EXAM 3 STUDY GUIDE

Ch 14: Budgeting & Management Fiscal Resouces

I. The Budgeting Process
1. Information needed to plan objective
Demographics of population served, community influences, & competitors
Sources of revenue, especially with changes in reimbursement due to enactment of health care
reform
Statistical data
a. # admissions / patient appointments
b. Average daily census
c. Average length of stay
d. Patient acuity
e. Projected occupancy / volume base for ambulatory or procedure-based units or home care visits
f. Wage increases of market adjustments
g. Price (i.e. inflation rate for supplies & cost)
h. Costs for new equipment or technologies (e.g. wound vacs)
i. Staff mix
j. Regulatory
k. Organizational
II. Approaches to Budgeting
Cost Centers: managers are responsible for predicting, documenting, & managing costs
Revenue Centers: managers generate revenues
1. Revenue Producing: radiology, laboratory
2. Nonrevenue Producing: environmental services, maintenance, administration
Profit Centers: generate revenues + manages costs such that revenue exceeds cost
Investment Centers: managers generate revenues & manage costs + capital equipment
A. Incremental Budget
Finance department distributes a budget worksheet that includes amount budgets for current year,
amount spent last year, projected total for the year based on actual amount spent, + in expense
amount for new budget, & request for next year with explanation
Advantage: simplicity of preparation
Disadvantage: Discourages cost efficiency

B. Zero-Based Budget: assumes base for projecting next years budget is 0
C. Fixed or Variable Budget:
1. Fixed budget: Amount is set without regard to changes that may occur during the year
2. Variable budget: adjustments to the budget may be made during the year based on revenue
changes, patient census, utilization of supplies, & other expenses

III. Operating Budget / Annual budget: organizations statement of expected revenues & expenses
for coming year

Impact of new equipment on units expenses (e.g. # staff needed to run equipment, use of supplies,
maintenance costs
A. The Revenue Budget: income from patient care for the budget period
B. The Expense Budget: consists of salary + nonsalary items
1. Cost Centers: smallest area of activity within an organization for which costs are accumulated
(i.e. laboratory, radiology, or non-revenue producing such as environmental services and
administration)

2. Classification of Cost
a. Fixed Costs: Costs REMAIN SAME no matter what (i.e. rental payments)
b. Variable cost: Depends on patient volume & acuity.
More patients more supplies used higher supply expenses
c. Direct costs: directly affect patient care (e.g. salaries of nursing personnel; hands-on care)
d. Indirect costs: do NOT affect patient care (e.g. salaries for security / maintenance personnel)
IV. Determining the Salary (Personnel) Budget
Salary budget / personnel budget: projects salary costs for nurse managers, RNs, LPNs, nurse
assistants, unit clerks, and float pool RNs. This will be paid & billed to cost center in the budget
process.
Also includes benefits, shift differentials, overtime, on-call expenses, bonuses, and preniums
A. Benefits
Benefit time: vacation, holidays, personal days, bereavements days, sick days
B. Shift Differentials
Extra money for working in the evening, at night, or on weekends
C. Overtime
D. On-Call Hours
E. Premiums
F. Salary Increases
G. Additional Considerations
V. Managing the Supply & Nonsalary Expense Budget

VI. The Capital Budget
Lists anticipated expenditures in the current year driven by organizations long term
goals
Physical renovations, new construction, new or replacement of equipment planned within
specified time, supplies, utilities, PCs
Items must have expected performance of 1 year or more & exceed $500 or $1,000
VII. Timetable for the Budgeting Process
~ 3 to 6 months
VIII. Monitoring Budgetary Performance During the Year
Variance: Amount budget Actual cost
Variance Report: budget report card that explains expenses
Assessing variance:
a. ID items that are over / under budget
b. Why did the variance occur?
c. To prepare for next years budget keep notes on what you learnt
d. Examine the payroll & note overtime or use of agency personnel
e. Validate the use of overtime or additional personnel & keep a note for your files
A. Variance Analysis
1. Salary Variances
a. Efficiency variance / Quantity variance / Use variance: Budget care hours - actual provided
higher census than expected more nursing hours provided + paid
Favorable efficiency: Low patient acuity than projected, understaffing fewer hours paid
Unfavorable efficiency: Higher patient acuity than projected budget overstaffing use
less experienced nurses
2. Nonsalary Expenditure Variances
B. Position Control
Compares actual # of employees to # of budgeted FTEs for nursing unit
Includes:
a. approved budgeted FTE positions for nursing cost center
b. position displayed by category or job classification (e.g. nurse manager, RNs) by level
c. Employee names
d. FTE factors for each individual with respect to personnel changes, new hires, and
resignations that take place during the year
IX. Problems Affecting Budgetary Performance
A. Reimbursement Problems
B. Staff Impact on Budget
1. Improving Performance
2. Magnet Hospital Performance