Nursing Chapter 16 Homework Mix Variance Due Change The Mix Work

Chapter 16: Managing Resources, The Budget

Learning Outcome 1

Identify the purpose of a budget.

Concepts for Lecture

1. Preparing a department’s budget is one of the last steps in handling a corporation or

2. Objectives of financial management can only be met with the cooperation of all

managers. They include:

a. Ensure that the organization has an efficient and effective financial management

3. A budget, or planning document, is a means of incorporating financial data used by a

department and organization that forecasts both receipts and expenditures. The financial

PowerPoint Slides

1. Managing financial resources

• Financial management has a large scope, and has many interrelated activities.

2. Objectives of financial management

• Ensure the organization has an efficient and effective financial management

3. Purpose of a budget

• Planning document

• Incorporates financial data used by a department/organization.

• Forecasts both receipts and expenditures.

• Financial management system

Suggestions for Classroom Activities

• List areas that impact nursing practice that involve managing budget categories on a

unit level. Then, have an in-class discussion about the purpose of budgets in

Reference

Learning Outcome 2

Concepts for Lecture

1. The budgeting process is an important part of every organization’s planning and control

function. It requires the manager to:

a. Review the financial performance during the prior budgeting time frame; and

2. Constant assessment of the internal and external environment allows determination of

3. Specific goals and financial projections are prepared on a regular, set schedule, and

contain operating and capital plans. Operating plans are items that affect daily activities

4. Accounting is the activity that records and reports all financial transactions and thus

generates the data for the budget. There are different types of accounting methods:

5. A long-range financial plan, also known as a projection, is a document prepared by

organizations to cover the finances for the next 5–10 years. The long-range financial plan

is tied to the organization’s strategic plan, so the plan usually begins with outlining the

PowerPoint Slides

1. The budgeting process

• Important part of every organization’s planning and control function

• Requires manager to:

2. Assessing the environment

• Allows determination of opportunities and threats to organization’s fiscal health.

• Part of forecasting process that supports:

o Planning for new services;

3. Goals and financial projections

• Prepared on a regular, set schedule

• Contain both operating and capital plans:

o Operating plans are items affecting daily activities.

4. Accounting

• Records and reports all financial transactions.

• Generates the data for the budget.

• Standard accounting

o Reports financial performance on a monthly, quarterly, or yearly basis.

5. Long-range financial plans (projections)

• Document prepared to cover the finances for the next 5–10 years

• Tied to the organization’s strategic plan

• First part: Outlines long-term goals and strategies to achieve those goals.

Suggestions for Classroom Activities

• Have students form groups and have small-group discussions about the budgeting

process. Outline some questions they should discuss within the groups. What is the

importance of assessing the environment? What is the difference between operating and

capital plans?

Reference

Learning Outcome 3

Differentiate types of budgets.

Concepts for Lecture

1. The operating budget is a planning document used by a department, a division, or the

entire organization that forecasts both receipts and expenditures. It must be reviewed and

2. Zero-based budgets are prepared as though all items of expense in the department,

3. A flexible-based budget builds off the budget used in the prior period, and is mostly a

series of adjustments and refinements to the prior budget. Most budgeting falls into this

4. Variance describes the difference between a budgeted number, or planned number, and

an actual result. Variances can be both positive (better than expected) or negative (not as

5. Variances can also be classified as mix variances, volume variances, cost variances, and

price variances. These classifications allow the variances to be divided into component

parts and quantified by category:

a. Mix variance: part of a variance that is attributable to a change in the mix of work

that the department or division experienced.

PowerPoint Slides

1. Operating budget

• Planning document used by a department, division, or the entire organization

• Forecasts receipts and expenditures.

• Must be reviewed and developed often enough and with enough detail:

2. Zero-based budget

• Prepared as though all items of expense are out of the budget and must be re-

justified to be re-included in the coming budget

• Time-consuming

3. Flexible-based budget

• Builds off the prior budget.

• Usually just a series of adjustments to prior budget

• Most commonly used budget type

4. Variances

• The difference between a budgeted number (planned number) and an actual result

• Should be analyzed and understood by nurse managers.

• Classified as controllable and non-controllable:

5. Alternative way to classify variances

• Allow variances to be divided into component parts and quantified by category.

• Mix variance: due to a change in the mix of work the department experiences

Case Study: Variance Analysis

Suggestions for Classroom Activities

• Have students write out advantages and disadvantages of zero-based budgets and flexible-

based budgets. Are there any situations where you would be forced to use one budget over the

other? Encourage students to share their lists with the class.

