FISCAL PLANNING

PRESENTED BY:SANIL VARGHESE

BUDGET

ESTIMATE

DEFINITION:

Approximation of the cost of an activity, job, program or project, prepared for budgeting and planning purposes only. Not accurate enough to provide a basis for a firm commitment, it represents only the budget maker's understanding of the scope and expense of what needs to be done.

THE PREPARATION OF THE BUDGET ESTIMATES / STAGES OF BUDGET ESTIMATION

(1) Preparation of the estimates by the Heads of Departments (Chief controlling Officers and Estimating Officers) based on the estimates submitted by the Regional/District Officers.

(2) Scrutiny of the Budget Estimates by – (a) The Administrative Department (b) The Finance Department

(3) Final consolidation of estimates in the Finance Department before presentation to the Legislature.

POINTS TO BE BORNE IN MIND WHILE ESTIMATING

BUDGET

(1) Salaries:(2) Travel Expenses:(3) Office Expenses (4) Provision for Stores

CATEGORIES OF COST ESTIMATION / BUDGET

ESTIMATE

• Operational costs• Organisational costs (core costs)• Staffing costs• Capital

FRAMEWORKS FOR BUDGET ESTIMATE

Activity: Unit cost Quantity Total cost of item

Materials Equipme

nt Services Transpor

t

The unit cost is the cost of a single item, or one unit. e.g. Cost per day, per person.

This is the number of units (how many) you will need for the activity. e.g. 500bed hospital, 130 days of nursing hours.

Multiply the total number of units by the unit cost.

Total cost for Activity

The sum of all the individual costs

A. Estimating operational costs

2010 2011 2012 Management: Salaries/benefits: Donor liaison: Public relations: Fundraising: Human resourcing: Administration: Salaries/benefits: Equipment: Stationery: Governance and organisational development: Board meetings: Organisational processes: Resource centre: Overheads: Electricity and water: Maintenance: Legal fees and audit fees: Annual totals:Total:

B. Estimating organisational cost

ADVANTAGES:

• In a business with rapidly changing situations as well as in the enterprises having non-repetetive character of activities, estimated costs supply the sensible and practical standard for control purposes.

• Intangible operations like research, morale development, public relations and so forth, are not subject to control by any other standards except estimated costs.

• Estimated costs are superior to historical costs as control standards. As the estimated cost peers into the future and incorporates results of forecasts, it provides a sound basis for evaluating actual costs.

LIMITATIONS

• Like the historical cost, estimated costs also fail to prescribe what the cost should be under scientifically determined conditions.

• The determination of accurate estimated cost is a difficult task and depends upon the knowledge and experience of the analyst.

REVISED ESTIMAT

E

DEFINITION

Revised estimates is an estimate for the probable revenue and expenditure of the current financial year under the various heads, framed during the course of the year based on the actual transaction of the first five months and anticipation for the next seven months of the year.

GUIDELINES TO PREPARE REVISED ESTIMATE

The Revised Estimate helps to arrive at the approximate closing balance and also serve as best guide for the fixing of the next year’s budget estimates. Therefore the Revised Estimate has to be fixed in accordance with:-

1. The transactions as recorded for the first five months 2. The expenditure those are likely to be required for the

rest of the year. 3. The new schemes sanctioned in the course of the year 4. Additional funds already obtained 5. New heads of account opened during the year and 6. Other relevant factor.

USES

• A change in the calculation of the cost of a project. This calculation is made and presented to a buyer, usually while a project is in progress, and may be subject to further changes due to both exogenous factors and endogenous factors.

ADVANTAGES

• It includes information not available at the time of the advance estimate or preliminary estimate, as well as any necessary data revisions.

PERFORMANCE

BUDGET

DEFINITION

Performance budgeting is a system of planning, budgeting, and evaluation that emphasizes the relationship between money budgeted and results expected.

Performance budgeting:

• Focuses on results. • Is flexible. • Is inclusive. • Has a long-term perspective.

CHARACTERISTICS

• Agency identification of mission, goals, and objectives;

• Linkage of strategic planning information with the budget;

• Development and integration of performance measures into the budget; and

• Disaggregation of expenditures into very broad areas (such as personnel, operating expenses, and capital outlays) rather than more specific line-items.

