Operating Budget for a Hospital Unit

Effective financial management is an essential factor in the success of any healthcare institution. It enhances the economic well-being of the institution. The nurse managers play a vital role in maintaining the profitability and financial success of the healthcare institution. Therefore, they should have critical financial management skills such as the preparation and management of budgets. They also ensure the available resources are used for the objectives of the healthcare institution.

An operating budget is the management’s plan for revenue generation and incurring expenses over a period of time. Operating budgets are often prepared for one fiscal year. Despite the challenges nurse leaders encounter in financial management, they are responsible for making data-driven decisions for the institution’s profitability and financial success.

According to Welch and Smith (2020), preparing operating budgets requires evaluating nurse-patient ratios and understanding budgetary allocation concepts. This paper presents an operating budget, the creation and design of the operating budget, the strategic plan, and the ongoing management approach used for a 35-bed hospital psychiatric department unit.

Preparing an operating budget

The budget informs organizations’ expenses and revenues throughout a fiscal year. Hence, a budget in a healthcare institution is a tool used to direct the institution’s expenses and revenues and prepares it effectively for market changes. Healthcare institutions’ budgets also facilitate tighter financial control, informed decision-making, and staff motivation (Keeler, 2020).

The operating budget will be a one-year plan divided into four quarters, three months each. It is a zero-based budget that will start from a zero-budget level of the financial year. It will be developed from the previous year’s budget, with new costs added incrementally. The significant sections of the operating budget will include the expected financial expenses and the revenue that will be generated to cover the projected expenses. The operating budget to run a 35-bed psychiatric department of a ho will be as follows:

The recommended nurse-patient ratio in a psychiatric ward is 1:5. With a 35-bed unit, about 25 nurses are required, five of them being psychiatric/mental health nurse practitioners. The average salary of a nurse is $70000, and that of a PMH-APRN is $100000. One psychiatrist, one medical officer, and seven ward attendants are needed. The average pay of a psychiatrist is $155,000, $132000 for a medical doctor, and $27,000 for a ward assistant.

Budget Creation and Design

A hospital budget is a time and resource-intensive activity requiring an open mind to ensure all areas have adequate resources to prevent halting activities due to financial constraints. Budgets are designed to meet patient, organizational, and staff needs. A robust analysis of these three stakeholders’ needs is vital. The patients’ number and characteristics help determine their specific needs. The population needs to determine the relevant staff-patient ratio.

Nurses and other hospital staff determine the required doctors, specialists, and nurses. The population of interest is the mentally ill, and especially older patients. The relevant specialists include psychologists, psychiatrists, and psychiatric/mental health advanced practice registered nurses. Supporting equipment such as the electrocardiogram and rooms for milieu therapy are integral considerations.

The older population also has other needs that include assistance with activities of daily living such as walking, eating, and bathing because mental illnesses are more severe in the older populations. Thus, having additional ward assistants/ patient assistants’/nurse assistants will be integral. Different hospital units have varying needs, hence an individualized budget for each department.

A needs assessment helps the nurse leader assess the organizational readiness through an internal readiness assessment to determine if the organizational resources will meet the needs or if there will be a need for additional resources from external institutions such as lending institutions.

Budgeting for individual departments helps break the budget down into smaller and manageable sections that are easy to follow. The budget includes the nursing unit expenses and the revenue used to meet the expenses. The expenses include direct costs such as labor and indirect costs such as non-production activities.

The expenses enhance the effective running of managerial roles, staffing, and budgeting within the nursing unit. Expenses for supplies will include costs to cover administration, education, and running other unit processes.

The expected revenue to cater for the expenses is also included in the operating budget. The nursing unit will also operationalize expenditure in the yearly budget. The primary source of revenue is the money received from the services it offers. Other sources of revenue include grants from organizations such as the world health organization, loans from financial institutions, and reimbursements from insurance agencies such as Medicare and other private insurance.