• Have students interview staff at a health care facility and ask the staff to report on their

responsibility for maintaining a budget. Then have students share their findings with the class.

Reference

Learning Outcome 4

Evaluate the components of the actual budget.

Concepts for Lecture

1. Preparation of the budget involves four steps: Review past performance, review the

organization’s goals and projections, review the variance, and prepare the budget. They

2. Reviewing past performance is an ongoing activity that is conducted at several levels,

from organized review to the unit level. It is conducted on weekly, monthly, quarterly,

and annual fiscal data, and involves several steps:

a. Identifying significant variances for a given time period: Significance varies under

3. A review of the organization’s goals and projections should be studied thoroughly. The

4. The variance and data gathered in the environmental assessment should be reviewed with

higher-level management. Developmental goals proposed should be carefully considered

5. The actual preparation of the budget can be done in different ways, using the different

types of budgeting. A budget worksheet, composed of columns, is essential, and includes

PowerPoint Slides

1. Budget preparation

• Involves four steps:

o Review past performance.

o Review the organization’s goals and projections.

2. Step 1: Review past performance;

• Ongoing activity conducted at several levels

• Conducted on weekly, monthly, quarterly, and annual fiscal data

• Steps include:

o Identifying significant variances for a given time period;

3. Step 2: Review the organization’s goals and projections:

• Should be studied thoroughly.

4. Step 3: Review the variance:

• Variance and environmental assessment data reviewed with higher-level

5. Step 4: actual preparation of the budget

• Can be done in different ways, using different types of budgeting.

• Requires a budget worksheet:

o Composed of columns

o Includes a condensed versions of the department’s goal statement

• Columns should include:

Suggestions for Classroom Activities

• As a homework or in-class assignment, have students create a flow chart showing the four

Reference

• Kelly, K. (2006). Financial leadership and the CNO. In P. Yoder-Wise and K. Kowalski

(Eds.), Beyond leading and managing in nursing (pp. 271–293). St. Louis:

Mosby/Elsevier.

Learning Outcome 5

Concepts for Lecture

1. The nurse manager oversees aspects of the operating budget, which consists of the

personnel budget and the supply budget, in addition to the capital budget. Specific

responsibilities of the nurse manager include applying the steps of the budget process by:

2. The personnel budget is a major component of the operating budget, and is based on the

nursing care needs of clients and the subsequent number of nursing staff to meet the

client’s needs. The fiscal management department usually determines the workload

forecast (units of service) and projected gross client revenue for the next fiscal year based

3. The supply budget for a typical nursing unit is smaller than the personnel budget. The

4. Capital budget, or capital equipment, is the unit plan for equipment that will be used

beyond 1 year and has a cost threshold. Cost thresholds can vary between organizations,

and can be as little as $500 or as much as $1500. The worksheet should identify the item

5. The finance department provides the manager with a monthly variance report, and it is

the manager’s responsibility to monitor the budget by investigation of variances and

determination of a cause. Then the manager must submit a responsibility report with

written explanations of variances, positive or negative. Variances are usually defended on

a monthly basis with the manager’s department director or the chief nursing officer

(CNO). Reasons for the monthly variance analysis:

PowerPoint Slides

1. Specific responsibilities of the nurse manager

• Oversee aspects of the operating budget and capital budget:

o Operating budget is formed by two parts: personnel budget and supply

budget.

• Applying the steps of the budget process by:

2. Personnel budget

• Major component of operating budget

• Based on client care needs and subsequent number of staff to meet client’s needs

• Based on trends and historical data, fiscal management department determines:

3. Supply budget

4. Capital budget (capital equipment)

• The unit plan for equipment that will be used beyond 1 year

5. Monitoring the budget

• Manager is responsible for:

o Monitoring the budget by investigation of variances; and

Figure 16-1: Personnel budget

Figure 16-2: Steps to be considered in determining the supply budget

Figure 16-3: Capital budget request worksheet

Figure 16-4: Responsibility report

Case Study: The Budget

Suggestions for Classroom Activities

• Budgeting for a nursing unit is a topic that undergraduate students have little or no experience

with or background for. The concepts are complex, and not a priority for them. Students are,

Reference

GENERAL CHAPTER CONSIDERATIONS

1. Have students study and learn key terms listed at the beginning of the chapter.

2. Have students complete end-of-chapter exercises either in their book or on the MyNursingKit

Web site.

MYNURSINGKIT