Budgeting is a process of looking at a business estimated incomes and expenditures over a specific period in the future. It allows a business to see if they will be able to continue operating at their expected level with these projected incomes and expenditures

1. BUDGET
AND
BUDGETARY PROCESS
PRESENTED BY:
MS. MONIKA KANWAR
NURSING TUTOR
M.SC. (N) [MENTAL HEALTH NURSING]

3. INTRODUCTION
• The word Budget is derived from the French word “Bougette” which
means leather bag/wallet to carry out official papers.
• Every organization has a predetermined set of goals and objectives which
are attainable only with the help of proper planning and execution of plans
economically. The plans are in the form of statements are called Budget.
• Every organization prepare budget for its functioning. Budget expresses the
plan of hospital in health organization to provide optimum care at a
reasonable cost in financial terms.
• The process of budgeting has gained importance in the recent years
because of rising health care costs and the emphasis on cost containment.
• It is extremely important that budgeting be accomplished in such a way
that it facilitates goal achievement.

4. DEFINITION
A budget is a tool for planning, quantifying the plans and controlling the costs.
According to Finkler, 1984
OR
A budget is a plan that uses numerical data to predict the activities of an
organization over a period of time and it provides a mechanism for planning
each unit’s needs and contributions, According to Carruth and Noto, 2000
OR
Budget is an instrument of management used as an aid in planning,
programming and control of business activity

5. CONTD….
Budget has defined as “an estimate of future needs arranged according to an
orderly basis, covering all the activities of an enterprise for a definite period of
time. According to GR Terry
OR
Budgets are more than just a few calculations. In a business context, a budget
once constructed, becomes an essential tool for the financial management of the
business. In fact operating a business without a budget is a very bad
management.

6. IMPORTANCE OF BUDGET
• Budget is an essential management tool.
• Budget tells us how much money we need to carry out our activities.
• Budget offers a useful format for communicating fiscal objectives
• It helps us in controlling or spending.
• Budget monitors income and expenses.
• Budgeting keeps us on track for our financial goals.
• Budget helps to identify problem areas and facilitate effective solution.
• Budget provides means for measuring and recording financial success with
the objectives of the organization.

7. PURPOSE OF BUDGET
Control costs
Establish annual and
monthly budget
Identify and analyze
actual experiences
compared to the
budget plan
Accurately report all
financial and
statistical data

8. CONTD….
• To plan, organize, track, and improve financial situations of the
organization.
• Budget is a tools of administration. When planning, co-ordination,
control, evaluation, reporting and reviews are combined in a budgetary
system, it becomes effective tool of administration in management.
• Budget is a way of motivating managers to achieve their responsibility
centres goals.
• Budget is forecast of income and expenditure (and thereby profitability)
• It is an aid in making and coordinating short range plan.

9. CONTD….
• It is a bench mark for controlling on-going activities.
• It is a means of educating the managers in an organization.
• To evaluate the performance of nurse administrators and managers and
increase awareness of costs.
• Under suitable conditions, standard costing and budgetary control may
go hand in hand and can harmonies and make the planning and
controlling more effective.

10. PRINCIPLE OF BUDGET
PRINCIPLES
OF
BUDGET 1. Flexibility
2. Management support
3. Employees Involvement
4. Statement of Organizational Goal
5. Responsibility Accounting
6. Organizational Structure
7. Communication of Results
8. Sound accounting system

11. CONTD….
1. Flexibility: The budget should be flexible. If the basic assumptions
underlying the budget change during the year, the budget should be
restated. This will enable the management to compare the actual
level of operations with the expected performance at that level.
2. Management support: Top management support and cooperation is
essential for successful implementation of the budget. It should take
interest not only in setting the targets and finalizing the budgets but
also constantly monitoring the actual performance to find out the
deviations if any and take curative steps.

12. CONTD….
3. Employees Involvement: The budget should be established on the
highest possible level of motivation. All levels of management
should participate in setting targets and preparing budget.
• Participation of employees in budgeting process will not only make
them carefully think about the likely development in the forthcoming
period and prepare budget accordingly, but will also motivate them to
strive heard to achieve budget levels of efficiency and activity.
4. Statement of Organizational goals: The organizational goals should
be clearly stated. These goals should be set within the framework of
corporate policy and strategy in a pre-requisite for budgeting.

