Preparing and Managing an Operating Budget

Preparing and Managing an Operating Budget

assessment Instructions

Note: Complete the assessments in this course in the order in which they are presented.

Preparation

You are the nurse manager of a 35-bed hospital unit with 20 full-time equivalent (FTE) staff. You have been given the task of getting the budget under control. Several people have recently left the unit, and you have been working to fill those open positions. Your staff work scheduled overtime and many sign up to work extra shifts. Your unit serves an older population, as well, and has incurred expenses associated with this group of patients.Preparing and Managing an Operating Budget

Requirements

Note: The following requirements correspond to the grading criteria in the assessment scoring guide. Be sure that your budget addresses each point, at a minimum. You may also want to read the Guiding Questions: Preparing and Managing an Operating Budget [DOCX], linked in the Resources under the Suggested Resources heading, to better understand how each criterion will be assessed.

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Prepare and submit an operating budget for your hospital unit.

• Prepares an operating budget, and identifies knowledge gaps, unknowns, missing information, unanswered questions, or areas of uncertainty where further information could improve the budget.
  • Note: Assemble your budget figures in a table, using a format of your choice. You may use either Microsoft Word or Excel to create your budget table.
• Explains how a budget is designed and created, and impartially acknowledges conflicting data or information that was not incorporated in the budget.
• Develops a strategic plan, and proposes criteria for future evaluation of whether the outcomes of the proposed plan support the organizational or unit mission.
• Develops an approach to ongoing budget management, and identifies assumptions on which the approach is based.
• Presents budget data and information clearly and accurately. Expresses main points succinctly, using correct grammar and mechanics.
•  Integrates relevant, credible, and convincing sources of evidence to support budget data and information. Sources are current, and citations and references are error-free.

Additional Requirements

If you use Microsoft Excel to create your budget table, submit the Excel file along with your budget narrative. You may also add the Excel file to your Word document as an embedded object.

Format your budget narrative using APA style.

• Use the APA Style Paper Template [DOCX], linked in the Resources under the Required Resources heading. An APA tutorial is also provided in the resources to help you in writing and formatting your document. Be sure to include:
  • An APA-formatted title page and reference page. An abstract is not required.
  • A minimum of five properly formatted citations and references. Preparing and Managing an Operating Budget
• Your budget should be 8–10 pages in length, not including the title page and reference page.

Nurse Manager-Prepared Operating Budget for a 35- Bed Hospital Unit: Controlling Expenses and Maximizing Revenues While Assuring Patient Safety

A budget is an organization’s financial plan based on previous financial performance and future projections. The nurse manager is an important person in the process of budgeting for any nursing unit as they are the person responsible for the management of the nursing staff as well as the resources of the unit. Every unit of an organization is supposed to operate profitably and sustainably as the funds allocated to the nursing unit is that unit’s budget. This means that revenues must always surpass expenses at any given time. In the budget, predictions must be made for the following period’s patient volume, revenues, and expenses. These parameters are themselves based on growth projections and a prior period’s actual performance. The components of the budget include revenue which is calculated from patient days and drawn from all payer sources such as insurance, private pay, Medicare, and Medicaid (Brown et al., n.d.). Also included are the expenses which are incurred from supplies, procurement and use of equipment (as well as their maintenance), and staff salaries and other benefits. In a good budget, the costs or expenses (personnel remuneration, overheads, and items) are supposed to remain constant or reduce as revenues rise. To do this, the nurse manager has to keenly manage staffing and nurse to patient ratios. Managing the nursing staff therefore means that a balance must be struck between staff productive time and non-productive time. The productive time of the nursing staff is the time period that they actually worked and are paid for. Non-productive on the other hand is the time period that is paid for by the organization even though the staff are not working. This is time such as sick time, scheduled holidays, official training time organized by the organization, and paid time off (Gealan, 2013; Brown et al., n.d.). The nurse manager in making the budget should therefore ensure an appropriate mix of nurses that is in congruence with the actual patient care hours to ensure maintenance of quality and effective nursing care (Gealan, 2013; Brown et al., n.d.). In every nursing unit, properly titrating the personnel costs to the patient days every month means the nurse manager can avoid having non-essential staff on duty when the patient days are not high. This paper is about the preparation of such a budget as described above by the nurse manager of a 35-bed nursing unit in a hospital with 20 permanent nurses working full-time equivalent (FTE) shifts.

