Budgeting Concept as Core Competency of Nursing and Budgeting Process

The Budgeting Concept as Core Competency of Nursing and Budgeting Process. In nursing, budget planning helps ensure that patients receive the care they want and need from satisfied nursing staff. A good budget should be goal-oriented, simple, have standards, be flexible and balanced, and prioritize available resources to reduce costs.

What is Budgeting Concept as Core Competency of Nursing and Budgeting Process

Financial planning for nursing staff typically involves collaborating with your organization’s finance department regarding budget considerations, approval, monitoring, and adjustments. While details vary, healthcare budgets typically include operating and capital costs.

What Is Budgeting Concepts

In today’s health-care delivery system, all nurses have a duty to provide value added and cost-effective nursing care (Seifert, 2012), and there is added pressure to do so in keeping with the current trend to move to a value-driven budget process that focuses on patient-centered outcomes.

In their ongoing commitment to the profession, nurses should use “their skills, knowledge, and abilities to act as visionaries, promoting safe practice environments, and supporting resourceful, accessible, and cost-effective delivery of health care to serve the ever changing needs of the population” (American Nurses Association [ANA], 2010, p. 26). In addition, nurses must participate in and lead efforts to minimize costs and unnecessary duplication of services as well as conserve resources.

However, it falls to nurse leaders and managers to actually balance and align budgets. Nurse leaders and managers must become astute financial planners with a keen understanding of fiscal planning, budget forecasting, and cost containment. In turn, they have a tremendous amount of influence on costs related to managing personnel, supplies, and lengths of stay.

In this post, nurse leaders and managers discover why budgeting skill is a necessary core competency, develop an understanding of how budgeting directly impacts patient safety, and learn the basics of the budgeting process. Knowledge, skills, and attitudes related to the following core competencies are included in this post: patient-centered care and informatics.

The Budgeting As A Core Competency of Nurses

In any industry, including health care, the overall goal of the budgeting process is to gain high-quality value for every dollar spent (Porter-O’Grady & Malloch, 2013). Budgeting is an ongoing activity that requires nurse leaders and managers to develop fiscal literacy to monitor the financial status of a specific unit or units and ultimately provide quality cost-effective nursing care. Nurse leaders and managers are responsible and accountable for operating and capital budgets as well as daily, weekly, and annual productivity.

Nurse leaders and managers may be responsible for an individual cost center or several cost centers depending on their role within the organization. For example, the manager of a surgical intensive care unit is responsible for the cost center for just that unit; the director of critical care services is responsible for overseeing the cost centers of the surgical intensive care unit, medical intensive care unit, cardiac care unit, and cardiac telemetry unit; and the chief nursing officer is responsible for managing all nursing cost centers.

No matter how many cost centers they oversee, nurse leaders and managers must have adequate knowledge of the process to be effective. The main purpose of a nursing budget is to determine how to allocate the fiscal resources necessary to accomplish the objectives, programs, and activities of nursing services; the budgeting process provides nurse leaders and managers with the necessary tools to ensure that resources benefit patients and the organization, rather than being wasted (Finkler & McHugh, 2008; Swansburg, 1997).

The budgeting process has a direct effect on the quantity and quality of the nursing care provided. Nurses at all levels should be involved in the budget process to ensure that adequate and appropriate resources are available to deliver safe, quality care. To budget effectively, nurse leaders and managers must develop specific knowledge in fiscal management and financial outcomes and skills in budgeting and monetary management (ANA, 2016).

In addition, nurse leaders and managers must ensure that resources are allocated “to optimize the provision of quality, safe, and cost-effective care” (ANA, 2016, p. 57). The American Organization of Nurse Executives (AONE) identifies financial management as a core competency for nurses in management or executive positions. Financial management falls under the domain of business skills and includes the following components (AONE, 2015, p. 10):

Articulate business models for health-care organizations and fundamental concepts of economics.
Describe general accounting principles and define basic accounting terms.
Analyze financial statements.
Manage financial resources by developing business plans.
Establish procedures to ensure accurate charging mechanisms.
Educate patient care team members on financial implications of patient care decisions.