13. CONTD….
5. Responsibility Accounting: Individual employees should be informed
about expectations of the management. Only those costs over which
an individual has predominant control should be used in evaluating
performance of that individual. Responsibility reports often contain
budget to actual comparison.
6. Organizational Structure: There should be well planned
organizational structure with clearly defined authority and
responsibility of different levels of management. Role and
responsibilities of budget committee and its president must be made
known to the people in the organization.

14. CONTD….
7. Communication of results: Proper communication systems should be
established for management reporting and information service so
that information pertaining to actual performance is presented to the
remedial action is taken wherever necessary.
8. Sound accounting system: Organization should have good
accounting system so as to generate precise, accurate, reliable and
prompt information which is essential for successful implementation
of budget system.

15. CHARACTERISTICS OF
BUDGET
Following are the characteristics of budget:
• To be successful, a budget must be Well planned, Flexible, Realistic
and Clearly Communicated.
• Budget is framed in advance keeping an eye on a future plan of
action.
• It is a comprehensive plan of action.
• It is for future period and is based on objectives to be achieved.
• It is a financial/or quantitative statement prepared for the execution of
policy formulated by the top management.

16. CONTD….
• It is flexible enough to allow changes in the changing environment.
• On the basis of budget report, performance of the organization is
constantly monitored.
• It generally involves an annual plan.
• It should be a synthesis of past, present and future.
• It should be in the form of statistical standard laid down in specific
numerical terms.

17. FEATURES OF BUDGET
• It must be written an approved by the appropriate authority.
• It should be modified or corrected whenever, there is a change in
circumstances (Flexible).
• It is prepared on the basis of past experiences and trends in the
business.
• It is expressed in financial terms.
• It should be clearly defined.
• The budget should facilitate goal achievement.
• It should be based on the specific concepts of financial management.

18. TYPES OF BUDGET
• There are various types of budget, each of them are classified
differently by the fiscal managers based on different criteria/basis.
TYPES OF BUDGET
1. Based on
fiscal/non-
fiscal budget
2. Based on
period of
Coverage
3. Based on
Financial
positions
4. Other
types of
budget
5. Historical
vs forecast
/statistical
budget and
trended
budget

19. CONTD….
1. BASED ON FISCALAND NONFISCAL BUDGET
FISCAL/FINANCIAL BUDGET:
• Capital expenditure Budget: This type of budget includes the purchase
of land, building, a major equipment of considerable expense and life
long. These are major investment and reduces flexibility in budgeting.
• Operating Budget: Provides overview on agency functions for
upcoming year. It includes the cost of supplies, minor equipment
repairs, and overhead expenses.
• Zero based Budgeting: This type of budget is not based on the previous
budgets. Instead, the budget starts from zero. All the expenses are
justified based on expectations or desires for the upcoming year.

20. CONTD….
• Program Budget: It is a budget prepared specifically for a project or
program. This type of budget includes expenses and revenues related to
one specific project.
• Performance Budget: It is based on the functions such as direct nursing
care, supervision, in service education, nursing audit and so on.
• Revenue and Expense Budget: It is expressed in financial terms and
takes the nature of proforma income statement for the future. It shows
items of profit and loss under classified headings.

21. CONTD….
NONFINANCIAL BUDGET:
• Direct Labor House (Personal) Budget: Direct labor house budget
includes the wages and salaries of regular employees.
• Time, space, material and production budgets: These budgets are
expressed in quantities rather than in monetary terms. The budgets are
translated into financial terms E.g.: direct labor hours, machine hours.
The rupee cost would not accurately measure the resources used or the
results intended.

22. CONTD….
2. BASED ON PERIOD OF COVERAGE
• Annual Budget: A yearly budget. It is a financial plan that depicts income
and expenditure for a fiscal year of an organization.
• Long term Budget: It is a financial plan depicting income and expenditure
extended for more than one year in the future. Usually it is for a period of 5
years with strategic planning.
• Current Budget: A temporary or adjusted financial plan depicting the
amount of money to spend in the current fiscal year that usually starts from
July 1 to July 30.
• Rollover Budget: It is one that forecast program, revenue, and expenses for
a period higher than a year, to accommodate applications that are larger
than the annual budget cycle.