The Operating Budget of the Nursing Unit

Table 1: Operating Budget of the 35-bed unit for the year 2020

Item	Actual Unit’s Budget Previous Year (2019)	Projected Budget Year 2020
Patient days	5,537	5,670
Revenue	USD 55,370,000	USD 56,700,000
Staff productive time	USD 2,200	USD 2,184
Staff non-productive time	USD 541	USD 548
Total  staff expenses	USD 2741	USD 2,732
Supplies	USD 252	USD 268
Overheads	USD 105	USD 105
Total non-staff expenses	USD 357	USD 373
Total expenses	USD 3,098	USD 3,105

 

The above table represents the projected budget for the unit for the year 2020. This estimate is compared to the previous year’s budget (for the year 2019) to make it easier to see the areas that are expected to improve in terms of spending and inflow of revenue. Looking at the budget, the expense on staff productive time is expected to go down in the following year because of an intended reduction in the number of overtime work that the current nurses are doing. This will not be because of having less nurses per shift, but because of better deployment of skill mix of nurses in every shift. Staff non-productive pay will marginally increase because there are nurses who are scheduled to proceed for their annual vacation while several training opportunities have also been arranged to upskill the nurses in the unit. In total, however, the overall expense on nursing staff and certified nurse assistants is expected to go down out of this prudent management of the human resource from USD 2,741 to USD 2,732. Because the unit is expected to handle more patient days in the following year, it follows that the expense on equipment, supplies, and overheads will also rise. From the estimated budget, this will rise from the previous year’s figure of USD 357 to USD 373. The good news is that since the patient days are expected to rise from the previous year’s 5,537 to 5,670, the revenue is also expected to correspondingly rise from the previous year’s actual amount of USD 55,370,000 to an estimated amount of USD 56,700,000. The total expenses will marginally rise from USD 3,098 to USD 3,105.

In preparing this budget, the knowledge gaps and unknowns include factors such as the occurrence of pandemics that cannot be predictable. If this happens in the year of the projected budget (2020), the dynamics in terms of patient days and expenses on equipment and supplies will definitely change. The other unknown is whether there will be staff turnover or not. When nurses leave the employment of the hospital, there will have to be reorganization of the staffing arrangement and deployment of skills to ensure quality patient care is maintained. Missing information is represented by factors such as what the cost of maintenance of the novel technologies and machines will be in the next year. This is information that therefore has to be estimated from an informed standpoint. This means that the nurse manager has to consult the maintenance and engineering department of the hospital to get near accurate information that she then uses to estimate this component of the expense. The areas of uncertainty where further information could improve the budget are represented by especially the influence that the level of satisfaction of the patients will have on the projected patient numbers. This is demonstrated by the rating of the hospital and how it is ranked by the Joint Commission in terms of its offering quality healthcare services. It is a known fact that patients who are satisfied by the services of the hospital are likely to come back to the hospital for care. However, what cannot be predicted is the exact magnitude of this effect, as well as the percentage of extra new patients that the good word-of-mouth is bound to bring in the next period of the budget. If this information was known, the budgeting process would be more refined and close to perfect in terms of setting aside required resources t handle those patient numbers. These resources are human as well as material.

