Abstract
A budget is an important document in any given organization as it helps in ensuring the organization is running in the right direction. Budget development is a detailed process that goes through a series of procedures such as communicating with senior management, setting goals and objectives, creating a thorough budget, compiling and updating the budget model, and reviewing and approving it by the budget committee. On this basis, this research paper aims at describing the knowledge, competencies, and best practices of a financial leader specifically in a healthcare center. A thorough literature search was done to explain the role of a clinical nurse supervisor in budget development which includes her role in ensuring that the budget covers all the expenses in their respective nursing units. The paper also seeks to address the impact of staffing on budget development, an organization’s income source, factors that impact spending, and the role of focus and discipline in enhancing an organization’s smooth running and adherence to the budget and the proposed budget model in a healthcare institution. After a thorough review, this research emphasizes the need to take into account the impact of these aspects during budget development for an organization’s effective financial performance.
Introduction
A unit budget is a strategy that describes the goals and objectives of a certain unit of the company, and the anticipated costs and income. Additionally, it offers advice on how to make use of both human and material resources. Planning a budget necessitates striking a delicate balance between achieving financial objectives and guaranteeing patients receive high-quality treatment (World Health Organization, 2018). The organization needs to analyze the budget and discover areas to cut expenses without adversely affecting the services that support revenue if expense predictions exceed revenue projections. The first step in learning how to optimize its budget is to understand the many types of budgets that healthcare organizations might utilize.
A budget comprises various components including; estimated revenue which is the revenue anticipated from the selling of goods and services will bring in for the company and it comprises the sales forecast and anticipated cost of products sold or rendered services. Fixed cost is money incurred by the company for a certain item regularly (Naranjee et al., 2019). Variable costs involve the cost of goods and services that changes based on the organization’s success. One-time expenses are unexpected expenses that your company could face at any time in a year. Cash flow is the money that flows in and out of the business. Profit is a figure resulting from the deduction of anticipated expenditure from revenue.
Leadership in Budget Development
Leadership is a vital component of every organization and it affects every sector of the organization. However, leadership development strategies must align with the purpose and value of the organization. During an interview held with Katrina James, a clinical nurse supervisor, various responsibilities of the nurse manager were recorded. Related to this context is her role in ensuring financial performance and quality. Katrina James is tasked with financial responsibility to oversee all the financial aspects of her unit (Sherman & Saifman, 2018). For her duty center or nursing team, Katrina often collaborates with the finance department to create goals and develop the budget (Katrina J. Personal communication, September 2022). Katrina serves as the link between management strategies and employee performance in the organization. By so doing, they ensure that all the institutions’ expenses do not exceed the budget of the unit and therefore they are required to have adequate budgeting skills.
These expenses include the following; Staffing expenses. Staffing expenditures are kept within the limits set by nurse management (Naranjee et al., 2019). Katrina plans for fluctuations in staffing needs without charging overtime to the workforce, and she is in charge of setting up money for temporary aid when staffing demands exceed unit resources (Katrina J. Personal communication, September 2022). She also assists the unit in finding a means to fulfill its task while utilizing the available staffing resources.
Katrina James is also in charge of ensuring that the operating expenses and infrastructure costs are maintained to a minimum while still meeting the needs of the unit. For staff members to conduct their interventions, Katrina ensures that they have access to the tools and supplies they require and they can use those resources efficiently (Sherman & Saifman, 2018). The nurse management must also come up with a solution that meets the needs of their workforce while not compromising patient care when these products become expensive. Nurse managers usually concentrate on matters concerning income. This is significant since the earnings need to be adequate to pay for the costs (both anticipated and unforeseen) associated with the staff’s healthcare and services.
The Impact of Staffing on Budget Development
Staffing is the practice of selecting qualified applicants from within the organization for particular positions. Two main categories of healthcare budgets that impact nursing are operating and capital budgets. Budgets for capital projects are used to schedule improvements and investments in material possessions whose value fluctuates over time (Hunt, 2018). Personnel costs and yearly facility operating costs are included in operational budgets. Given that nurses are near patients and are knowledgeable about the resources required to deliver quality care and services daily, the operational budget is important to them (Van den Heede et al., 2020). Revenues and expenses constitute the bulk of each nursing unit’s operating budget, which is regarded as a cost center.
Involving staff in budget development implies that employees will exert more effort to meet the budget than they would if management just delivered it to them. This enhances a smooth working period which in turn maximizes their output as they will be responsible for their financial performance (Hunt, 2018). Staffing affects budget development as developers need to consider the following models aimed at the provision of cost-effective services: Acuity-based staffing: is a method of allocating patients that considers the level of care needed based on the seriousness of a patient’s condition. Because of this, a nurse’s caseload frequently changes from shift to shift as the patients’ requirements alter. By guaranteeing nurses have sufficient time to care for challenging patients, acuity-based staffing encourages effective utilization of resources.