23. CONTD….
3. BASED ON FINANCIAL POSITION
• Cash Budget: It is prepared by the way of projecting possible cash
receipts and payment over the budget period.
• Balanced deficit Budget: It is a type of financial plan when expenses
exceeds the income.
• Balanced Budget: It is a financial plan having revenue and expenditure
equal or nearly equal or expenses that do not exceed income, usually
found in the government sector.
• Surplus Budget: It is a financial plan depicting expected revenue
exceeding the estimated expenditure for a fiscal year.

24. CONTD….
4. OTHER TYPES OF BUDGET
• Fixed Budget: It refers to those components of budget that will not vary
regardless of changes in patient census or number of procedures
• Flexible Budget: It is a variable budget and refers to those components
of the budget that will determine how the budget should fluctuate based
on those changes in the number of procedures or units of activity.
• Open-ended Budget: It is a financial plan in which each operating
managers presents a single cost estimate for each programme in the unit
without indicating how the budget should be scaled down if less
funding is available.

25. CONTD….
5. HISTORICAL VERSUS FORECAST/STATISTICAL BUDGET AND
TRENDED BUDGET
• Historical Budget: In historical budget, the previous year expenses are
considered as a basis for cost for the next year. Most healthcare institutions use
historical data to develop a budget.
• Forecast or statistical Budget: It is developed by establishing a level of
anticipated activity based on historical or other data such as loss or gain of a
specific program.
• Trended Budget: It is one that is developed based on the previous year's
expenditure pattern. If a specific percentage of expenses occurs in a particular
month, the budget will be developed using those trends to spread the costs.

26. MASTER BUDGET
• When the budgets of all departments are combined, it results in a
“Master Budget”.
• A master budget is a financial document depicting income and
expenses, overhead and production/service cost, monthly, annual
averages and total projections for a specified period.
• It also includes all operating budgets such as sales, marketing, direct
labor, inventory, production etc.
• The master budget includes an operational and financial budget plan
for a specified period.

27. CONTD….
• The operating budget provides revenue, expenses, and profit. Profit is
the expected revenue of all sources with budget costs.
• A financial plan consists of a cash budget and capital expenditure
budget.

29. INTRODUCTION
• The process of Budgeting has gained importance in recent years because
of rising healthcare costs and emphasis on cost containment.
• Budgeting is an essential component of all six management functions.
• Budgeting is an integral part of administrative management.
• It serves as a powerful tool of coordination and a useful device for
eliminating duplication and wastage. It serves both planning and control
functions in the process of management.

30. DEFINITION
Budgeting is the formulation of plans for a given future period in numerical
terms.
According to Koontz
OR
Budgeting is a technique for formulating budget.
OR
Budgeting is the process of creating a plan to spend money. This spending
plan is called Budget.
OR
Budget is the process of designing, implementing and operating Budget.

31. PRINCIPLE OF BUDGETING
PRINCIPLES
OF
BUDGET
1. Principle of comprehensiveness
2. Principle of flexibility
3. Principle of annularity
4. Principle of appropriateness
5. Principle of universality
6. Principle of specificity
7. Principle of exclusiveness
8. Principle of delegation
9. Principle of coordination
Principle of accountability

32. CONTD….
1. Principle of comprehensiveness: It means that budgeting should
provide sound financial management by focusing the organizational
requirements. It should be objective and policy oriented.
2. Principle of Flexibility: It means that there should be flexibility in
budgeting.
3. Principle of annularity: It implies that budgeting requires a review
of the performance of the previous year. It is an evaluation of its
adequacy both in quantity and Quality.

33. CONTD….
4. Principle of appropriateness: It means that budgeting periods should
be appropriate to the nature of business or service and the type of
budget.
5. Principle of Universality: It means that budget must be prepared and
interpreted consistently throughout the organization from planning
process.
6. Principle of Specificity: It means that the budget must allocate
identifiable objects and plan program activities in advance. It should
contain both long-term and short-term expenses items.