One assumption during the budget preparation was that the ward capacity would be maximum without an overflow. Having less than the required number will thus save on costs. During the budget preparation, a decision to ensure flexibility of the budget to meet the ever-changing healthcare needs was necessary.

The charge nurse of the ward will prepare a zero-based weekly budget to ensure accountability of the medical and non-medical supplies. The staff number and needs are also dependent on the perspectives of other leaders such as the medical Superintendent and external stakeholders. Thus, they will have the final say on the number of the staff depending on resource availability.

Strategic Plan

A strategic plan establishes the direction of an organization. It is a document used to communicate the organization’s goals, the actions needed to achieve them, the underlying contradictions encountered when achieving them, and other critical elements that develop from the planning process. A strategic plan in a healthcare institution helps the hospital managers assess their position, where they want to be, and the actions they can take to get there.

A study on the strategic planning of healthcare workers during the pandemic by Ehrlich, Mckenney and Elkbuli (2020) established that strategic planning ensures healthcare institutions remain relevant even in the dynamic healthcare field. A strategic plan also outlines the organization’s vision, mission, SWOT analysis, core values, goals, objectives, and the action plan required to meet the goals and objectives. A strategic plan, therefore, forms the foundation of planning for the profitability of the healthcare institution.

In this case, the strategic plan for the healthcare institution will be as follows.

Institutional goal: To be at the frontline in providing holistic care services to the community, serving all populations using the preventive, promotive, and curative approaches.

Objectives: To improve patient satisfaction and provide patient-centered care, to provide access to cost-effective care for all populations in the community, and to reach all population needs through health promotion, prevention, and curative approaches.

Action plan: Provision of holistic care, health promotion, and prevention interventions in the community. Provide quality care for all populations in all departments.

Vision statement: Towards the leading care-providing institution in the community through quality, holistic, and patient-centered care provision.

Mission statement: To be the answer for all healthcare needs in the community and propagate towards a community of desirable well-being.

Core values: Quality, patient-centeredness, integrity, humanity, servanthood, and collaboration.

SWOT analysis:

Strengths· Availability of resources

· Availability of qualified care providers

· A strong interprofessional collaboration

Weaknesses· High nurse turnover rates

· The heavy workload for the care providers

· Limited space

Opportunities· Availability of funding from organizations

· Favorable healthcare policies

· Conducive practice environment

Threats· Competition from public and federal healthcare institutions

· Expansion threats due to licensure requirements

· Perceived unfavorable changes in healthcare policies in future

The strategic plan ensures the unit mission of the psychiatry department is aligned to the organizational mission, thus contributing to the success of the healthcare institution. The outcomes of the above proposed strategic management plan will contribute to the achievement of both the unit and organizational mission (Willis, Cave & Kunc, 2018). There will be evaluation criteria that will be used in the plan.

The evaluation metrics that will be used include improving the institution’s competitiveness in the healthcare field, striving to maintain desirable patient outcomes and meet patient needs, maintaining high quality in the care providing services offered in the psychiatric department, and the ability to increase revenue and reduce costs.

Ensuring cost-effectiveness when staffing the units is also a nurse manager’s role. It ensures the unit reduces costs, thus minimizing the budget outline. The nurse manager will also prepare a strategy for evaluating the staff at the psychiatric department unit. The strategy will also help increase staff efficiency. Therefore, the nurse leader projects the organization’s long-term goals using the strategic plan developed.

The nurse manager will record all the expenses of staffing, medical, and non-medical supplies used for care provision in a unit’s fiscal year statement report. Thereafter, the report will be evaluated using a comparison of the report, that is, the actual expenditure and revenue, against the budget, thus determining if it was effective.

Maintaining adequate staff levels is a significant challenge for the psychiatry unit. Since there is a shortage of nurses and physicians well versed in psychiatry, especially for trauma and trauma management, it will be essential to ensure staff turnover levels are low, thus ensuring there is enough staff throughout all shifts.