STEPS OF PERFORMANCE BUDGETING

• Define the objectives or areas of accomplishment for the unit or department. These are called performance areas. Some examples of performance areas are quality of care, nursing satisfaction, patient satisfaction, productivity and innovation.

• Identify the operating budget costs for the cost center being evaluated. In a nursing unit these costs include items such as salary for the unit nurse manager, salaries for clinical staff, education costs, and supplies.

• Determine what percentage of available resources should be used for each performance area.

• Assign the budgeted and costs for the centre to the individual performance areas on the basis of those percentages.

• Choose measures of performance for each performance area and to determine the cost per unit of workload based on those measures.

OBJECTIVES Performance budgeting seeks to: i) correlate the physical and financial aspects of

programmes and activities; ii) improve budget formulation, review and decision-

making at all levels of management in the government machinery;

iii) facilitate better appreciation and review by the legislature;

iv) make possible more effective performance audit; v) measure progress towards long-term objectives

as envisaged in the plan; and vi) bring annual budgets and developmental plans

together through a common language.

COMPONENTS

The performance budgets have certain vital ingredients that need to be constantly kept in view:

i) a programme and activity classification that represents the range of work of each organisation;

ii) a framework of specified objectives for each programme;

iii) a stipulation of the targets of work or achievement; and

iv) suitable workload factors, productivity and performance ratios that justify financial requirements of each programme.

PURPOSE

• To review at every level of organization, so as to measure progress towards the short term and long term objectives.

• To interrelate physical and financial aspects of every programme or activity.

• To facilitate more effective performance audit.

BENEFITS OF PERFORMANCE BUDGETING

• It correlates the physical and financial aspects of every programme or activity.

• It improves budget formulation, review and decision-making at all the levels of department or undertaking.

• It facilitates better appreciation and review of performance.

Year Percent of 2 year olds

immunized

Budget

1993 35.0% $4,172,5851994 37.2% $5,813,303

Sample Performance BudgetIt is prepared by the Health Department, City of Milwaukee, to control the spread of communicable disease in Milwaukee by increasing the immunization level of two-year olds from 35 percent in 1993 to 90 percent by the year 2000.

FINANCIAL AUDIT

DEFINITION

• Financial audit is an independent appraisal activity within an organisation for the review of accounting, financial and other operations as a basis of services to the management.

• Financial audit is an independent and systematic examination of the data, statement records, operations and performances of an enterprise for a stated purpose {Institute of chartered accountants of India (ICAI)}

OBJECTIVES OF FINANCIAL AUDIT

• Checking of arithmetical accuracy

• Detection of fraud or error• Providing an opinion on

financial statements

PRINCIPLES OF FINANCIAL AUDIT

• Integrity, objectivity and independence of auditors

• Confidentiality in audit work• Position of skills and competence to undertake

audit• Proper documentation and planning of audit

work• Obtaining sufficient and appropriate evidence

during audit Conclusive EvidenceCircumstantial or Corroborative evidencePersuasive evidence

TYPES OF FINANCIAL AUDIT1. Based on the objective of audit:

a. Statutory or external auditb. Internal auditc. Cost auditd. Propriety audite. Secretarial auditf. Quality auditg. System auditi. Tax audit

2. Based on entities being audited:a. Company audit/corporate auditsb. Audit of partnership concernsc. Audit of proprietary concernsd. Audit of bankse. Audit of Cooperative Banks, societies

3. Based on timing and procedure adopted in audit: Annual and final Audit

FINANCIAL AUDIT IN THE CLINICAL AREA

1. Cash receipts and payments2. Purchases and stores3. Free of charge and subsided services4. Care on the missing charges5. Maintenance and repair of machinery

and equipment6. Maintenance of vehicles7. Misuse of infrastructure8. Boxes and crates9. Gift items

PERFORMING THE FINANCIAL AUDIT IN A HOSPITAL

(Using an example: use of pacemaker in a cardiology hospital)For an analysis of charges and payments, a personal computer is used to establish databases from the documents. The documents thus audited are as follows:

• Accounts payable files by manufacturer.• Medical records and billing.• The hospital’s pacemaker and lead charges, found in its

billing files, are compared to its pacemaker purchases, listed by manufacturer or serial number.