34. CONTD….
7. Principle of Exclusiveness: According to the principle of
exclusiveness, budget is concerned with money, not with issues.
Setting budget targets requires the utmost care to check against and
balance between too high or too low estimates.
8. Principle of Delegation: The principle specifies that the budgeting
process needs consistent delegation. For that, it needs to allocate
duties and responsibilities to frame and execute budget among
managers at different levels.

35. CONTD….
9. Principle of Coordination: It states that coordinating efforts should
be made by various departments in establishing a frame of reference
for managerial decisions in budgeting and providing a criterion for
evaluating managerial performance.
10. Principle of Accountability: It specifies that the managers must
spend money as indicated in the budget plan. They must use scarce
financial and non-financial resources most effectively.

36. PURPOSE OF BUDGETING
Main Purpose/Primary Goal:
To ensure the most effective use of scarce financial and non financial
resources.
Specific Purposes:
• It provides detailed plan to reduce uncertainty.
• It controls expenses by efficient and economical manner.
• It enhances the budget planning.
• Coordinates efforts among organizational departments.

37. CONTD….
• Offers a useful format for communication.
• It aids in planning and control.
• It guides for actions and future needs.
• Allows for feedback, concerning the events to which actual spending
confirm the budgetary sending.
• It conserves the resources by regulation.

38. APPROACHES TO BUDGETING
1. TOP-DOWN APPROACH:
• According to the top-down approach, top management develops the
organization’s budget. They outline goals and objectives of the budget.
• There is little participation of middle and bottom-level managers in
budgeting process.
2. BOTTOM-UP APPROACH: This approach is a participatory approach
to budgeting process.
• Lower level management is involved in preparing Budgets under the
guidance by upper level management.
• Each Department prepares its budget. Later on operational budgets are
combine to develop master Budget.

39. STEPS IN BUDGETING
Preplanning Phase
Planning phase
Budget preparatory
phase
Budget approval
phase
Budget allocation
and appropriation
phase
Budget
implementation and
monitoring phase
Budget
evaluation phase

40. CONTD….
1. Preplanning Phase:
• Constitute the budget committee. Have meeting regularly.
• Involve all individuals having responsibility for budgeting in its
development.
• Be clear about the organizational structure to support plan.
• Have knowledge and orientation regarding the budgeting process.
• Deciding and developing a philosophy for fiscal affairs/approaches of
budgeting (either top-down or bottom-up approach) to achieve goals.
• Sending circular to departments to furnish record of money
received/sanctioned, expense, and future requirements.

41. CONTD….
2. Planning Phase:
i. Plan budget foundation activities: Gather information about cost
estimates, personal issues together with anticipated changes and
their impact e.g.: patient’s demographic, stabilization in medical
practice, referral pattern etc. to facilitate forecasting or projecting
activity from each department.
ii. Establish broad goals and Objectives: General purpose provide
overall direction that serve as a basis for decision-making. The
objectives should be consistent with goals, objectives, and policies
of the organization. Develop it as per the guidelines of governing
body or board of trustees and in consultation with the finance
officer, which will constitute a tentative outline of the financial plan.

42. CONTD….
iii. Update budget consumption: Assumptions must be known and
utilized throughout the process. These must be uniform and
coordinated organization-wide. Premises must be in line with
services, personnel, and materials, technology advancements, etc.
iv. Specify program priorities and plan programs: Develop and specify
programs according to preference and various ranges of possibilities
with management strategies to achieve their long-term goals.
v. Prepare specific measurable operating objectives: Prepare
particular objectives that should be measurable, attainable and time-
bound

43. CONTD….
vi. Plan long-range and program budgets:
• Plan master and different operating budgets based on
1. The approach to be used
2. The method of budgeting to used for policy
• Plan monitoring methods, such as motivational tools and variance reports,
etc. with their specific measure/criteria.
• Plan qualitative methods such as Program Evaluation Review Technique
(PERT) and Critical Path Method (CPM) for planning and scheduling.
• Prepare blueprint of budget activities-time frame table using the Gantt
Chart.