After the management accepts the proposed budget, the nurse manager introduces a strategic implementation plan, led by the nurse in charge of the unit. The nurse manager is supposed to create a budget to help meet the goals outlined in the strategic plan of the healthcare institution.

According to Willis et al. (2018), a strategic plan is an influential management planning tool that helps the organization maintain a competitive advantage in the dynamic market. The strategic plan will inform the operating budget used in the psychiatric unit and ensure that the budget is aligned to meeting the goals outlined in the plan.

Also, the strategic plan outlines the institution’s mission, which the nurse manager uses when setting the unit’s objectives. The unit’s goals, such as ensuring care quality and improvement in patient outcomes, will be set in line with the vision and mission of the institution and apply the core values when working towards the goals.

Ongoing budget management approach

The best approach that will be applied in budget management is the benchmarking approach. Benchmarking is the comparison of the performance of an organization or a clinician to another healthcare organization. A recent study by Reponen et al. (2021) established that benchmarking in healthcare involves knowledge and experience identification, followed by a selection of the best approaches to improve patient outcomes. Benchmarking aims to improve efficiency, quality, and patient experience.

Budgeting is an ongoing process that requires the attention of the nurse manager throughout the fiscal year. Using the operating budget, the nurse leader will benchmark the performance of the psychiatric unit by comparing the actual expenses and revenue with the proposed budget.

Since most healthcare units spend extravagantly when there is plenty of resources and make expenses slash in times of inadequate finances, a nurse manager should be well versed in financial management skills. A nurse manager should be able to effectively manage resources to cater to financial crisis periods and provide a solution to avoid such practices.

Several practical interventions will be implemented to ensure ongoing effective budget management. The interventions include setting up contingency funding to help the unit keep running in case of a financial crisis that would lead to shortages. Also, the nurse leader will ensure the same level of responsibility in managing the funds in times of plenty and in times of shortages.

The primary factor that may affect the budget is the high competition for funding from other units and some of the organizational objectives of the institution. For instance, the psychiatric department often receives less funding from the institution as compared to departments such as emergency departments.

However, the expenses required to run the psychiatric department are relatively high. Also, an organizational objective such as using the curative approach is quite compromising for the psychiatric department. The management approach will try to limit staff overtime and minimize non-productive expenses, thus minimizing costs. The best approach for the psychiatric department is the preventive approach.

The ongoing benchmarking budget management approach is based on the assumption that risks that would hinder the set financial year expenditure will be identified and managed on time to avoid compromising the running of the psychiatric department.

Conclusion

Modeling the financial and economic factors of the psychiatric unit will enhance practice interventions that will help the facility meet the set objectives. Sound financial management of any hospital unit helps maintain its financial sustainability. The nurse manager plays an integral role in aligning the finances of the psychiatric unit with the set operating budget and comparing the actual expenses with the set expenditures in the budget.

It is crucial to align the operating budget with the set strategic plan. An ongoing budget management approach should be identified for all hospital units to ensure that finances are used according to the budget.

References

Ehrlich, H., McKenney, M., & Elkbuli, A. (2020). Strategic planning and recommendations for healthcare workers during the COVID-19 pandemic. The American Journal Of Emergency Medicine, 38(7), 1446-1447. https://doi.org/10.1016/j.ajem.2020.03.057

Keeler, T. J. (2020). Effective Budgeting: Putting It Together. In Comprehensive Healthcare Simulation: Program & Center Development (pp. 39-43). Springer, Cham. https://doi.org/10.1007/978-3-030-46812-5_7

Reponen, E., Rundall, T. G., Shortell, S. M., Blodgett, J. C., Juarez, A., Jokela, R., Makijarvi, M., Torkki, P. (2021). Benchmarking outcomes on multiple contextual levels in lean healthcare: a systematic review, development of a conceptual framework, and a research agenda. BMC Health Services Research, 21(1). https://doi.org/10.1186/s12913-021-06160-6

Welch, T. D., & Smith, T. (2020). Understanding FTEs and nursing hours per patient day. Nurse Leader, 18(2), 157-162. https://doi.org/10.1016/j.mnl.2019.10.003

Willis, G., Cave, S., & Kunc, M. (2018). Strategic workforce planning in healthcare: A multi-methodology approach. European Journal of Operational Research, 267(1), 250-263. https://doi.org/10.1016/j.ejor.2017.11.008

Operating Budget for a Hospital Unit Instructions

NURS6216 Assessment2 Instructions

Prepare an 8–10-page operating budget for a hospital unit.