Designing of the Budget

The designing of the budget follows the fact that the operating budget is reflective of the day to day activities of the nursing unit. Because of this, it must reflect the staffing of the unit in terms of the amounts of money expected to be aid to staff for the time that they have worked. It is also expected, on the same front, to reflect the amount of time that the staff will be paid without actually working. Also, if the permanent full-time equivalent or FTE staff are not there in sufficient numbers and also cannot be able to cover all the shifts, there may be need to contract short-term staff such as locums. This will be expense that must be factored in the budget as well. Designing the budget requires that expenses are kept to a minimum and revenues are maximized. This is achieved by properly making use of full-time equivalents or FTEs month by month. A full time equivalent or FTE nurse is employed permanently by the hospital. This particular unit has 20 FTE staff nurses. The reason why an FTE nurse is cost-effective is because she works for 8 hours a day and 5 days a week. This results in a total of 2,080 hours of personnel time a year (Brown et al., n.d.). When used properly, locum and contract employees may also be used to reduce costs as they will only work when needed. The locum and contract employee cost is usually based on and calculated from the FTE model or cost. In designing this budget also, there was need to increase efficiency of use of overheads such as electricity and surgical supplies like syringes and catheters. This was assured by placing nurses with the correct skill mix in shifts. These are qualified and experienced nurses who are responsible and will guide the other staff to be prudent in their use of organizational resources to preventing wastage. The use of technology is also added to the skills of the nurses in designing the budget to ensure that expenses are kept low and revenues are increased. All this is done as the quality of healthcare offered is maintained. That means healthcare that is safe, efficient, effective, timely, patient-centered, and equitable (Kirbi, 2015; Waxman, 2015; Russell, 2014). The design of the budget took into account the staffing levels, equipment and supplies, and the revenues generated.

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Staffing

Staffing levels will change as per the quantity of patient beds accessible, patients being thought about (expected) and their medical problems. An emergency unit ordinarily has a higher staff-to-patient proportion than a normal unit and will be comparatively costly to manage. A working financial plan typically records the numbers of the healthcare workforce in every worker classification or category. For instance, registered nurses, enrolled nurses, certified nurse assistants, and other non-medical staff as well as a breakdown of their compensation and advantage in costs for each position are considered. Expenses related with new workers was also factored in.

Supplies and Equipment

In the above nursing budget, anything that is considered to be used in a medical sense, for administrative purposes, for maintaining patient hygiene, for infection control measures, or any other supplies used in the unit was included as supplies or equipment. This is a cost or expense. In this particular budget, these have been included under the two categories that are ‘supplies’ and ‘overheads’. It is under these two titles that all of those supplies and other expenses such as maintenance have been included.Preparing and Managing an Operating Budget

Revenue

Revenue in this budget is the amount of money that comes into the organization and can be directly attributed to this unit in this case. The designing of this budget recognized that revenue will vary depending on the type of patient (patient acuity) as well as the services that are provided to that patient. All payers are sources of revenue and include private insurance, personal out-of-pocket pay, Medicare, and Medicaid. Some of these payers will negotiate with the hospital and pay different rates from those that the other payers will for the same services. Because this information may be uncertain, general averages have been used in the designing and making of this operating budget.Preparing and Managing an Operating Budget

In designing this budget, it is acknowledged that some conflicting data exists and may be difficult to explain. A good example is that it would be expected that with the increase in patient days, the amount of money spent on the productive time of nursing staff would also increase. This conclusion is drawn from the fact that higher numbers or higher patient days translate to an increased workload that requires more nurses to be on duty or a requirement for closer observation due to increased patient acuity. However, in this budget, it can be seen that the reverse is the case and this represents conflicting information. The only explanation for this as given is that a prudent deployment and delegation of nurses based on skill mix will be employed by the nurse manager.

Proposed Strategic Plan and Criteria for Future Evaluation

In consideration of the above budget, the strategic plan for this particular unit would be as follows:

