BUDGETING AND ITS

TYPES
INTRODUCTION
An organization should be managed effectively & efficiently,
to achieve its objectives
Budgeting or profit planning is a systematic approach for
effective management performance.
The term budget is derived from French word bougettee a
leather pouch in which funds are kept for meeting anticipated
expenses

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 A Budget is a comprehensive & co-ordinated plan
expressed in financial terms for the operations &
resources of an enterprise for some specific period in the
future.
Basic elements of a budget
Comprehensive & coordinated plan
Expressed in financial terms
For firms operations & resources
For specified period in the future

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 Budget is a kind of single-use plan of expected results
expressed in numerical terms, expected to be achieved within
specific time period.
Hospital budget is a process of estimating proposed
expenditures and the means of financing these expenditures.
Budgeting : Is the process of preparing & using budgets to
achieve management objective.

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OBJECTIVE OF BUDGET & BUDGETING
To state firms goals in clear, formal terms to facilitate their
attainability
To communicate expectations

To provide detailed plan of action

To coordinate activities & efforts towards maximum

utilization of resources
To provide means of measuring & controlling performance &
supply information on the basis of which corrective action
can be taken

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ESSENTIALS OF BUDGETING
Top management support
Clear & realistic goals
Assignment of authority & responsibility
Creation of responsibility centers
Adaptation of the accounting system
Full participation
Effective communication
Budgetary education
Flexibility

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 TYPES OF BUDGETING
Performance budgeting

Zero-base budgeting

Strategic budgeting

Traditional budgeting is the commonest approach, where in

current years budget is taken as base with the provisions of
some addition & deduction in the next years budget.
But it does not eliminate the drawbacks of past, hence newer
approaches are designed.

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 PERFORMANCE BUDGETING
Concept originated in U.S.A. in 1960s for defense budgeting

Input -output budget or cost & results budget

Shows cost matching with operations

It emphasizes non-financial measures of performance which

can be related to financial measures, in explaining deviation
from planned performance

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 Resultants of performance budgeting:

Correlates the financial & physical aspects of every

programme or activity

It improves budget formulation, review, & decision making at

all levels of the organization

It facilitates better appreciation & review of organizational

activities by the top management
Makes possible more effective performance audit

It measures progress towards long-term objectives

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ZERO BASE BUDGETING(ZBB)
Origin -U.S.A. in 1971

Based on a system where each function, irrespective of the fact

whether it is old or new must be justified in its entirety each
time a new budget is formed.
Each manager has to justify his entire budget in detail from zero
base

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 Advantages over traditional budgeting

Effective allocation of resources

Improvement in productivity & cost effectiveness

Effective means to control costs

Elimination of unnecessary activities

Better focus on organizational objectives

Saving time of top management

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 Disadvantages:

Excess paper work

Difficulty in identifying decision packages

Tendency to establish minimum level of efforts

Can overcome with experience of ZBB

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STRATEGIC BUDGETING
Comparatively newer concept

Jobs & tasks should be designed in terms of desired

strategic results & performances
Two stages in budget preperation:

1. Preperation of position papers provides background

for budgeting

2. Preperation of budget-- is prepared through interaction

between corporate level & SBU level in the light of
position papers

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BUDGETING PROCESS
Step 1: Planning the Process

Step 2: Communicating about the Process

Step 3: Programmatic Goal Setting

Step 4: Information Gathering

Step 5: Compilation and Revision of

information

Step 6: Committee Review

Step 7: Final Approval

Step 8: Implementation and Management

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BUDGETING PROCESS
To prepare a qualitative expression of the plans of the hospital,
in statistical terms
To prepare the economic forecast in respect of new
development, or other factors.
To outline the budget goal and policies as per the directives of
the governing board
To prepare a budget package incorporating written instruction

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 To analyze financial and statistical data generated by
respective department as well as that provided by the
administration or finance department,
Critically assess the departmental operation and performance,
and Develop indices for planning and control .
A budget hearing is organized by the finance officer at the
departmental level where the department head present his or
her draft budget.

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 The summary of each departments budget hearing records the
commitment and statement made between the administration
and department heads, and also includes observation of the
finance officer.
To develop the departments revenue budget, summarize
departmental expense budget, and forward the departments
budget hearing summary to the concerned department heads

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 To prepare a preliminary operating revenue budget and also
cash budget for the whole hospital , by summarizing and
collating the individual departments budget
To summarize the total budget into a proper budget format
including budgeted financial statement and statistical
summaries
In the final step, the budget is presented by the finance officer
to the governing board or board of trustees.

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MERITS OF BUDGETING
Forced planning

Coordinated operations

Performance evaluation & control

Effective communication

Optimum utilization of resources

Productivity improvement

Profit mindedness

Management by exception

Efficiency

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DEMERITS OF BUDGETING
Budgets can be seen as pressure device imposed by management, thus
resulting in:

a) Bad labor relations

b) Inaccurate record-keeping.
Departmental conflict arises due to:

a) Disputes over resource allocation

b) Departments blaming each other

if targets are not attained.

It is difficult to reconcile personal or individual and corporate goals.

Overestimation of cost by managers as they want to be on a safer side

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REFERENCES
Hospital administration by R.K.Sharma

Principles of management by L.M. Prasad

Principles of hospital administration by B. M. Sakharkar

http://kutenk200.blogspot.com
www.marcbowels.com/courses/adv_dip/module7chapter2/ami7_overview.htm

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 THANK YOU !

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