44. CONTD….
3. The Budget Preparatory Phase:
i. Develop unit and departmental budgets. Develop operating and capital
budget:
• Develop a master budget consistent with approaches to achieve goals.
• Prepare financial plan and budget to achieve the overall goals within the
constraints of available resources.
• Develop a draft cash flow budget.
• Forecast future.
• Anticipate changes and their impact
• Consider the broadest possible range of alternatives.
• Plan the most effective approach using cost-benefit/effective analysis.

45. CONTD….
ii. Communicate goals, objectives and assumptions:
• Communicate clearly the goals, objectives and the updated
assumptions to all departments.
• Various units and departments should coordinate their plans with each
other in case of a bottom-up approach.
• Have discussion and negotiations with the heads of departments and
get feedback.

46. CONTD….
iii. Review and prepare the final draft:
• Prepare the final draft of each operating budget by the department after
reviewing by the finance officer.
• Submit to authority/ financial officers.
• Combine all operating budgets to prepare a master budget plan.

47. CONTD….
4. Budget Approval Phase:
• Get approval from approving authority per the policy of the
organization.
• Under the extramural approval system in government setup, the
approving authority is the same for all government-funded hospital i.e.
through joint secretary, and health minister and presented in the
parliament and approved by the prime minister, the chairman.
• Under the intramural approval system, approving authority is the head
of an institute through head of department within the organization. The
finance officer in the governing body present the final draft and board
of trustees approve it.

48. CONTD….
5. Budget Allocation and Appropriation Phase:
• Under the extramural approval system in government setup, the budget
is allocated to the organization after the final approval of the budget
voted on the account of maintenance.
• The sanctioning of finance is on funding, policy, performance, actual
expenditure of last year, and plans; the finance sanction is in
installment.

49. CONTD….
6. Budget Implementation and Monitoring Phase:
• The departments use the sanctioned budget for the planned activities
and programs, as mentioned in the Gantt Chart.
• It uses motivational measures as incentives for employees to work.
• Monitor the utilization of budget by using PERT and CPM method.
• The department prepares budget variance reports.

50. CONTD….
7. Budget Evaluation Phase:
• The organization constitutes a budget monitoring committee
comprising the representatives of each department; the financial
advisor reviews the budget.
• The committee reviews the budget in terms of forecasting expenses,
cash position, and deviation from the budget.
• It evaluates the program and financial performance continually and
makes adjustments to encourage progress to achieve goals.

52. INTRODUCTION
• The process of Budgeting has gained importance in recent years because
of rising healthcare costs and emphasis on cost containment.
• The budget process consist of activities that encompass the
development, implementation, and evaluation of a plan for the provision
of services and capital assets.
• Budgeting process is a systematic activity that develops a plan for the
expenditure of a usually fixed resource, such as money or time, during a
given period to achieve a desired result. Budgetary process is a
sequential activity where various steps are followed.

53. DEFINITION
The budgeting process is the process of putting a budget in place. This
process involves planning and forecasting, implementing, monitoring, and
controlling, and finally evaluating the performance of the budget.
OR
The budgeting process is a systematic activity that has an expenditure plan
of usually fixed resources of a given period to achieve the desired results.
The budgetary process is a sequential activity. The budget process activities
include the development, implementation, evaluation of a plan to provide
services and capital assets.

54. PREREQUISITE OF
BUDGETARY PROCESS
According to Furst, 1981, following are the prerequisites that should be
met before the actual process of budgeting.
• The goals and objectives must be known.
• There must be n organizational structure to support the plan.
• The budget period must be clearly defined.
• The accounting system must be clear.
• The manager should have the knowledge about budget process. They need
to have the orientation regarding format or process utilized in the specific
institution.

55. CONTD….
• Feedback must be available to departmental managers to measure and
guide their performance.
• Assumptions must be uniform and coordinated organization wise.
• Development of forecasted units of activity.
• Prioritizing the goals of organization according to importance and
affordable within a specific period of time before the capital or program
budget is prepared.