• To use the least number of nurses with the highest level of skill mix to deliver the highest possible quality of care. This is in recognition of the fact that large numbers of nurses do not necessarily translate to efficiency. In any event, the large numbers of nurses with fewer skills may result in confusion and duplication of roles resulting to wastage of monetary resources used to remunerate them. The strategic objective of this budget, like for any budget, is to cut down on expenses and maximise revenues.
• To make sure that every surgical supply and every other equipment that will be needed will be available in good shape and condition at the shortest time possible. This means that the unit will be placing orders for these supplies way in advance and stocking all that it will need within at least a period of 24 hours in advance. This is in appreciation of the fact that for a skilled and experienced nurse to deliver quality healthcare services, they must have the materials and equipment readily available to facilitate their work. Also, patient safety depends on the prompt intervention of the nurse with the correct item required. The patient’s life is immediately put at risk if the nurse has to improvise for anything during a nursing intervention, just because they are not able to access a specific supply item or surgical commodity.
• To consider staff non-productive time spent on training (and the expense associated with it in terms of remuneration paid without work done) as an asset and not a liability to the organization. This is because staff who are up-to-date on current interventions and evidence-based practice (EBP) interventions will deliver the best quality nursing care. In turn, this will result in improved patient outcomes such as short hospitalization days, decreased readmission rates, and nil hospital-associated infections (nosocomial infections). The patients will be satisfied and will make repeat visits to the facility. They will also spread positive word-of-mouth to other persons (friends and family) who will also become customers of the facility.Preparing and Managing an Operating Budget
• The vision of the unit will be to be the best nursing unit in the hospital with regard to prudent use of resources and bringing into the organization an increased quantity of revenue. This will mean providing the best of care with the least amount of input, but efficiently and effectively.
• The unit’s core guiding values will be honesty, empathy, compassion, selflessness, and ambition. Of these, it is important to stress the importance of the values of empathy, compassion, and honesty in this unit’s strategic plan. Empathy and compassion will make the nurses deliver the best holistic nursing care possible that takes care of the patient’s physical, emotional, spiritual, and cultural needs. On the other hand, honesty will make the nurses be forthright to report any case of nursing errors that may have occurred without fear of repercussions. This will save lives and improve the standing of the hospital in the eyes of the patient.
• To be guided by the unit’s SWOT (strengths, weaknesses, opportunities, and threats) analysis. The strengths of the unit will include its management by a nurse manager who is a transformational leader. This means that she creates a conducive work environment for the staff and makes sure that the psychological safety of the workplace is guaranteed. Staff are free to present their opinions and make suggestions for the improvement of the unit and organizational processes and procedures. The other strength will be its employment and use of highly skilled and experienced nurses that are able to deliver on its strategic objectives. The main weakness of the unit will be its inability to prevent nursing staff turnover. The opportunities for the unit are the willingness of the hospital administration to spend money on the upskilling of staff, as well as the presence of the hospital of a new state-of-the-art electronic health record (EHR) system that now eases the management of patient information as well as acquisition of supplies from the pharmacy and the stores. Lastly, the only conceivable threat for the unit is the poaching of trained, skilled, and experienced nurses from the unit by competitors.
• Funding of the unit’s budget will come from the hospital administration through its approval of this operational budget.

The proposed criteria for future evaluation of outcomes that may be used to assess accomplishment of the components of this strategic plan are from a quality improvement standpoint. This is to say the factors that will form these criteria will be such as a reduction in the readmission rate for the unit, zero or reduced rates of hospital-acquired infections (HAI) such as catheter-associated urinary tract infections (CAUTI) and central line-associated blood stream infection or CLABSI, and a positive rating by the Joint Commission. Preparing and Managing an Operating Budget

Budget Management

The approach to ongoing budget management for this unit will be to:

• Try as much as possible to remain within the budget as planned
• Review the budget appropriately but within the estimates in the event that some uncontrollable occurrence like staff turnover occurs. This may mean hiring locum staff but still within the same amounts that the departed FTE staff would have been paid.
• To always strive to spend lower than the amounts specified on all expenses.

The assumptions on which this approach is based are that there will be no drastic staff turnovers during the period of the budget, and that there will be no staff who will be incapacitated by sickness.

Conclusion

Budgeting is an important function of the nurse manager. Preparing an operational budget for the unit is one of the important skills required of the nurse manager in this respect. The operational budget comprises of items that represent the day-to-day operations of the unit. Typically, these are factors of expenses as well as revenues that can be directly attributed to the unit and calculated from the patient days. Expenses are due to personnel and non-personnel reasons. Using nursing staff working under the FTE model goes a long way in maximizing on efficiency and frugal personnel expenditure.

preparing and managing

Preparing and Managing an Operating Budget

 

 

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