Team nursing: is a pattern where a group of patients is cared for by a combination of nurses at different levels. Team nursing is an illustration of wisely deploying human resources to deliver high-quality care at a reasonable cost. On-call and off-with benefits: Due to operating budget restrictions, agencies frequently reduce personnel when estimated staffing for a shift exceeds the number of clients admitted and their acuity (Van den Heede et al., 2020). Floating: this is a frequently used agency staffing technique where nurses are asked to temporarily work on a separate unit to help cover a shift with insufficient employees which can lower human expenditures by lowering employee overtime payments.
Sources of Revenue
Revenue refers to money derived through the sale of any goods or services offered by an organization. An organization’s source of income varies from one institution to another based on the type and objectives of the organization. In a healthcare institution, operating revenue is the primary source of income (Behera & Dash, 2020). Operating revenues from patient care refer to income received for providing medical services directly to patients. These include the revenues from prescription sales, patient services rendered, interest, and depreciation on facilities and equipment used in the provision of patient care. Healthcare centers have two main sources of funding namely public and private.
Public revenue sources refer to two different sorts of support the government provides to the medical industry. These support choices are currently Medicaid and Medicare. Medicaid refers to insurance that offers protection to people 65 years of age and older. People who are physically and mentally challenged are also covered (Mahinay, 2019). The taxes gathered from the working population provide funding for this insurance. Medicare option entails insurance that provides coverage for people who are low-income or who have serious or ongoing medical conditions (Mahinay, 2019). Similar to other types of insurance, Medicare is supported financially by both state and federal taxes.
Private revenue sources are provided by private clients and private organizations. As a result, customers are a reliable source of income so long as they pay for their medical care out of pocket. Preferred Provider Groups and Health Maintenance Organizations are examples of private organizations. In the context of private revenue sources, hospitals may take into consideration gifts and grants given by private individuals or businesses (Behera & Dash, 2020). This sort of income is currently quite unstable and unpredictable thus, hospitals must effectively lobby their local communities to secure this kind of funding.
Key Factors That Impact Spending
Spending refers to using money wholly and exclusively in business to pay for goods or services and it is primarily financed by the organization’s income. Spending however is affected by the following factors; Technology: Introduction of new technology in healthcare either increases or decreases the institution’s expenditure. For instance, some technological procedures have lessened the toll that surgery takes on patients, leading to quicker recoveries, shorter stays in hospitals, and fewer medical mistakes (Ahmadi et al., 2019). These developments enable surgeons to operate on patients who were previously deemed to be too frail to have surgery. This increases the quantity of system-wide healthcare provided hence an increase in overall healthcare spending.
Healthcare products and service prices: The cost and quantity of services affect spending in healthcare. Mechanisms such as direct pricing or price growth restraint are the goal of price regulation and it affects prices for all or a specific group of services offered in a healthcare institution (Wammes et al., 2018). These regulatory mechanisms include price setting which establishes a fixed price for each service paid to each provider.
Health insurance coverage: Health insurance is proven to improve the intensity of utilization and decrease out-of-pocket costs. However, not all programs exhibit these impacts only a few do. Market power: An institution with market power understands that lowering prices to attract new clients results in losing money from its current clientele (Ahmadi et al., 2019). As a result, it might price its product higher and produce less of it than would be necessary to optimize societal welfare. Demographics and patient characteristics. These include the ages and residential characteristics of patients. Older people usually spend more on healthcare compared to the young generation (Wammes et al., 2018). Also, people living in areas prone to hardships have higher chances of ailments and lack medical insurance coverage hence spending more.
The Role of Focus and Discipline in Budgeting
Financial discipline refers to how well an organization can adjust its spending and savings to the plans it has made to reach its financial objectives. Focus on the other hand involves putting one’s interest in a certain activity or item in this case, the organization, and its respective objectives. Financial discipline impacts budgeting by enabling the organization to achieve its major objectives faster than a haphazard savings plan (Grossi et al., 2020). It also affects budgeting as it includes putting into account aspects of financial discipline such as contracts, profitability, vendor payments, receivable management, expenses, and purchases.
Financial discipline also helps in maintaining a positive cash flow which is a crucial component of any organization. An organization’s cash flow will remain constant if it operates and spends according to the created financial budget and adhere to it. This would undoubtedly assist it with future emergency bills (Saliterer et al., 2018). Financial discipline helps in accelerating the financial milestones of an organization hence accomplishing its major objectives more quickly (Grossi et al., 2020). This can be achieved by following the developed budget and minimizing luxuries. This subsequently maximizes the cumulative output of the organization which can be used in the subsequent expansion.