56. FEATURES OF
BUDGETARY PROCESS
• Incorporates a long-term perspective.
• Establishes linkage to broad goals.
• Focuses budget decisions on results and outcomes.
• Involves and promotes effective communication.
• Provide incentives to government management and employees.

57. PRINCIPLES OF
BUDGETARY PROCESS
• Establish broad goals: Broad goals provide overall direction for the
government and serve as a basis for decision-making
• Develop approaches to achieve goals: Define specific policies, plans,
programs, and management strategies to achieve its long-term goals.
• Develop a budget: The budget must be consistent with developed
strategies. Prepare a financial plan and budget within the available
resources.
• Evaluate performance and make modifications: Evaluate the program
and financial performance continually and make changes accordingly.

58. STEPS IN BUDGETARY
PROCESS
• Budget Estimate Preparation: Usually the finances and budget
preparation is dealt by account section of the institute/hospital. The
record of revenue/income and expenditure is usually centralized.
- They keep the record of cash deposited or the money sanctioned from
the Ministry, even to head of department is usually under the head of
institution.
- Each department is also keeping a record of money received/
sanctioned and expenses.

59. CONTD….
• Budget Approval:
Extramural Approach: The approving authority is the same for all
government funded hospitals i.e. through Joint Secretary, Health
Secretary, Health Minister. It is then present in the parliament and final
approval is signed by Prime minister who is the chairman of planning
commission.
Intramural Approach: The intra mural approval system i.e. within the
organization approval system. It has to go in two steps:
- Firstly by the head of hospital
- Then by the head of institute

60. CONTD….
• Budget Allocation:
After the final approval the budget is voted on account of maintenance and
then allocated to organizations. The finance is sanctioned in installment
based on hospital funding, management policy, performance, actual
expenditure of last year and future plans.
• Budget Monitoring:
Budget monitoring is usually made by the budget reports. There is budget
monitoring committee comprising of representatives of each department,
financial advisor to review budget prepared in terms of forecasting,
expense, cash position, and deviation from budget.

62. PLAN BUDGET
• It refers to estimated expenditure need to be implemented on various
projects and programmes included in the budget during the given
fiscal year.
• The organizational objectives, mission, vision, and policies are
reviewed before the commencement of the next financial year.
• The expenditure is forecasted in terms of input and output of the
organization. Based on the comparison with the past year expenditure
and turnover made, a budget is prepared.

63. CONTD…
• A plan budget is forecasted budget.
• This budget is usually made for attaining an idea of expenditure in
different areas of functioning. Thus, the organization can have in hand
prior information regarding expected expenditure.
• Planned Budget is used in planning the entire budget of a nation as it
forecast the entire need of the nation for the next financial year.

64. CONTD…
• It represents current development and investment outlays of the
government.
• It arises due to planned proposal

65. NON-PLAN BUDGET
• It refers to the expenditure other than the plan expenditure. It is the estimated
expenditure provided in budget to spend on the routine functioning of the
government.
• Every organization or nation may face unexpected crisis even through it is
functioning in a planned budget. In such situations the expenditure has to be
regulated as per the intensity of the crisis. It is in this time the non-plan budget
comes into the action.
• A non-plan budget is prepared immediately after the crisis occurs and there will
be an administrative level meeting, in which a proposal of budget to meet the
crisis is made.

66. CONTD…
• It refers to the routine expenditure of the budget.
• It arises out of the scope of government plan.
• Example of non-plan budget was the budget prepared after the
occurrence of wars, natural calamities like floods, volcanic eruptions,
etc. which is happened sudden and unexpectedly.

68. INTRODUCTION
• Zero based Budgeting was first time applied in the Year 1971, in
Texas, U.S.A.
• It was adopted in India in the year 1986 as a technique for determining
expenditure budgets.
• It has been adopted by many departments of Indian Government and
also by some state Government like Maharashtra and Rajasthan.
• In Zero-Based Budgeting every department function is reviewed
comprehensively and all expenditure must be approved rather than
only increase. No reference is made to the previous level of
expenditure.

69. MEANING
• Zero Based Budgeting is a type of Budget starting from the Zero base
every fiscal year.
• Each department reviews budget comprehensively to seek approval
for all expenditures. It ranks priority area according to the importance
and requirement. It also allocated resources according to priority
areas, without considering past performance or spending.