Cost Containment and Effectiveness

Nurse leaders and managers are charged with developing, implementing, evaluating, and monitoring a cost-effective budget. It is crucial for nurse leaders and managers to make sound fiscal decisions and spend their budgets wisely when it comes to activities that affect safe and quality patient care, patient satisfaction, and nurse satisfaction (Swearingen, 2009).

New policies and reimbursement structures in the current health-care system directly impact the nursing budget. As the cost of health care continues to rise, the health-care system is focusing more on improving patient outcomes, controlling costs, and providing financial rewards to health-care organizations that can do both (Anderson & Danna, 2013). Nurse leaders and managers must be knowledgeable about the changing reimbursement based on quality.

In fact, the link between quality performance measures and reimbursement requires nurse leaders and managers to be vigilant in monitoring and increasing nurses’ time delivering direct care when necessary (Swearingen, 2009). Nurse leaders and managers have a direct impact on patient care outcomes, the costs associated with patient care, and the financial stability of the nursing unit or department. Effective nurse leaders and managers recognize that they have control over unit activities that contribute to the budget, such as supply costs and the amount of waste that occurs.

Further, expenditure and waste result from the actions of all individuals working on the unit. Engaging staff members in the budget process and emphasizing the financial impact on the unit when supplies are wasted or not charged can enable managers to maintain better control over the budget (Waxman, 2005). In fact, nurse leaders and managers have minimal success in controlling the budget without the cooperation of all unit staff members (Finkler & McHugh, 2008).

Although there are aspects of the budget that managers cannot control, such as the amount of revenue generated, patient acuity, and benefit packages for staff (Waxman, 2005), nurse leaders and managers must focus time and energy on the areas they can control, rather than activities that are out of their reach. Technology and automation have helped nurse leaders and managers manage the budget process and make informed cost-effective decisions. Tools such as variance reports, staffing spreadsheets, fore casting software, and dashboards can help nurse leaders and managers oversee the unit budget, monitor trends, and make informed budget changes as needed.

Although the implications of effective budgeting are important, budgeting is a complicated process that may not come naturally to all nurses. In turn, nurses, leaders and managers must make it a priority to become experts in the basics of the budgeting process to be able to advocate for and allocate resources for safe, timely, effective, efficient, equitable patient-centered care.

Whets is Budgeting Process

A nursing budget is a systematic plan that provides the best estimate of nursing expenses and revenues, and it is most effectively stated in terms of attainable objectives. A prerequisite for the nurse leader and manager to setting a budget is understanding budget terminology and basic formulas.

The budget process can be compared to the nursing process (Marquis & Huston, 2012). Similar to the nursing care plan, the budget plan is expressed in financial terms and carried out within a specific time frame. To deliver quality care, nurses must know how to develop and implement a nursing care plan. In turn, nurse leaders and managers must know how to develop, implement, and manage a budget plan (Anderson & Danna, 2013).

To forecast a budget, it is necessary first to assess the current needs in terms of operating expenses, labor, supplies, and equipment. The second step is to diagnose or determine a cost effective budget that maximizes the use of resources as well as ensures safe, quality care. Third is to plan and develop a realistic budget. Implementing the budget is the fourth step and includes ongoing monitoring and analysis of the monthly budget to identify any variances. Finally, the last step is evaluation (Marquis & Huston, 2012).

Assessment

During the assessment phase, nurse leaders and managers must gather data and assess the needs for the upcoming fiscal year. This process includes determining workload and patient care hours, forecasting nonproductive work hours, estimating costs of supplies and services, and projecting unit capital expenses.

Addition ally, nurse leaders and managers should examine the present nursing activities as well as those planned for the future. Typically, expenses and revenues are analyzed from the previous fiscal year, and any deviations from the projected budget the previous year are examined closely to avoid similar deviations in the future.

Diagnosis

The diagnosis phase involves determining the nursing productivity goal for the upcoming fiscal year. Productivity is related to the delivery of nursing care as well as the effectiveness of that care relative to patient outcomes.

