BUDGETING
Joanna Jane F. Ang, RN
Proportion your expenses to what you have, not what you expect.
English Proverb
BUDGETING is a process of making plans and quantifying the expected results. A BUDGET is a concrete expression of how well a unit or project is managed and how resources are used.
Prerequisites to Budgeting
1. A sound organizational structure with clear lines of authority and responsibility Budgets are developed with conformity to the pattern of
authority and responsibility.
2. Statistical data Statistical data such as number of admissions,
average length of stay, percentage of occupancy, and number of patient daysare used for planning and control of the budgetary process.
3. Charts of accounts consistent with the organizational plan
Revenues and expenses are reported by responsibility areas.
4. Managerial Support
Budgeting must be valued by top administration. Managers must be willing to devote their time and energy to the budgeting process.
5. Formal budgeting policies and procedures
Formal budgeting policies and procedures should be available in a budget manual, in which objectives of the budgetary program are defined, authority and responsibility for budgeting are clarified, and instructions for budget development are discussed in detail.
Types of Budgeting
Incremental budgeting involves taking last years figure and adding a bit on for inflation or whatever, or even taking a bit off, due to perhaps, downsizing. Zero-base budgeting zerobase budgeting begins with the assumption that the function for which the budget is being prepared does not exist. Activity Based Budgeting (ABB) In ABB, the budget recognizes that it is activities which generate cost in a business, and the desire is to control these cost drivers. Kaizen Budgeting Kaizen implies continuous improvement. As such, a Kaizen Budget is designed with anticipated cost improvements integrated at the start of the year.
Identifying financialplanning responsibilities is needed before beginning budget preparation. 1. Governing board 2. Administrator 3. Budget director 4. Steering committee 5. Department heads
Budgeting Principles
1. Comprehensiveness 2. Discipline 3. Legitimacy 4. Flexibility 5. Predictability 6. Contestability 7. Honesty 8. Information 9. Transparency 10. Accountability
Source: World Bank, Public Expenditure Management Handbook
THE BUDGET PROCESS
1. Establishment of operational goals and policies for the entire agency (The governing board should approve a longrange plan of 3 to 5 years.) 2. Operational goals is translated into quantifiable management objectives for the organizational units (The department heads use the organizational goals as a framework for the development of departmental goals.)
3. A formal plan for budget preparation and review, including assignment of responsibilities and timetables, is prepared (During this phase, units of service, staffing patterns, salary and nonsalary expenses, and revenues are forecasted so that preliminary rate setting can be done.) 4. Departmental budgets are revised 5. Master budget is prepared 6. Financial feasibility of the master budget is tested 7. Final document is approved and distributed to all parties
TYPES OF BUDGETS
1. Operating or Revenueandexpense budgets
The operating budget provides an overview of an agencys functions by projecting the planned operations, usually for the upcoming year.
2. Capital expenditure budgets
Capital expenditures include physical changes such as replacement or expansion of the plant, major equipment, and inventories.
3. Cash Budgets
Cash budgets are planned to make adequate funds available as needed and to use any extra funds profitably.
Disadvantages of Budgeting
1. Budgets convert all aspects of organizational performance into monetary values for a single comparable unit of measurement. 2. Some aspects of the organization may not be considered and may be ignored. 3. The budget may become an end in itself instead of the means to an end. 4. Budgetary goals may supersede agency goals. 5. There is a danger of overbudgeting. 6. Budget planning is time consuming and expensive
Advantages of Budgeting
1. Helps fix accountability 2. States goals for all units 3. Offers a standard of performance 4. Stresses the continuous nature of the planning and control process 5. Encourages managers to make careful analysis and decisions 6. Weaknesses in the organization can be revealed 7. Staffing, equipment, and supply needs can be projected and waste minimized 8. Financial matters can be handled orderly 9. Agency activities can be coordinated and balanced
To get money is difficult, to keep it more difficult, but to spend it wisely most difficult of all. Anonymous