70. DEFINITION
Zero Based Budgeting is defined as “Operating, planning, and budgeting
process which requires each managers to justify the entire budget
request in detail and shift the burden of proof to each manager to justify
why he/she should spend any money”.
OR
Zero Based Budgeting is a method of Budgeting in which all expenses
must be justified and approved for each new period.

71. FEATURES
• Budget is prepared from a zero basis or from scratch.
• It focuses on identifying and prioritizing activities according to its
importance/need.
• It needs to evaluate all possible alternative sources of fund.
• The estimation of expenses should be on cost-benefit analysis.
• The method is action oriented and dynamic.
• It works on the range of possibilities on cost reduction.

72. STEPS
Following steps are followed in Zero based Budgeting:
• Identify organizational program
• Divide the program into packages
• Each package should have its goals, activities and needed resources
• Calculate the cost for each package from the base zero.
• The costs are calculated afresh for each budget period.

73. ADVANTAGES
• Identify opportunities.
• It forces the nurse managers to plan each program package as fresh.
• Identify mission
• Cost effective way to improve operations.
• Efficient allocation of resources, as it is based on needs and benefits.
• Increases communication and coordination within the organization.
• Increasing staff motivation by providing greater initiative and
responsibility in decision-making.

74. DISADVANTAGES
• Difficult to define decision units and decision packages, as it is time-
consuming and exhaustive.
• Forced to justify every detail related to expenditure.
• Necessary to train managers as Zero-Based Budgeting must be clearly
understood by managers at various levels to be successfully
implemented.
• Difficult to administer and communicate the budgeting because more
managers are involved in the process.
• Compressing the information down to a usable size might remove
critically important details.

76. MEANING
Performance budget refers to budget in terms of functions, programmes,
and performance units reflecting the revenues and expenditure of an
organization or Government.
OR
A performance budget is one which presents the purpose and objectives
for which funds are required, the costs of the programmes proposed for
achieving those objectives and quantitative data measuring the
accomplishment and worked performed under each programme.
According to J. Burkhead

77. FEATURES
• The budget must indicate purpose and objectives for getting funds.
• It must also show the cost and output of each program and program
activity.
• It is applicable for long term plans.
• It is an output oriented budget that focuses more on achievement
rather than means of achievements.
• The cost and benefit of each activity are analyzed for making
decisions regarding allocation of funds.

78. STEPS/PROCESS
1. Formulation of objectives
2. Identifying various programmes and project which will accomplish these
objectives
3. Evaluation and selection of programmes, projects on the basis of cost benefit
analysis.
4. Development of performance criteria for various programmes.
5. Preparing financial plans for each program and the final annual budget.
6. Assessing the performance of each programme and comparing the same
with budgeted performance.
7. Correcting deviations.

79. PREPARATION OF BUDGET
UNDER PERFORMANCE
BUDGETING
Following steps are followed while preparing the budget under
performance budgeting:
• Allocation of Resources: Submit the requirements as per programme
classification.
- Indicate its past activities, their costs, the activities to be taken up
during next year, the results expected, pattern of assignment of
responsibilities or time phased plan for expenditure and work.

80. CONTD…
• Budget Execution:
- Initiate the action for implementation after getting the grants.
- Monitor the activities and regulate flow of expenditure.
- Prepare the time phased reports showing expenditure and work and
keep a record.
• Appraisal and Evaluation:
Evaluate each programme in the light of results obtained and
expenditure incurred.

81. ADVANTAGES
• It states clearly the purpose and objectives for which funds are needed.
• It improves performance of units in a continuous manner.
• It brings transparency in the budget formulation process.
• It helps in decision making regarding allocation of funds.
• It integrates the process of planning, programming and budgeting.
• It acts as a tool for reviewing efficiency of programs.

82. LIMITATIONS
• It focuses on quantitative evaluation rather than qualitative evaluation.
• It is ineffective without a proper and systematic accounting and
reporting system
• It is difficult to quantify social benefits.
• It is difficult to accurately estimate benefits arising out of each
activity.

