1. Budgets

2. Types of Budgets
Capital
Operational
Labor
Non-labor
Project

3. Purpose of Budgets Plan Communicate Coordinate Motivate Control
Assess performance

4. Activity 2
Envision yourself planning a budget. What do you want to be clear about?
List at least 3 points that would help you with this process (or help you cope!)

5. Budget Timetable is essential. Know:
What you are responsible for producing
Know what format
For whom
By when
Timetables enable control over the process.

6. Activity 3 Budget negotiation requires political knowledge.
Acceptable and unacceptable ways to negotiate.
After hearing the rules of negotiation, list 3 actions you need to take to improve your personal performance when negotiating for financial resources.

7. Rules of Negotiation Be clear Be brief Be simple Be well informed
Be open
Be factual
Be prepared
Be alert
Be straightforward
Clear: about objectives and able to identify where your service fits (how your activities influence the total resourcing and costs.
Brief; State your service and financial objective succinctly. Short report (best if circulate this written report and highlight your key objectives.
Simple: Make it plain and simple. If figures too complex you can alienate people quickly.
Informed: must be familiare with overall financial climate and organizational policies.
Open: Open minded for your approach to finding resources for your service (think about potential opportunities) Think radically (outside the box) SHOW CARTOON
Factual: go into negotiation knowing the facts (current costs and activities)
Prepared: Do your homework on the inforamtion you have gathered (where did you get those numbers, how did you calculate and why, etc)
Alert: If you are aware of ways to save, present them but negotiate for a share of the to be passed back to you. Calculate the savings and time over which it can occur (don’t let the financial persons dictate this to you )
Straightforward: If you feel you will not have the resources necessary to run your service, then spell out the consequences in clear/rational way (explicitly use qualitative and quantitative data)

8. Goals
Nurse Manager
Collect and validate financial information using your experience and knowledge.
Establish close, collaborative working relationships.
Henderson, E. ( 2003). Budgeting: Part one. Nursing Management, 10(1),

9. Capital
Capital budgets include durable fixed and movable assets with a price above a specified amount and an estimated life of greater than one year.
Until the 1980s, capital acquisitions were reimbursed by third-party payers based on costs.
Capital budgeting is the process of planning and decision making for capital assets.

10. Capital Budget: Process
Goals established for organization.
Calls for capital equipment requests.
Manager submits request including:
Justification
Indication of priority need to budget committee
Preliminary data on requests are gathered and a priority assigned.
Cost/benefit studies may be conducted.
Comparisons of requests are completed.

11. Capital Budget: Process (cont.)
Prioritized lists are submitted to the chief executive officer and others and first cuts are made.
Target projects and requests are returned to managers for in-depth documentation of justification.
Proposals returned to budget committee.
Rankings completed.
Final recommendations.
Final funding approved (based on availability of resources).

12. Capital Budget: Process (cont.)
Nursing input into this process is imperative in the current environment and the competition for scarce resources.

13. Vendor Selection Focus on the justification Consider Cost
Desired capabilities
Need to upgrade
Training time (ease of use)
Serviceability
Availability
Post-purchase support
Narrow to 2 or 3. Ask to look at their manuals for ease of use, clarity , organization, comprehensiveness., You should clarify what will occur if need in ‘off’ hours. Need to determine supplies needed to ‘run’ equipment such as batteries, ECG paper, etc.
Sometimes you must use Sole Source Justification. If your preferred vendors (those you are approved to purchase from) does not have this equipment, you do this request.
For equipment to replace: Ask when they will install, how will you maintain patient care during installation, what time frame (how long will a room be down), what time of day will they install (low census times?). Who will orient staff?

14. Capital Budget
Investment will result in a profit as long as the rate of return exceeds the interest rate.
Discounting dollars is required to make purchasing decisions.
Return on Investment.
Time value of money: $1 today will have a different value 1 year from now.

15. Discounting (adjusting) PV of $
Requires the reverse of the interest rate computation.
If the interest rate is 9%, then $35,000 today is equal to $35,000 + $3150 ($35,000 X .9) = $38,150 in one year. So $38,150 one year from now is equal to $35,000 now (thinking in reverse).
Assumes hospital pays cash.
Fails to account for usage, depreciation, reimbursement, etc.
Remember, compound interest (therefore, if borrow money, then pay the cost of equipment plus the sum of interest!)
Present Value analysis
Present value

16. Payback Method
The number of years required to recover the initial investment.
Calculated by multiplying the expected revenue per year and adding each year to the next (estimates time required to return investment).
Fails to account for the time value of the money, assumes technology useful over an extended time, assumes usage is constant, and assumes the equipment will be efficient.
Example: Year ,000
Year ,000 cumulative 24,000\
Year 3 12,000 Cumulative 36,000 etc. If product cost 30,000, then would payback in year 3.

