MANAGING RESOURCES
● Wage increases of market adjustments ● Price increases, including inflation rate, for supplies and other costs ● Costs for new equipment or technologies (e.g., wound vacs, sequential compression
devices, monitoring equipment) ● Staff mix (e.g., RNs, LPNs, UAPs) ● Regulatory changes (e.g., legislation mandating nurse-to-patient ratios, state board of
health regulations) for the budgetary period ● Organizational changes (e.g., decentralization of pharmacy or respiratory therapy
services) that result in salary and benefit dollars being charged in portion to the unit
Management normally uses the past as the common starting point for projecting the future, but in today’s volatile payment environment, the past may be a poor predictor of the future. This is one of the major drawbacks of the budgeting process. In a rapidly changing industry, basing budgets on historical data often requires readjustment during the actual budget period.
Controlling is the process of comparing actual results with the results projected in the budget. (See the section on monitoring performance during the year later in the chapter.) Two techniques for controlling budgetary performance are variance analysis and position control. By measuring the differences between the projected and the actual results, management is better able to make modifications and corrections. Therefore, controlling depends on planning.
Approaches to Budgeting Budgets may be developed in various formats depending on how the organization is structured. They may be considered as:
● Cost centers. Managers are responsible for predicting, documenting, and managing the costs (staffing, supplies) of the division.
● Revenue centers. Managers are responsible for generating revenues (previously by increasing patient volume, although health care reform may make the future of revenue-generating centers obsolete).
● Profit centers. Managers are responsible for generating revenues and managing costs so that the department shows a profit (revenues exceed costs).
● Investment centers. Managers are responsible for generating revenues and managing costs and capital equipment (assets).
Nursing units are typically considered to be cost centers, but they may also be viewed as revenue centers, profit centers, or investment centers. How the unit is considered is crucial in determining the manager’s approach to budgeting.
Also, some nursing managers are responsible for service lines, and their staff are from multiple disciplines and departments. Other nurse managers are responsible for a single unit, such as a telemetry unit or the staff in a multiple-physician office.
The organization may choose various approaches, or combinations of approaches, for requesting departmental managers to prepare their budget requests. These approaches are incre- mental (line-by-line), zero-based, fixed, and variable.
Incremental Budget With an incremental, or line-by-line, budget, the finance department distributes a budget worksheet listing each expense item or category on a separate expense line. The expense line is usually divided into salary and nonsalary items. A budget worksheet is commonly used for mathematical calculations to be submitted for the next year. It may include several columns for the amount budgeted for the current year, the amount actually spent year-to-date, the pro- jected total for the year based on the actual amount spent, increases and decreases in the expense amount for the new budget, and the request for the next year with an explanation attached.