Financial discipline not only enables the organization to spend its money only when required, but it also enables it to make the most use of the cash it already has. As a result, it will be able to manage its activities with less expense and ultimately generate more revenue. This in turn facilitates the effectiveness and efficiency of the budget itself and the entire budgeting process (Saliterer et al., 2018). Budgeting can also instill financial discipline due to the transparency that comes with making a budget as it may help them progress toward developing sound money management.
Proposed Budget
Below is an operational nursing unit expense budget aimed at upgrading a nursing unit in a healthcare center. Table 1 shows the variation in actual and budgeted income in the year 2022 for all the components included in the budget. It also shows the variation in expenditure between the previous year 2021 and the current year 2022. The upgrade is aimed at the installation of 20 staffed beds whereby the monetary numbers are given in $ thousands. A variance is a difference between planned and actual spending, and it can be either positive or negative about the planned spending. A favorable variance occurs when the actual expenses are lower than the budgeted expenses or the actual revenues are greater than the budgeted revenue. This results in a positive value on the budget. On the other hand, unfavorable variance results when the actual revenue is lower than the expected revenue or the actual expenses are greater than the budgeted expenses. This in turn results in a negative value on the budget.
The number of real admissions or patient days added to the outpatient services yields the number of patients’ equivalent days. The amount of gross inpatient and outpatient revenues by the number of actual admissions and patient days can be multiplied to get a number. Knowing the entire number of care hours delivered by the care team in a day is necessary to compute the care hours per patient per day. By dividing the total number of care hours provided by the team members in a day by the facility’s total patient population, this may be simply estimated. Direct care hours and indirect care hours can be used to further categorize the overall number of care hours provided to patients each day. The time a member of the care team is in direct touch with a patient, giving them hands-on care, is referred to as direct care hours. The time a member of the care team is not in direct contact with a patient but is yet indirectly providing care is known as indirect care hours.
Productive is calculated by adding up the time that an employee spends treating the patient or on an actual, productive task such as providing for the requirements of the patient by performing bedside blood tests, giving medication, cleaning the patients’ surgical supplies, like headlamps and other tools and performing other necessary chores. Productive hours in nursing are calculated by dividing target hours (census multiplied by budgeted HPPD) by actual productive hours worked. Non-productive is the sum of all the paid off-duty hours, such as vacation or holiday days, sick leave, staff development, and training on new equipment. It is calculated using the non –productive hour calculator. Firstly, the total number of labor hours as well as the labor efficiency in percentage are determined. The formula is then obtained from the aforementioned as NPH = LH * (1-LE/100).
Supplies are things that are eaten or used up, which is why the word “consumable” is used to describe supplies. Drugs, surgical supplies (disposables, glassware), chemicals, antiseptics, food supplies, stationery, and linen supply, are some of the supplies found in hospitals. The term “equipment” refers to a more durable kind of object that can be divided into fixed and mobile categories. Eggs and sterilizers are examples of fixed equipment that are mounted to walls or floors and are not a part of the building’s structural framework.
Overhead costs (Table 1) also known as overhead or operating expenses, are costs incurred by a firm that is not related to the development or production of a good or service. They are the costs an organization must pay to remain open, regardless of how successful it is. Examples of overhead costs are rent, insurance, account, ting and legal expenses, labor and salary, perks, supplies, food service, utilities, and materials for use in offices and for treating patients. In budgeting, overhead costs are calculated by first categorizing the expenses for a specific period. After categorizing, all the overhead expenses are added for the accounting period to get the total overhead cost. The cumulative expenses in the budget result in a positive value which is a surplus hence an effective and efficient operational unit.
Table 1: Nursing Unit Expense Budget
Conclusion
A budget is a very important tool for financial planning. The organization becomes aware of its expense and after contrasting them with its income, it can be determined whether there was a surplus or deficit throughout the budgetary period. If there is a surplus that develops over the budgetary period, it might be invested to earn some money to raise the overall income. The money would be needed if a deficit were to materialize. In this situation, the organization can look for the least expensive source of funding because arranging for cash has a cost.
An effective budgeting process is however driven by certain key factors which must be put into consideration. First, the budget needs to align with the goals of the organization. By so doing, the budget developers can budget for all the requirements that will help them navigate the roadmap to achieving their objectives (Kenno et al., 2018). The management also needs to maintain a conducive working environment and effective communication with their respective workers. This is particularly important as the workers are the ones who will work to see the organization through to success. Involving them in the budget development process allows them to feel recognized hence they bear the responsibility for financial performance.
Lastly, having a well-prepared budget in place is not enough for the organization’s success but making it work effectively and efficiently is. An effective and efficient process is what makes one organization stand out from all others and it is determined by the workability in team execution and productivity at the end of the budget year (Kenno et al., 2018). Productivity is measured by the performance results obtained after examining the discrepancies between the actual and budgeted income as well as the amount of profit at the end of the year.
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