17. Developing Capital Request
Develop a list of new and replacement equipment items with justification for each.
Justification should include:
Standards of care
Standards of practice
Professional organization recommendations

18. Rank Ordering Patient safety and care New revenue New technology
Reduction in staff
Physician request

19. Operational Budgets Personnel Non-personnel: Assess and plan
Cost distribution report.
Classifies expenses related to numeric department accounts and charges to specific units that use them.
May included diagnostic radiology, laboratory, pharmacy, library, nursing service, dietary, supply.
Supplies are in direct control of the nurse manager.
Relate cost to the product (in nursing patient diagnosis or DRG).

20. Supplies General Drug cost Pencils, pens, paper, forms
If allocated to center vs. bill patient directly
Forecasting supply and drug costs
Related to most common diagnostic-related groupings

21. Other Costs Laboratory Dietary
Minor equipment (span of use < 1 year and less than specified dollar amount
Repair and maintenance costs
Recruiting
Education and training
Nursing turnover costs
Library costs

22. Personnel Budgets Factors affecting FTE’s Patient volume
Bed capacity vs. occupancy
Direct hours per patient day
Indirect hours per patient day
Replacement
Other full-time (fixed) positions

23. Personnel Budget Factors NOT affecting FTE’s Scheduling patterns
Part-time and full-time staff
Weekend plans
Minimum staffing
Student employees
Critical care units must staff for minimal staffing. You must know the rules and regulations of the state board of nursing.
Student should be accounted for within direct or indirect care FTE’s.
Manager, CNS, Educator positions, …..

24. Factors Determining Salary Budget
Base wage rate
Specialty pay
Merit or step increase raise
Differentials and bonuses
Overtime
On-call and call-back
Supplemental Staffing
Benefits

25. Base Wage Rate
The hourly rate of pay paid to an employee before adding all other wage enhancements.
The average base wage is the actual, average hourly rate paid to all employees in a single job classification (will vary with job classification).
Using an average is not as accurate as using the actual.
The gross, weighted (if multiplied by a factor to adjust for market) Divide the total budget salary dollars by the total budgeted paid hours. (See handout)

26. Specialty Pay
The total certified (or justifying specialty pay) and multiply times the differential times the number of hours for the budgeted dollars
# certified X differential X hours = budget $

27. Merit Pay If annual, then calculated as such.
If on hire date, then requires detailed calculations for the fiscal year.
For example, if J. Doe hire date was July 1st and the fiscal year runs from January to January, then you must calculate J. Doe’s salary for 6 months at one rate and 6 months with merit (this can be an average estimation).

28. Overtime Occurs due to:
Absenteeism
Increased volume
Increased acuity
Mandatory meetings
Minimal staffing
Must determine the percent of hours for each job class to be paid at the overtime rates and add this to the budget.
Calculate based on exercise 1

29. Supplemental Staffing
Must consider the cost related to using external agencies of the per diem in-house pool.
Add the cost of the number of FTE’s you may cover with per diem into your annual budget.

30. Steps in Personnel Budget
Budgeted patient volume (patient days).
Number of direct care hours required for DRG’s.
Indirect care hours.
Add the total and direct care hours.
Configure the replacement time (nonproductive time).
Determine the number of fixed positions.

31. Steps in Personnel Budget (cont.)
Total all FTE’s (direct, indirect, replacement, fixed)
Calculate salaries:
Average base rate method (least accurate)
Job classification method (number of FTE’s + replacement X hourly wage X hours worked) for each position
Calculate specialty pay
Calculate merit
Calculate differentials
Calculate overtime
On-call
Supplemental staffing

32. Bench Marking and Forecasting
Comparative analysis important to managers because it creates commonalities assisting with the planning, controlling, and financial decision making:
You can compare disproportionate entities by common sizing (using percentages instead of dollars).
Can use in house or compare with other institutions.

33. Trend Analysis Examine data over time. Convert dollars to percentages.
First complete vertical analysis.
Then complete horizontal analysis.
Determine the % of change.

34. Forecasting Making a prediction on a future outcome.
Used by many agencies to plan for the future.
Short range
Intermediate
Long range

35. Assumptions to Consider
The data used in trend analysis were accurate and reflect the future.
Assumes that no regulatory changes (other than what we know) will occur.
Assumes technology remains the same.
Assumes a consistent pattern over time.
Seasonal

36. Forecasting Information
U. S. Census
Medicare/Medicaid
Marketing analysis
Labor Bureau
Delphi technique
Institutional changes
Statistical reports from large agencies (for example, the American Heart Association).
Epidemiological studies (NHANES, Nurses Study)