Introduction

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

Sound financial management is essential to the fiscal well-being of all health care organizations, and the nurse leader plays an important part. Consequently, the preparation and effective management of operating budgets is a critical skill for nurse leaders. The budget guides leaders in optimizing the use of resources, and because nurses are closest to patients, they understand very well what it takes to operate on a daily basis and provide safe, high-quality care.

This assessment provides an opportunity for you to develop an operating budget for a health care unit. Keep in mind, staff is a large part of this budget and is often hard to control.

Numbers on a budget sheet or report are only numbers. Nurse leaders are major decision makers who must be informed and able to make data-driven decisions, often in a very limited amount of time. Financial analysis consists of the organization and presentation of data in a meaningful and relevant format that enables analysis, comparison, and synthesis.

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.

As you prepare to complete this assessment, you may want to think about other related issues to deepen your understanding or broaden your viewpoint. You are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of your professional community. Note that these questions are for your own development and exploration and do not need to be completed or submitted as part of your assessment.

What major sections would you include in an operating budget?
What are your primary sources of budget information?
Would you include nice-to-have items in your budget? Why or why not?
What factors, such as organizational objectives, policies, and competition for funding, might affect the development and management of an operating budget?

The following resources are required to complete the assessment.

APA Style Paper Tutorial [DOCX]. Use this tutorial for the written portion of your 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] to better understand how each criterion will be assessed.

Prepare and submit an operating budget for your hospital unit.

Prepare the operating 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.
Explain how the budget was designed and created.
Develop a strategic plan.
Develop an approach to ongoing budget management.
Present budget data and information clearly and accurately.
Integrate relevant and credible sources of evidence to support your budget data and information, correctly formatting citations and references using current APA style.

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 Tutorial [DOCX], linked above, 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.
Your budget should be 8-10 pages in length, not including the title page and reference page.

Portfolio Prompt: You may choose to save this learning activity to your ePortfolio.

Competencies Measured

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

Competency 1: Design an operating budget that incorporates variances or discretionary spending.

- Prepare an operating budget.
- Explain how a budget is designed and created.
Competency 2: Develop a plan for managing the labor force, within the parameters of the budget and productivity.

- Develop an approach to ongoing budget management.
Competency 5: Apply financial principles to a strategic plan for achieving organizational goals and fiscal success.

- Develop a strategic plan.
Competency 6: Communicate effectively with diverse audiences, in an appropriate form and style, consistent with applicable organizational, professional, and scholarly standards.

- Present budget data and information clearly and accurately.
- Integrate relevant and credible sources of evidence to support budget data and information, correctly formatting citations and references using APA style.

Guiding Questions

Preparing and Managing an Operating Budget

This document is designed to give you questions to consider and additional guidance to help you successfully complete the Preparing and Managing an Operating Budget assessment. You may find it useful to use this document as a pre-writing exercise, an outlining tool, or as a final check to ensure that you have sufficiently addressed all the grading criteria for this assessment. This document is a resource to help you complete the assessment. Do not turn in this document as your assessment submission.

Preparing the Budget

Prepare and submit an operating budget for your hospital unit.

Prepare the operating budget.

Have you clearly identified the major sections of the budget?
Does your budget cover a one-year time period?
Does your budget adhere to standard formatting conventions used in health care settings?

Explain how the budget was designed and created.

