In developing countries like India a big share of budget expenditure is consumed by health sector. The budget process itself may be the culprit if the management of a hospital is struggling to achieve its budget target. These guidelines can be used by hospital management team for improving hospital budget system. Preparing a budget as well as setting up of a budgetary control system for a hospital depend upon cost analysis and costing techniques. It is a process of check and control, how much money have been received and how they should be spent to get the maximum benefit.

According to ICWAI, London, a budget is a financial and/or quantitative statement prepared prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective. Proper budget planning in welfare/not-for-profit organization is more important than in profit-oriented organization. Because in the profit-oriented organization the budget manager can safely be allowed to modify plans provided that the revision plan promises to increase profits. On the other hand, budgeting becomes the most important part of management control where the annual revenue is almost fixed, as such, budget managers of such institutions are strictly adhere to plans as expressed in budget.

The best budget can be resulted by setting budgets based on a strategic plan to fund future growth and operations. This approach is to first set the revenue side of the budget and then balance it by driving down the cost side. It can be done through educating hospital management team about budgeting, finance/cost analysis, offering incentives to stay within budgets, holding budget variance meetings with department managers and requesting corrective action plans from managers whose budgets are outside budget targets.

As most managers are aware, the operating budgeting process comprises two parts — budget setting and budget management. In budget setting, budgets are established prior to the beginning of each fiscal year. On the other hand in budget management, budgets should be monitored and controlled. If either is not properly executed, year-end financial results can be problematic and expectations can be missed.

The hospital budget should be based on a strategic plan to understand its capital needs. The strategic plan should be integrated into a financial plan that calculates cash, debt, capital, and profitability requirements to maintain financial stability. It should be based on the mission, strategy, and financial plan of the entire health system. For instance, in a hospital with academic setting, the dean or chief of academic domain should be heavily involved in the hospital budgeting process to understand what specific money is going to what mission, and understands the sources of those money.

Once the budget and operating margin target are finalized, the CEO and senior management, as a unified team, own the budget and are accountable for meeting it. The CEO presents the annual budget and operating target to the entire management team to endorse the budget and establish the expectation of obtaining it. The CEO should also communicate the methodology and need basis for setting the targets.

Finance department should give other department managers their budget targets (not vice versa), based on historical performance and overall budget goals. High- performance budget expectations should be set for all departments, both profitable and unprofitable, to increase contribution margin and decrease losses. Labour, supply, and other budgeted costs per workload unit should be evaluated and reset in order to improve consistently low-performing departments.

The finance department should function as a support to the CEO/director by providing financial data, variance reports, operating statements and other information. Budget analysts should be assigned to specific departments to learn the uniqueness of each department for increasing efficiency. The finance department should be responsible for providing mandatory budget, general finance, and cost accounting training and education to all department managers.

Senior management should have a firm resolve about reaching the budget targets they set. Budget meetings should involve department managers and the director who meet with the budget team. Senior management should explain to managers that they will be evaluated and held accountable in year-end review meetings in which salary increases and job security can be affected, and that meeting budgets is not simply a goal but a managerial requirement. Department budgets should be flexible and tie back to the hospital's master budget.

Management should be rewarded for exceeding budget expectations based on a balanced scorecard. A typical bonus structure should also be introduced. Cost containment and cost reduction should be balanced with improving quality as well as patient and employee satisfaction when reviewing management performance.

Viewing budgeting as a two-part process budget setting and budget managing and injecting best strategy within each part can help hospitals generate better year-end financial results that can be invested in teaching, research, and patient care, and improve financial stability.

Gaurav Jyoti Sandilya