational objectives.

for action in the organization

on whether one is of a greater value in the programme than the other.

Principles of Budget:

Budget is an operational plan for a definite period, usually a year, expressed in

financial terms and based on expected income and expenditure.

1. Budget should provide sound financial management by focusing on

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

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

4. Budget requires that programme activities planned in advance.

5. Budgetary process requires consistent delegation for which fixed duties and
responsibilities are required to be allocated to managers at different level for
framing and executing budget.

6. Budgeting should include coordinating efforts of various departments

establishing frame of reference for managerial decisions, and providing a
criterion for evaluating managerial performance.

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

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

the type of budget.

9. Budget is prepared under the direction and supervision of the administrator or

finance officer.

10. Budget is to be prepared and interpreted consistently throughout the

organization in the communication of planning process.

11. Budget necessitates a review of the performance of the previous year and an
evaluation of its adequacy both in quantity and quality.

12. While developing a budget, the provision should be made for its flexibility.
STEPS IN BUDGETING:

COLLECTION OF PAST DATA

ASSESS SUCCESS AND FAILURES OF PAST

SETTING OBJECTIVES FOR FORECAST YEAR

OBJECTIVES ARRANGED IN TERMS OF INDICATED UNITS

PREPARATION OF REPORTS ON EXPENSES

PREPARATION OF BUDGET REPORT

REVIEW OF BUDGET REPORT

EVALUATION FOR MODIFICATION OR CHANGES

FINAL PRESENATION BEFORE BOARD OF TRUSTEES FOR DECISION

GENRAL BUDGET: How to make your self

Step 1 : Determine your monthly income Take into consideration your payroll
deductions (health insurance or other group benefits, income taxes, union dues,
pension) and other sources of income.

Add together all income, less deductions. On a piece of paper record the
resulting

figure as VALUE A.

Step 2: List your “fixed” and “variable” monthly expenses ,Such as housing,
utilities, food and transportation. Remember to allocate funds for clothing,
medical care, child care, personal expenses, recreation and emergencies/repairs.
– Add all of your expenses–this is VALUE B.

Step 3: Find your “discretionary income”

– By subtracting your total expenses (B) from your total net income (A).

– Write this number down on a piece of paper as VALUE C.

Step 4: List all unsecured debts

• The monthly payments and the balances. If you don„t know your exact debt
amount, now is the time to determine it.

– Write this number down on a piece of paper as VALUE C.

Step 5: Determine if you have any remaining discretionary income

• After making these installment payments by subtracting your total monthly

payments to creditors (D) from your discretionary income (C).

• If this figure is a negative number, you are not ready for Step 6 – setting goals.

Consult a personal financial counsellor and work on getting this figure into the

positive numbers.

Step 6 to establish short- and long-term goals

• Make a list of these goals

-Term – Real Estate Purchases, Future Education, Retirement

-Term – Home Improvements, New Car, Travel

– Stocks, Bonds, CDs, Mutual Funds

• Determine how much you need to save monthly

Steps in effective budgeting process:

• Determine the requirements: inputs from all levels of hierarchy must be
obtained

• Develop plan: Budget for 12months is set. Zero-Based budget

• Analyze and control the operation: continuous monitoring is essential

• Review the plan: Periodic revision and modification

Steps in budgeting for college of nursing:

• Request for the needs of various departments

• Review the budget appropriation and actual expenditure for the current year

• Contemplated changes

• Salary fixation

• Requirement estimation

• Summary of new needs

The steps of planning budget for nursing unit:

• Assistance of his/her subordinates

• Review of budget

• Ascertain changes

• Preparing requirements

• Summary of new needs

• Submitting to institutional administrator

Roles and Responsibilities of the Nurse Administrator/Principal in

Budgeting:
– Participation in planning budget

– Consult an take assistance of his/her subordinates

– Request sufficient finds

– Submit budget request

– Support the budget when it is allotted.

– Cover the routine budget control

NURSING AUDIT:

Audit in nursing management is the professional evaluation of the quality of the

patient care, by analysing through all the facilities , services rendered, measures
involved in diagnosis, treatment and other conditions and activities that affect
the patients.

Definition:

e quality of clinical nursing.

“Elison”

standards from their point of view and describe the actual practice of nursing.
“Goster Walfer”

Characteristics:

ce with agreed standards of practice.

followed by the analysis of causes of such variations.

ose whose records are audited.

- up or repeating an audit sometimes later to find out if the

practice is fulfilling the agreed standards.

Objectives:

quality of care.

worldwide.

Methods of Audit:

There are mainly two methods;

- It refers to the detail quality care assessment after the

patient has been discharged. The records can be reviewed for completeness of
records, diagnosis, treatment, lab investigations, consultations, nursing care
plan, complications, and end results.

