Budgeting

BUDGETING

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 Introduction

·       Budget is an estimation of revenue and expenses over a specified time frame

·       A well planned budget allows an organization to plan appropriately for the future in order to provide quality

·       During the process of budgeting, the leaders must account for key components of planning like

o   Volume growth assumptions

o   Feedback

o   Inputs from key stakeholders

 

Needs and Principles of Budgeting

·       Needs of Budgeting

o   To fulfil the requirements of resources

o   For raising funds

o   To ensure the proper utilization of funds

o   For the development of a sound organization

o   For receiving grants & donations

o   For the estimation of continuous requirements

o   To check the proceedings as per the budgetary estimates

o   For the good understanding of financial management

o   To manage the financial resources to get maximum service units for every rupee spent

·       Principles

o   Budget

§  Should be with measurable goals

§  Should be

·       Simple

·       Direct

·       & Attainable

§  Should relate to achieving the goals

§  Should measure the current financial performance

§  Should be based on the operational numbers of each department

§  Should be linked operational & marketing

§  Should be compared with the activities

o   Variance analysis must be made

o   Mid course correction must be initiated

o   Units must operate within the budget

o   Policies for all the activities must be established

 

Types of Budgets

·       Conventional Budget

o   It is prepared on the basis of previous figures

o   It assumes that whatever has happened in the previous year will continue with some changes

o   It does not take into account any changes in the situation

o   Whatever amount spent last is assumed to be sanctioned without analyzing whether it is required or not

o   It is always out of sync with the current happenings in the system

·       Zero Based Budget

o   It is a technique of planning & decision which reverse the working process of traditional budgeting

o   In this technique, every department function is reviewed comprehensively and all expenditures must be approved, rather than only increases

o   It requires the budget request justified in complete details by each program starting from the Zero base

o   It is indifferent whether the total budget is increasing or decreasing

o   It helps to forget about last year, assuming that the program is brand new

o   It helps to develop a complete picture of what the program actually needs to cost

·       Input Output System

o   Inputs

§  Capital cost

§  Revenue cost

o   Process

§  Intermediary

§  Direct

o   Output

§  Patient services

§  Research output

o   This method divides the healthcare system into a set of activity centre

§  Medical Departments

·       OPD

·       IPD

·       ICU, CCU & NICU

·       Operation Theatre

§  Service Department

·       Pharmacy

·       Diagnostics & Radiology

·       Biomedical

·       Nursing

§  Admin Department

·       Purchase

·       Human Resource

·       Maintenance

·       Marketing

o   The above departments are further classified into

§  Final Service Department

·       Which render services directly to the patients

§  Intermediary Service Department

·       Which provides services to the other departments and not to the patients directly

o   Cost of intermediary departments are allocated to the final service departments

o   And finally the costs are matched with the revenues

·       Time Frame Budget

o   Five year plan

o   Annual budgets

o   Monthly budgets

 

Purpose, Perquisites, Characteristics, Importance, Process, Advantages & Disadvantages of Budgeting

·       Purpose

o   Mechanism for translating fiscal objectives into projected monthly spending pattern

o   To enhance decision making

o   To recognize controllable and uncontrollable cost areas

o   Allows feedback of utilization of budget

o   Identify problem areas and facilitates effective solutions

·       Perquisites

o   Organizational structure

o   Non-monetary statistical data

o   Charts of accounts

o   Managerial support

o   Formal budgeting process

·       Characteristics

o   Flexible

o   Synthesis of past

o   Product of join venture

o   In the form of statistical standard

o   Have support of top management

·       Importance

o   Need for future planning

o   Facilitates coordinating operations

o   Helps to weigh values

o   Helps to take decision

·       Process

o   Establish objectives, goals & policies

o   Translate them into quantifiable management

o   Prepare formal plan for budget

o   Revised departmental budget and prepared the master budget

o   Test the feasibility of master budget

o   Approve the document

o   Distribute to all parties involved

·       Advantages

o   Fixes accountability

o   Encourage managers for careful analysis of operation

o   Revealed weakness

o   Take corrective measures

o   Balanced activities

·       Disadvantages

o   Time consuming

o   Expensive

o   Required skills & experience

o   Budgetary goals may supersede agency goals

o   Converts all aspects in monetary value

 

Video Description

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