Nurse leaders and managers must evaluate unit goals from the previous year to ensure that these goals are in alignment with the organization’s current mission and philosophy, and they must revise or develop new goals for the future year if necessary. The projected budget is based on programs and activities needed to accomplish the nursing productivity goal as well as the organization’s broader goals and fiscal projections.

Planning

A successful budget provides an annual plan that guides effective use of human and material resources, nursing services, and management of the environment to improve productivity. In addition, a good budget considers the needs of the unit as well as the organization and places available resources in the appropriate places where the accomplishment of goals will be greatest (Finkler, Jones, & Kovner, 2014).

Budget worksheets are used during the planning step to assist nursing leaders and managers in preparing their budgets. The planning stage is key to ensuring that patients receive cost-effective and safe nursing care from satisfied nursing staff members. Ideally, the budget is somewhat flexible to allow for fluctuations in patient numbers and acuity. During the planning process, nurse leaders and managers may need to determine whether a program or service will lose money, make money, or break even.

The process used to determine the profitability of a service is called break-even analysis (Finkler & McHugh, 2008). Break-even analysis is useful in forecasting revenues for a specific unit or service. If total revenues are greater than total expenses, there is a profit, and if total revenues are less than total expenses, there is a loss. When revenues are equal to expenses and there is not a profit or a loss, the program or service will just break even (Finkler & McHugh, 2008).

In nursing, the break-even quantity is the number of patients needed to break even . The price is the cost for each patient or the average amount collected per patient. When the variable costs per patient are lower than the break-even quantity, there is a loss, and when they are higher, there is a profit. The break-even analysis is also useful to determine direct care hours for the nursing unit.

Implementation

On each unit, the nurse leader and manager directs, evaluates, and executes all budget-related activities. During implementation phase, the nurse leader and manager must attempt to keep the unit functioning within the budget plan. Prioritization is critical, and it is important for nurse leaders and managers to engage all staff members in the process and motivate them to work within the constraints of the budget.

To promote fiscal awareness among all nursing staff members, nurse leaders and managers should meet with staff early in the implementation stage to explain the budget or the upcoming year, discuss variances that occurred in the previous budget year, and encourage input regarding any deviations. The more informed the staff members are about the budget goals and the plans to meet those goals, the more likely it is that the budget goals will be met.

Evaluation

The evaluation phase of the budget process begins once the budget is implemented and continues through the next year when a new budget is set. Because the nursing budget establishes the financial standards for the unit, nurse leaders and managers are accountable to address any deviations in the budget and take appropriate action to avoid excess or inadequate money at the end of the budget year.

Expense and revenue reports as well as comparisons between projected budget and actual budget are often provided to nurse leaders and managers by the financial department on a regular basis, usually monthly and quarterly. During the evaluation phase, nurse leaders and managers must review reports on a regular basis for any deviations, or variances, from the projected budget.

The actual results are compared with budgeted expectations and the difference between the two results in the variance and are analyzed to determine cause, with corrective action taken when necessary. The goal of variance analysis is to strengthen the accuracy of budget forecasting and minimize crisis management when a deviation does occur (Porter-O’Grady & Malloch, 2013). Ideally, a flexible budget was set during the planning stage to allow for some variances on a monthly basis.

Should variances become significant, adjustments may be necessary. Variations occur most often in the areas of finances, staffing, and supplies (Porter-O’Grady & Malloch, 2013). Variances can be positive, meaning better than expected, or negative, meaning not as good as expected. Regardless of the type of variance, nurse leaders and managers must provide a written explanation to upper management, explaining or justifying why the numbers are greater or less than the budgeted amount; this amount can be a percentage or a dollar amount.

Although all variances are important to analyze, staffing variances are typically the greatest concern for nurse leaders and managers. Nurse leaders and managers vigilantly monitor the required number of nursing staff needed to care for patients safely and compare those numbers with the actual nursing staff available.