- It is achieved by reviewing patient care during the time of

hospital stay by the patient. It includes assessing the patient at the bed- side in
relation to predetermined criteria like errors, omissions, deficiencies, as well as
efficiencies and also excess in the care of patients under them. It involves direct
and indirect observation, interviewing the staff responsible for care, and
reviewing the patients„ records and care plan. It can be also done to identify the
job satisfaction of staff nurses in accordance with their work performance.

Audit cycle:

According to Payne, the steps in audit or utilization review include;

lation of evaluation

The basic audit cycle can be depicted as:

1. set Standards

2. observe practice changes

3. compare with standards

4. implement Change

In general, the stages of audit cycle are;

Setting criteria and standards

 - evaluation)

Advantages:

done.

Disadvantages:

be considered as a punishment to professional group.

- legal importance- They feel that they will be used in court of law as
any

document can be called for in a court law.

requires a team of trained auditors.

COST COUNTING AND COST ANALYSIS:

Introduction

Cost effectiveness and cost accounting are important aspects in the managerial
level. If these factors are not being monitored properly the profit of the
organization may be drastically affected. So each administrator should be aware
of this. Thus it forms an important aspect in the part of administration.

Origin of cost accounting:

Cost accounting has long been used to help managers understand the
costs of running a business. Modern cost accounting originated during the
industrial revolution, when the complexities of running a large scale business
led to the development of systems for recording and tracking costs to help
business owners and managers make decisions. In the early industrial age, most
of the costs incurred by a business were what modern accountants call "variable
costs" because they varied directly with the amount of production. Money was
spent on labor, raw materials, power to run a factory, etc. in direct proportion to
production. Managers could simply total the variable costs for a product and use
this as a rough guide for decision-making processes.

Some costs tend to remain the same even during busy periods, unlike
variable costs, which rise and fall with volume of work. Over time, the
importance of these "fixed costs" has become more important to managers.
Examples of fixed costs include the depreciation of plant and equipment, and
the cost of departments such as maintenance, tooling, production control,
purchasing, quality control, storage and handling, plant supervision and
engineering. In the early twentieth century, these costs were of little importance
to most businesses. However, in the twenty-first century, these costs are often
more important than the variable cost of a product, and allocating them to a
broad range of products can lead to bad decision making. Managers must
understand fixed costs in order to make decisions about products and pricing.

Definition:

Cost accounting:

Cost accounting is the process that supports the budget reporting system and the
agency efforts for cost containment.

Cost accounting is a set of techniques for associating costs with the purpose
for which obtained.

Classical cost elements are:

1. Raw materials

2. Labor

3. Indirect expenses/overhead

Elements of cost

1. Material (Material is a very important part of business)

A. Direct material

2. Labor

A. Direct labor

3. Overhead

A. Indirect material

B. Indirect labor

Standard cost accounting:

 In modern cost accounting, the concept of recording historical costs was taken
further, by allocating the company's fixed costs over a given period of time to
the items produced during that period, and recording the result as the total cost
of production. This allowed the full cost of products that were not sold in the
period they were produced to be recorded in inventory using a variety of
complex accounting methods, which was consistent with the principles of
GAAP (Generally Accepted Accounting Principles). It also essentially enabled
managers to ignore the fixed costs, and look at the results of each period in
relation to the "standard cost" for any given product.

An important part of standard cost accounting is a variance analysis,, which

breaks down the variation between actual cost and standard costs into various
components (volume variation, material cost variation, labor cost variation, etc.)
so managers can understand why costs weredifferent from what was planned
and take appropriate action to correct the situation.

Classification of costs:

Classification of cost means, the grouping of costs according to their common

characteristics.

The important ways of classification of costs are:

production, selling, distribution, administration, R&D,

development,

-variable
There are various managerial accounting approaches:

-based costing

-volume-profit analysis

Activity-based costing:

Activity-based costing (ABC) is a system for assigning costs to products based

on the activities they require. In this case, activities are those regular actions
performed inside a company. "Talking with customer regarding invoice
questions" is an example of an activity inside most companies.

Accountants assign 100% of each employee's time to the different activities

performed inside a company (many will use surveys to have the workers
themselves assign their time to the different activities). The accountant then can
determine the total cost spent on each activity by summing up the percentage of
each worker's salary spent on that activity. A company can use the resulting
activity cost data to determine where to focus their operational improvements.
For example, a job-based manufacturer may find that a high percentage of its
workers are spending their time trying to figure out a hastily written customer
order. Via ABC, the accountants now have a currency amount pegged to the
activity of "Researching Customer Work Order Specifications". Senior
management can now decide how much focus or money to budget for resolving
this process deficiency. Activity-based management includes (but is not
restricted to) the use of activity-based costing to manage a business.
 While ABC may be able to pinpoint the cost of each activity and resources
into the ultimate product, the process could be tedious, costly and subject to
errors.

