Presented ByPresented By
S. ManivannenS. Manivannen,, FCAFCA,,
Chartered AccountantChartered AccountantManaging Director - Parama Health Care Private Managing Director - Parama Health Care Private Limited.Limited.
Presented ByPresented By
S. ManivannenS. Manivannen,, FCAFCA,,
Chartered AccountantChartered AccountantManaging Director - Parama Health Care Private Managing Director - Parama Health Care Private Limited.Limited.
FINANCIAL BUDGETING FINANCIAL BUDGETING - THE NEED…..! - THE NEED…..!
What is financial Budgeting & who What is financial Budgeting & who does it ??does it ??
You think financial budgeting is prepared by the finance Man? - No
Financial Budgeting gives the number values to all the activities of a unit – Here health care system.
The finance man puts the number value to the activities that you plan to do.
Who should prepare BudgetsWho should prepare Budgets
Government Organizations
Private Enterprises &
The NGOs
Can spend the money allocated
Should keep some for admin and spend the balance for the goals
Should generate return on money
given and retain the capital
Financial BudgetingFinancial Budgeting and why and why
Each business or Service unit requires resources to operate in order to achieve the objective for which it is established
You as unit head are responsible for raising funds and ensuring that the funds are used efficiently.
The development of a sound hospital budget is fast becoming a matter of paramount importance in hospital administration.
Hospitals receiving grants, donations or budgetary allocations
Financial BudgetingFinancial Budgeting - The need - The need
Hospital raising funds through equity or debt
All of you have to estimate your requirements continuously
and check whether they are proceeding as per the budgetary estimates.
Financial BudgetingFinancial Budgeting - The need - The need
When community medical centers run by government are set up in a region and also act as centers for excellence, the management of such units should have a good understanding of financial management.
Financial BudgetingFinancial Budgeting - The need - The need
This is to ensure that the unfunded healthcare needs are met through efficient planning and utilization of the resources established
The ever increasing healthcare cost makes it essential to manage the financial resources to get maximum service units for every rupee spent
Financial BudgetingFinancial Budgeting - The need - The need
FINANCIAL BUDGETING FINANCIAL BUDGETING - - THE THE PRINCIPLES INVOLVED …..!…..!
A mission statement with specific objective and goals for the healthcare system under consideration.
The goals must be in measurable unitsShould be simple, direct and attainable
A strategic plan should be the basis of the budget
THE PRINCIPLES INVOLVED THE PRINCIPLES INVOLVED IN BUDGETINGIN BUDGETING
A plan to raise resources or modify specific goals if the current financial resources or allocations are not sufficient
This plan should relate to achieving the goals – For example setting up one more cardiac OT to meet increasing incidences of CABG surgeries
THE PRINCIPLES INVOLVED THE PRINCIPLES INVOLVED IN BUDGETINGIN BUDGETING
The budget should measure the current financial performance
Internalize the budgeting process.
Financial budgeting is only a aggregation of department wise budget prepared by each department within the healthcare system.
THE PRINCIPLES INVOLVED THE PRINCIPLES INVOLVED IN BUDGETINGIN BUDGETING
The financial budget should be based on the operational numbers of each department.
It should be linked to operational budget which should be derived from the marketing budget.
Actual financial results must be compared with the budgeted activities.
THE PRINCIPLES INVOLVED THE PRINCIPLES INVOLVED IN BUDGETINGIN BUDGETING
Variance analysis must be made
Mid course correction must be initiated
Units must operate within the budget
Policies for all the activities must be established
THE PRINCIPLES INVOLVED THE PRINCIPLES INVOLVED IN BUDGETINGIN BUDGETING
All the units of the healthcare system should comply with the policies and procedures
Each department or unit must evaluate the financial consequences of any new activity is started.
Types & methodology…!Types & methodology…!
THE TYPES OF BUDGETS
Conventional Budget system
Zero Based Budget
Input Output System
CONVENTIONAL BUDGET
Previous year figures
Manager
Incremental Charges / Additions
Budgets
Top management
Conventional budget or incremental budget is prepared on the previous year figures.
It assumes that whatever has happened in the previous year will continue with some changes.
It does not take in to account any changes in the situation.
CONVENTIONAL BUDGET
Whatever amount spent last is assumed to be sanctioned without analyzing whether it is required.
Conventional budgeting is always out of sync with the current happenings in the system.
CONVENTIONAL BUDGET
ZERO BASED BUDGETINGZERO BASED BUDGETING
ZERO BASED BUDGETINGZERO BASED BUDGETING
Zero Based Budgeting Exercise
Zero-Based Budgeting is a technique of planning and decision-making which reverses the working process of traditional budgeting.
In Traditional incremental budgeting, departmental managers justify only increases over the previous year budget and what has been already spent is automatically sanctioned.
No reference is made to the previous level of expenditure.