Staffing variances occur when there is a difference between required nursing care hours and actual nursing care hours. A staffing variance can fall at either end of the spectrum: not enough staff to care for patients safely or too many staff members scheduled for the number and acuity of patients on the unit. Nurse leaders and managers must analyze the causes of the individual staff variances as well as variances in total nursing care hours (Porter-O’Grady & Malloch, 2013).

When variances become significant, strategies to avoid them in the future should be implemented and documented. In addition, nurse leaders and managers should monitor trends in variances to assist in addressing workload issues.

Productivity

As part of the ongoing evaluation of the budget, nurse leaders and managers must monitor productivity. Productivity is the ratio of output (e.g., products or services) to input (e.g., resources used). Output factors depend on the particular health-care agency and the type and frequency of services they provide (e.g., procedures, deliveries, clinic visits, admissions, home visits); output factors also include patients faction and patient outcomes. Input factors include the skill level and experience of staff and can be impacted by patient acuity, unit layout, and nursing management.

To maintain or increase productivity, the nurse leader and manager must examine factors that affect both output and input, by keeping in mind that decreasing outputs or increasing inputs typically increases productivity. Productivity should ideally be the perfect blend of efficiency and safe care. Even small variations up or down can impact these factors.

Consider the following example: If the standard of care is 6 nursing hours per patient day (NHPPD) and the census of the unit is 32 patients, then 192 hours of care per day are needed to care for the patients. To reach 100% productivity, the nurse manager needs 192 hours of care provided by his or her staff:

192 hours needed/192 hours provided × 100 = 100% productivity

If the number of hours provided decreases for some reason, according to the equation, productivity actually rises:

192 hours needed/175 hours provided × 100 = 110% productivity

However, fewer hours of care provided will likely mean that the quality of care may not be adequate. If the hours provided are increased according to the following:

192 hours needed/200 hours provided × 100 = 96% productivity

then, although the quality of care may be greater with more hours of care provided, productivity is decreased and therefore is less efficient. The key is finding a balance between safe, quality patient care and cost containment. Efficiency, or taking care not to waste resources such as supplies, equipment, and human capital, is obviously critical when considering productivity.

Another important element is effectiveness, or providing care based on evidence and avoiding underuse and overuse of resources. Evaluating system inefficiencies and eliminating outdated processes can help increase effectiveness and efficiency (Porter-O’Grady & Malloch, 2013). When considering efficiency and effectiveness, nurse leaders and managers must take into account necessary care activities, value-added care activities, and non–value-added care activities (Upenieks, Akhavan, & Kotlerman, 2008).

Necessary Care Activities

Necessary care activities are those activities that are “essential in delivering patient care and do not directly benefit the patient” (Upenieks, Akhavan, & Kotlerman, 2008, p. 295). Calling primary care providers, transcribing orders, and documenting medication administration are examples of necessary care activities. When nurses are engaged in necessary care activities, they are not providing patient care, yet the activity is important to patient safety and quality care.

Value-Added Care Activities

Nursing activities that are performed by registered nurses (RNs), are patient centered, and directly benefit the patient are considered value-added care activities (Upenieks, Akhavan, & Kotlerman, 2008). Some examples of value-added activities, which are typically performed by RNs, include direct care activities such as the following: assessment; taking of vital signs; wound care; medication administration; communication with the patient, family, and care team; and care rounds. Indirect care activities that are also value added include chart review, handoffs, and care conferences (Upenieks, Akhavan, & Kotlerman, 2008).

Non–Value-Added Care Activities

Nursing activities that are performed by RNs and do not benefit the patient and are not necessary to delivering patient care are non–value-added care activities (Upenieks, Akhavan, & Kotlerman, 2008). Non–value-added activities include looking for equipment or people, waiting for telephone calls, and waiting for patient transport. Such activities constitute wasted time that could possibly be avoided if systems and processes worked more efficiently (Storfjell, Ohlson, Omoike, Fitzpatrick, & Wetasin, 2009).

Nurse leaders and managers often overlook decreasing or eliminating non–value-added work when making adjustments for variances. Non–value-added care activities can lead to increased costs and nurse dissatisfaction, both of which impact patient safety and quality of care (Storfjell et al., 2009).

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