As it is a tool for a more accurate way of allocating fixed costs into product,
these fixed costs do not vary according to each month's production volume. For
example, an elimination of one product would not eliminate the overhead or
even direct labor cost assigned to it. ABC better identifies product costing in the
long run, but may not be too helpful in day-to-day decision- making.

Lean accounting:

Lean accounting has developed in recent years to provide the accounting,

control, and measurement methods supporting lean manufacturing and other
applications of lean thinking such as healthcare, construction, insurance,
banking, education, government, and other industries.

There are two main thrusts for Lean Accounting. The first is the application
of lean methods to the company's accounting, control, and measurement
processes. This is not different from applying lean methods to any other
processes. The objective is to eliminate waste, free up capacity, speed up the
process, eliminate errors & defects, and make the process clear and
understandable. The second (and more important) thrust of Lean Accounting is
to fundamentally change the accounting, control, and measurement processes so
they motivate lean change & improvement, provide information that is suitable
for control and decision-making, provide an understanding of customer value,
correctly assess the financial impact of lean improvement, and are themselves
simple, visual, and low-waste. Lean Accounting does not require the traditional
management accounting methods like standard costing, activity-based costing,
variance reporting, cost-plus pricing, complex transactionalcontrol systems, and
untimely & confusing financial reports. These are replaced by:
 -focused performance measurements

-making and reporting using a box score

ports that are timely and presented in "plain English" that

everyone can understand

eliminating the need for them

ated for the

customers

financial planning processes (SOFP)

-based pricing

As an organization becomes more mature with lean thinking and methods,

they recognize that the combined methods of lean accounting in fact creates a
lean management system (LMS) designed to provide the planning, the
operational and financial reporting, and the motivation for change required to
prosper the company's on-going lean transformation.

Marginal costing:

This method is used particularly for short-term decision-making. Its principal

tenets are:

product)
Thus, it does not attempt to allocate fixed costs in an arbitrary manner to
different products. The short-term objective is to maximize contribution per
unit. If constraints exist on resources, then Managerial Accounting dictates that
marginal cost analysis be employed to maximize contribution per unit of the
constrained resource.

Throughput Accounting

Throughput Accounting (TA) is a dynamic, integrated, principle-based, and

comprehensive management accounting approach that provides managers with
decision support information for enterprise optimization.

Advantages:

The accumulated data enable a head nurse to assess the cost

It enables a nurse manager to identify the interaction between different

expenditure.

It enables a manager to identify popular services.

Disadvantages:

It is difficult to associate some costs with particular programme

It is the fact that it is difficult for a manager to justify the cost of a nursing care
programme.

Cost effectiveness

Cost-effectiveness analysis
 Cost-effectiveness analysis is a form of economic analysis that compares the
relative costs and outcomes (effects) of two or more courses of action. Cost-
effectiveness analysis is distinct from cost-benefit analysis, which assigns a
monetary value to the measure of effect. Cost-effectiveness analysis is often
used in the field of health services, where it may be inappropriate to monetize
health effect. Typically the CEA is expressed in terms of a ratio where the
denominator is a gain in health from a measure (years of life, premature births
averted, sight- years gained) and the numerator is the cost associated with the
health gain.

Cost benefit analysis:

It is a tool with great potential for the decision maker so long as he or she
recognises the difficulty in determining the true costs and benefits of various
alternatives. This tool can be especially useful when trying to decide between
alternative expenditure of money.

A cost benefit ratio (z) is defined as the ratio of the value of benefits of an
alternative to the value of alternative cost.

Z= Present value of economic benefits/ present value of economic costs

Cost benefit analysis is designed to consider the social costs and

benefit attributable to the project. The benefits are expressed in monetary terms
to determine whether a given programme is economically sound and to select
the best out of several programmes.
 Objectives

General objectives:

By the end of the presentation on fiscal planning the peer group will be
able to gain the depth knowledge regarding the fiscal planning.

Specific objectives:

 Define budget
 Explain about features of budget
 Enlist the purpose of budget
 Enumerate the importance of budget
 Enlist the principles of budget
 Explain about steps in budgetting
 Explain about general budget
 Roles and responsibilities of nurse administrator/ principal in
budgetting
 Discuss about nursing audit
 Define nursing audit
 Describe the characteristics of nursing audit
 Enlist the objectives of nursing audit
 Explain about methods of nursing audit
 Explain about audit cycle
 Enlist advantages of nursing audit
 Enlist the disadvantages of nursing audit
 Explain about cost effectiveness and cost counting
 Define accounting
 Enumerate Classification of cost
 Explain about cost benefit analysis.
 PRESENTATION ON FISCAL
PLANNING

Submitted to submitted by

Mrs. P . Sunitha williams S.Radha

lecturer Msc (n) 2nd yeare

govt.college of nursing govt. college of nursing.