83. DISADVANTAGES
• There is possibility of inaccuracy in forecasting and expenses.
• It measures the results quantitatively.
• It needs a proper accounting, monitoring and reporting system.
• It is difficult to measure the social benefit of functions.
• The process is time consuming and expensive.
• Due to its flexibility feature, programs may change at the time of
implementation.
• It requires more skilled man hours to plan and implement the process.

85. INTRODUCTION
• Budget estimate is the calculation of the amount of expenditure that is
expected in an organization in a year.
• This estimate is based on the previous year expenditures and
according to the new programmes and projects of the organization.
• This is also influenced by the market rate fluctuations.
• This helps the top level managers in proper administration of the
organization without financial crisis.
• While preparing a budget estimate forecasting of the coming events is
a must.

86. CONTD…
• It should be a synthesis of the past, present and the future.
• The financial manager’s should be aware about, what happened in the
organization, what is happening in the organization and what will
happen in the organization.

87. BUDGET ESTIMATE
PREPARATION
1. Governing Body: Responsible for General planning function.
Selects the budget steering committee, determines the budgetary
objectives, and reviews and approves the master budget.
2. The administrator: Responsible for the formulation and execution
of the budget by correlating the governing board’s goals with the
guidelines for budget preparation and supervising the budget
preparation

88. CONTD….
3. The Budget Director: Responsible for budgeting procedures and
reporting.
• Establishes a completion timetable.
• Supervise data collection and budget preparation
• Serves as the chairperson of the steering committee, which approves
the budget before it is submitted to the governing bodies.

89. CONTD….
4. Department Heads:
• Prepare and review goals and objectives and prepare the budgets for
their departments.
• Departmental budgets need to be prepared and coordinated.
• During this phase, units of service, staffing patterns, salary, and non-
salary expenses and revenues are forecasted so that preliminary rate
setting can be done.

91. INTRODUCTION
• It is revising the estimate of the budget during the budgetary period.
• A revised budget is prepared immediately after the crisis occurs in
order to face the situation.
• It is due to the unexpected crisis even though it is functioning in a
planned budget.
• In such situations the expenditures has to be regulated as per the
intensity of the crisis.
• Example: An unexpected earth quake will lead to loss of lives,
destruction of buildings, destruction of farm lands, poverty in a
country, In order to cope up with this situation, the Budget should be
revised.

93. INTRODUCTION
• It is an exercise carried out during the middle of a plan period to
assess the direction in which the plan is moving and to take corrective
actions wherever required
• Mid Term Appraisal (MTA) reviews the experience in the first three
years of the five year plan and seeks to identify areas where corrective
steps may be needed
• Midterm appraisal (MTA) provides an opportunity to take stock of
economy and to introduce policy correctives and new initiatives in
critical areas in the context of new priorities, the success achieved on
the investment front.

94. CONTD….
• It presents a candid assessment of the resources position facing both
the centre and the state and the implications.
• The MTA makes an assessment of the public finance and highlights
the total investment of the plan initially estimated.
• It is slated to be much more than a review of how much money is
going into various schemes and projects.

96. ESSENTIAL
REQUIREMENT FOR THE
PREPARATION OF BUDGET
1. Forecasting- Sound forecasting may be related to purchase,
expansion of activities, advertising, and other working needs
2. Accounting- Well conceived accounting system must be necessary.
3. Line of Authority- Budget preparation, Operation and supervision
requires clearly defined line of authority. Usually in nursing schools
and colleges, Principal is the head of the budget committee.

97. CONTD….
4. A budget committee – A budget committee is necessary, while
preparing the budget. Principal in college of nursing is the head of
the budget committee. Other members include representatives from
the management, head of the various departments, and
administrative officer.
Functions includes:
• Forecasting the needs of the institution.
• Revision of Budget
• Further analysis of the budget

98. CONTD….
5. Business policies- There should be clearly defined business
policies, which serves a basis for budget preparation.
6. Statistical information- Budget should be in the form of figures
7. Top level management support- It is essential to ensure successful
instillation of the budget.
8. Periods of Budget- The length of budget period should be clearly
mentioned.