What is the nurse manager reviewing when determining the differences between the projected and actual budget?

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Operating Budget Development

The operating budget covers a specific period, called a fiscal year. The fiscal year may begin July 1, may correspond to the calendar year beginning January 1, or may follow the federal government year that starts on October 1. Either way, it is the budget plan for day-to-day service delivery operations. It has at least has two parts: (1) the personnel budget, and (2) the expense budget for costs other than personnel. It includes historical or trend data, expenses, and revenues. Most nursing units in hospitals do not have a revenue budget but do use volume-based projections such as patient days.

The specific process used to develop operating budgets will vary considerably from one organization to another. The nurse manager’s and/or nurse executive’s role in developing operating budgets for nursing units and services will typically include input on or determination of volume projections, development of associated expense projections (including supplies, equipment, and salary/labor expenses), and some form of revenue projection. Many organizations develop and disseminate a set of budget assumptions that are to be used by managers and leaders in developing the operating budget. These assumptions may include such items as pre-established increases in labor or salary expenses based on contractual obligations, adjustments that must be made based on economic forecasts for supply charge changes (e.g., increased utility rates, increased cost of pharmaceuticals) or factors that will affect patient volume, such as the addition of a new service line.

The foundation of the development of the operating budget at the unit level is based on the projected volume of work for the coming year. The workload aspect often is measured in units of service. Key units of service need to be identified, the number of units predicted, and expenses and staffing calculated accordingly. Activity reports, such as historical census and average length of stay, identify trends related to volume of activity. The unit of service often needs to be adjusted to the case or patient mix, which is a proxy for severity of illness or need (Finkler et al., 2007).

Table 22-1 shows a sample volume budget flow sheet. Historical trend data are needed (e.g., occupancy percentages by time frames such as weekly or monthly) to determine growth projections and any impact of seasonality. The volume of services delivered for a year may be expressed as patient days, visits, procedures, or other units of service. Effects on volume are environmental effects such as reimbursement changes, new programs, process improvements, new technology, and marketing. If volume projections depend on another service or department, it is important for the two departments to communicate closely so that similar assumptions are used in establishing volume projections.

Once the volume projection has been completed, the manager can determine the personnel services (or staffing budget) portion of the expense budget. Calculation of staffing is complex and, given that staffing expenses generally are the largest portion of the nursing operating budget, nurse managers and nurse executives must have a consistent and well-defined approach to estimating staffing expenses. The methodology used will likely vary from organization to organization. Dunham-Taylor and Pinczuk (2006) described the following method that may be used to estimate staffing expenses.

First, the average daily census and occupancy (or utilization) rate are calculated using volume projections that have been developed. Next, the number of full-time equivalents (FTEs)—that is, the mix of full-time and part-time staff—needed to provide care for the expected volume is determined based on the unit’s staffing plan. The staffing plan should include any needed adjustments for non-patient care, sometimes called “nonproductive” hours (vacation, staff education, or sick leave) based on benefit levels. The staffing plan should also specify the skill mix of direct care staff (registered nurse [RN], licensed practical nurse/licensed vocational nurse [LPN/LVN], nursing assistant [NA]) and the nursing hours per patient day (NHPPD) appropriate for the patient population on the unit. Costs for administrative and other fixed staff members, such as unit clerks, need to be included. Other labor costs, such as overtime, shift or other differentials and premiums, and fringe benefit costs, must also be factored into the personnel budget.

Table 22-2 displays a sample budget expense sheet for salaries, and Table 22-3 demonstrates how personnel budgets might be displayed. Salary increases might also be included as another column.

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