• Pacemaker code assigned are checked because incorrect coding can lead to incorrect payment.

• The profit or loss record is then examined.• Verify whether charges are consistent from patient to

patient.

ADVANTAGES OF FINANCIAL AUDIT

• An effective financial audit leads to improved accountability, ethical and professional practices.

• It can improve the quality of output, support, decision making and performance tracking.

• If financial audit can become an inherent part of management reporting by suggesting remedies for the problem areas identified, it can truly fit into the fundamental and critical area of financial reform which focuses on outcomes, of objectives being achieved at a reasonable cost. It will help in integrating the internal auditing with the ongoing public financial management reforms.

COST EFFECTIVENE

SS

DEFINITIONS

Cost effectiveness: The minimal cost for a given benefit, a maximum benefit for the one cost, or a balance of low-cost and high benefits that has maximum utility.

DEFINITIONS• Cost effectiveness analysis (CEA): an economic

analysis in which all costs are related to a single, common effect, usually in terms of cost expended per outcome achieved. Or it can be defined as a form of economic analysis that compares the relative expenditure (costs) and outcomes (effects) of two or more courses of action. Typically the CEA is expressed in terms of a ratio where the denominator is a gain in health from a measure (years of life, premature births averted, cases prevented) and the numerator is the cost of the health gain.

• Cost effectiveness analysis or CEA, is a comparison tool to help evaluate choices. It will not always indicate a clear choice, but it will evaluate options quantitatively based on a defined model. For managers, CEA provides peer reviewed evidence for decision support.

DEFINITIONS

• Cost effectiveness ratio: the ratio of total costs of investment to total accrued benefits, in terms of both dollars and benefit value.

Cost effectiveness ratio = Σ(all benefits)/Σ(all costs)

SITUATIONS APPROPRIATE FOR COST EFFECTIVENESS ANALYSIS

CEA is used most appropriately in situations having:

• Interventions with shared goals• A specific population• Sound evidence• Possibly inefficient programs

USE COST-EFFECTIVENESS ANALYSIS (CEA)

Three types of comparisons become immensely easier with cost-effectiveness analysis:

• Comparisons of different interventions for the same disease.

• Comparisons of different interventions for reaching specific segments of a population.

• Comparisons of different interventions for different diseases.

Cost effectiveness analysis:

• Support objective decision making• Brings clarity to data sources and

outcomes• Allows for strategic review of

organizations• Can be used in a host of operational and

benefits areas including• Presents evidence that can help gain

support for changes in benefits plans or employer-sponsored health programs.

TIPS FOR INTERPRETATING A COST-EFFECTIVENESS ANALYSIS (CEA)

• Consider perspective• Identify the strategies under

comparison• Be aware of the analytic horizon• Analyze all stated assumptions• Examine the sensitivity analysis• Understand all metrics

REFERENCE: • Nursing division budgeting. Accessed from:

http://faculty.ksu.edu.sa/hanan-Alkorashy/Nursing%20management%20489NUR/6_Nursing_Division_Budgeting.pdf

• Budget Manual. Accessed from: http://img.kerala.gov.in/docs/ind/budget_manual.pdf

• Revised estimate. Accessed from:http://financial-dictionary.thefreedictionary.com/Revised+Estimate

• Budgeting. Accessed from: http://www.civicus.org• Satya Saran Chatterjee. An instruction to management-its principles

and techniques.12th ed. World press private Ltd. 1996. Calcutta. P.no. 296-297

• Finkler, Mc Hugh. Budgeting concepts for nurse managers. 4th ed. Saunders publishers. USA. 2001

• Module 5 overview. Accessed from: http://www.finance.alberta.ca/publications/measuring/results_oriented/module5_overview.pdf

• Unit 11. Accessed from: http://www.egyankosh.ac.in/bitstream/123456789/25369/1/Unit-11.pdf

• Neelam Kumari. A text book of management of nursing services and education. 1st ed. S Vikas and company. India. 2011

• Fatima Anjum. Text book of nursing administration. 1st ed. Emmes medical publishers. Bangalore. 2010

• P V Sathe, A P Sathe. Epimediology and management for health care for all. 2nd ed. Popular prakashan. Mumbai; 2003.

THANK YOU