ZERO BASED BUDGETINGZERO BASED BUDGETING
By contrast, in zero based budgeting, every department function is reviewed comprehensively and all expenditures must be approved, rather than only increases.
This process requires the budget request justified in complete detail by each program starting from the Zero base.
ZERO BASED BUDGETINGZERO BASED BUDGETING
The Zero-base is indifferent to whether the total budget is increasing or decreasing.
"With zero-based processing one can forget about last year, assuming that the program is brand new
and see if one can provide a detail of expenses for what one would need to fully accomplish the program.
This technique will help one to develop a complete picture of what the program actually needs to cost and not just what it has been costing.”
In effect we create a clean slate. The analogy we will use is if the hospital is was empty today and we were told we had to start operating it as a Hospital in six months.
INPUT OUTPUT METHOD
Break down the healthcare system in to a set of activity center.
Medical Departments
Service Departments
Admin Department
These are further classified in to final service departments and intermediary service departments
The departments which render services directly to the patients are final service departments
Departments which provide service to the other departments and not to the patients directly are known as intermediary service departments.
INPUT OUTPUT METHOD
Healthcare system challenges this method of classification since some departments earn revenue directly as well as serve the other departments.
The ideal way to solve this complexity is to decide based on billable activities.
INPUT OUTPUT METHOD
Decide on the unit of service. It is also essential to link the levels of services with costs and transfer of cost from support departments to final departments.
The ideal way to solve this complexity is to decide based on billable activities or services which directly reach the patients
INPUT OUTPUT METHOD
Cost of intermediary services are allocated to direct services departments
The final services costs are matched with the revenues
INPUT OUTPUT METHOD
INPUT OUTPUT METHOD
Medical Departments
Service Departments
Admin Department
Out Patient Departments
Ward
ICU, CCU, & NICU
Operation Theater
Pharmacy
Diagnostic & Radiology
Bio-Medical
Nursing
Purchase
EDP, HR
Maintenance
Marketing
Inpu
t = In
vest
men
t / E
xpen
ses
Inpu
t = In
vest
men
t / E
xpen
ses
Fees for services Fees for services
RevenuesRevenues
Room Rent Room Rent
SurgeriesSurgeries
Investigation & ProcedureInvestigation & Procedure
PharmacyPharmacy
F & B F & B
Capital Budgeting
Revenue Budgeting or Working Capital Budgeting
CLASSIFICATION OF BUDGETSCLASSIFICATION OF BUDGETS
Capital Budgeting
Infrastructure
Equipment
CLASSIFICATION OF BUDGETSCLASSIFICATION OF BUDGETS
Revenue Budgeting
Estimates of manpower cost, material costs, overheads, financial cost and estimation of working capital
CLASSIFICATION OF BUDGETSCLASSIFICATION OF BUDGETS
TIME FRAME
Five Year Plan
Annual Budgets
Monthly Budgets
We need to estimate revenues and expenses for every department under following categoriesManpowerMaterialOverheadsTechnologyFinance
SOME MORE OBSERVATIONSSOME MORE OBSERVATIONS
Under each head mentioned above
Direct
Indirect
SOME MORE OBSERVATIONSSOME MORE OBSERVATIONS
Further classify in to
Fixed
Variable
And assess the capacity utilization of all the elements of cost like material, manpower, Overheads and technology
SOME MORE OBSERVATIONSSOME MORE OBSERVATIONS
Integrated Budget – A sample
SUMMARYSUMMARY
Need for Budgeting tool
Principles involved in budgeting exercise
Types and methodology – Conventional, Zero based and Input-Output Method
Classification in to capital and revenue budgeting
Time frame
Further estimation under manpower, materials, overheads, technology and finance
Differentiating between fixed and variable expenses
Estimation of capacity utilization
SUMMARYSUMMARY
The Importance of audit
Types of audit
Audit as a tool Audit to give confidence to external agencies
like the government, donors and investors including banks
Audit and its importance to Audit and its importance to hospitalshospitals
Internal audit
External audit
Audit and its importance to Audit and its importance to hospitalshospitals
What is audit ?What is audit ?
A study, linking management to
Administration, operations, finances.
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What is audit ?What is audit ?
review the work process,
Assess effective utilization of resources,
to fix accountability
to reduce risks in operations with proper internal control.
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Front office informationRegistrationBillingCollectionAdmission
Material ConsumptionPayment to consultantsEquipment auditUtilization ReviewOperational review
Focus areas for hospital auditFocus areas for hospital audit
Use audit as a tool to monitor whether we are deploying the resources properly or not
Audit as a tool should be used for improving the systems in place
Audit as a tool should be used to control or reduce cost
ConclusionConclusion
Thank you..,Thank you..,
Parama Healthcare P LtdParama Healthcare P Ltd
Email: [email protected]: [email protected]
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