See Chapter 6 in Penner, Susan J. (2013). Economics and Financial Management for Nurses and Nurse Leaders, 2nd ed. New York: Springer Publishing Company. http://www.springerpub.com/product/9780826110497#.UOtV2axCrTo

1. Chapter 6: Budget Planning
• Focus on planning
budgets in the future
• Emphasis on the
operating expense
budget for an acute
care nursing unit
• Directions on preparing
the budget for your
class project

2. Figure 6.1. Roles in Health Care Budget
Influence and Accountability.
Accountability
Influence
High
Low
High
High influence and High influence
high
and low
accountability
accountability
Low
Low influence and Low influence
high
and low
accountability
accountability

3. Budget Linkage
• Strategic plan: establishes overall
assumptions, priorities and objectives for the
next FY
• Statistics budget: revenues and expenses
are based on volume
• Operating and cash flow budgets
• Capital budget: linked to the strategic plan
given long-term financial investment

4. Elements of the Budget Cycle
• Calendar with schedule
and assignments for
budget preparation
• Establishing priorities,
goals, objectives and
performance targets for the
next budget year as part of
the strategic plan
• Preparation of budget
proposals
• Budget negotiation and
approval
• Evaluation of performance
over the completed budget
year

5. Forecasting Methods
• Qualitative forecasting: predictions based
on expert subjective experience
• Quantitative forecasting: collection and
mathematical analysis of measures
• Retrospective forecasting: based on past
data and trends
• Prospective forecasting methods: based
on information that influences future events
• Trend line: estimates the movement of an
economic variable over time

6. Qualitative Forecasting
• Experience
• Expert
opinion
• Consensus
Range
Estimates
Low
High
Expert A
2.5% 5.0%
Expert B
4.0% 6.0%
Expert C
7.0% 8.5%
Patient Days
Forecast
4.5% 6.5%

7. Figure 6.2. East Wing Medical-Surgical Unit, Trend
Line Forecast for 2013 Total Nursing Costs.

8. Concepts of Forecasting
• Forecasting requires effort, expense and
expertise
• A combination of retrospective and
prospective methods may be helpful
• A combination of qualitative and quantitative
approaches may be helpful
• Forecasting accuracy decreases as the time
frame increases

9. Zero-Based Budgeting (ZBB)
• Requires justification for each line item
before entering the item into the budget
• Forces the manager to critically review
every item in the budget
• Improves the accuracy of the budget
• Cumbersome to prepare
– Limit ZBB to line items needing greater scrutiny
and control
– Not practical to apply to the entire budget every
year

10. Your Business Plan or Grant
Proposal: Preparing Your Budget
• Personnel budget section
– Salaries, wages and benefits (25% or so of salary or
wage)
– Use websites such as Indeed.com/salary for salary
information
• Non-personnel budget section
– Supplies
– Maintenance (such as gasoline for a van)
• Equipment: start-up costs
– Such as purchasing a van for mobile health care
• Prepare an annual budget for two years
– The first year will include all the start-up costs

11. Key Points
• Nurses need to become involved in strategic
planning to increase their financial influence and
accountability
• Advisable to apply multiple methods to budget
forecasting:
– Retrospective and prospective approaches
– Quantitative and qualitative approaches
• ZBB is useful to critically review and justify
selected budget line items
• Prepare your annual project budget for two
years to report start-up costs