What assumptions, if any, underlie your budget?
What was your process for determining line items and cost center codes?
Did you allocate funding for labor and equipment costs?
Have you determined staffing requirements and calculated workload?
What are your equipment needs and associated, ongoing expenses?
What are your primary sources of budget information?
How up-to-date and reliable is the data?

Develop a strategic plan.

Examine the mission of your organization or unit.
- Is your budget in line with the mission?
How are executive leaders likely to react to your budget?
Does your budget include nice-to-have items?

Present a plan for ongoing budget management.

Consider the various factors affecting your budget, such as organizational objectives, policies, and competition for funding.
Explain how you will:
- Limit staff overtime.
- Manage non-productive time and expenses, such as education or paid time off to obtain certifications.
- Manage ongoing expenses related to supplies and equipment.

Present budget data and information clearly and accurately.

Express your main points succinctly, using correct grammar and mechanics.
Proofread your budget to eliminate errors in your data and information.

Integrate relevant and credible sources of evidence to support your budget data and information, correctly formatting citations and references using APA style.

Is your supporting evidence clear and explicit?
Integrate relevant evidence from at least five scholarly or professional sources.

Submission Reminders

Have you clearly outlined the major components of your budget in an easy-to-read format?
Have you adequately described your budgeting process?
Do you have a strategic plan that supports the organization’s or unit’s mission?
Have you explained how you will approach ongoing budget management?
Have you presented your budget data and information clearly and accurately?
Are your claims and conclusions well supported by at least five sources of credible evidence?

· Preparing and Managing an Operating Budget Scoring Guide

CRITERIA	NON-PERFORMANCE	BASIC	PROFICIENT	DISTINGUISHED
Prepare an operating budget.	Does not outline an operating budget.	Attempts to prepare an operating budget, but fails to clearly identify the major sections of the budget, or budget does not cover a one-year time period or does not adhere to standard formatting conventions.	Prepares an operating budget.	Prepares an operating budget, and identifies knowledge gaps, unknowns, missing information, unanswered questions, or areas of uncertainty where further information could improve the budget.
Explain how a budget is designed and created.	Does not explain how a budget is designed and created.	Attempts to explain how a budget is designed and created, but fails to identify assumptions, labor costs, equipment costs or ongoing expenses, staffing requirements, information sources, or workload calculations.	Explains how a budget is designed and created.	Explains how a budget is designed and created, and impartially acknowledges conflicting data or information that was not incorporated in the budget.
Develop a strategic plan.	Does not develop a strategic plan.	Attempts to develop a strategic plan, but fails to consider the organizational or unit mission, or fails to consider the executive perspective.	Develops a strategic plan.	Develops a strategic plan, and proposes criteria for future evaluation of whether the outcomes of the proposed plan support the organizational or unit mission.
Develop an approach to ongoing budget management.	Does not develop an approach to ongoing budget management.	Attempts to develop an approach to ongoing budget management, but fails to consider organizational objectives, policies, or competition for limited resources; how to limit staff overtime; how to manage nonproductive time and expenses; or how to manage ongoing expenses related to supplies and equipment.	Develops an approach to ongoing budget management.	Develops an approach to ongoing budget management, and identifies assumptions on which the approach is based.
Present budget data and information clearly and accurately.	Does not present budget data and information clearly and accurately.	The budget data and information presented is not consistently clear or includes errors.	Presents budget data and information clearly and accurately.	Presents budget data and information clearly and accurately. Expresses main points succinctly, using correct grammar and mechanics.
Integrate relevant and credible sources of evidence to support budget data and information, correctly formatting citations and references using current APA style.	Does not integrate relevant and credible sources of evidence to support budget data and information, correctly formatting citations and references using current APA style.	Sources lack relevance or credibility, are poorly integrated, or are incorrectly formatted.	Integrates relevant and credible sources of evidence to support budget data and information, correctly formatting citations and references using current APA style.	Integrates relevant, credible, and convincing sources of evidence to support budget data and information. Sources are current, and citations and references are error-free.