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Budget estimate, revised estimate, performance budget


Budgeting though primarily recognized as a device for controlling, becomes a major part of the planning
process in any organization.

Literally, the word budget means a Leather bag or sachet to carry official papers in.

The word budget is derived from the old English word budgette means a sack or pouch which the chancellor
of the exchequer used to take out his papers for laying before the Parliament, the government, financial
scheme for the ensuing year.

According to Dimock ―Budget is balance estimated expenditure and receipts for a given period of time. In
the hands of the administrator the budget is the record of the past performance, a method of current control
and projection of future pans‖.

Budget estimate
Financial planning responsibilities need to be identified before budget preparation begins. The governing
board, administrator, budget director, steering committee, and department heads are often involved in the
budgetary process. The governing body is responsible for the general planning function. It selects the budget
steering committee, determines the budgetary objectives, and reviews and approves the master budget. The
administrator is responsible for the formulation and execution of the budget, by correlating the governing
boards goals with the guidelines for budget preparation and supervising the budget preparation. The budget
director is responsible for the budgeting procedures and reporting. He or she establishes a completion time
table, has forms prepared, and supervises data collection and budget preparation. The budget director serves
as the chairperson of the steering committee, which approves the budget before it is submitted to the
governing board. Department heads prepare and review goals and objectives and prepare the budgets for
their departments.

The first step in the budget process is the establishment of operational goals and policies for the entire
agency. The governing board should approve a long-range plan of 3 to 5 years that reflects the community’s
future health needs and other community health care providers’ activities. Because the situation changes
over time, flexibility is built into the plan. The operational goals must be translated into quantifiable
management objectives for the organizational unit. A formal plan for budget preparation and review
including assignment of responsibilities and time tables must be prepared. Historical, financial, and
statistical data must be collected monthly so that seasonal fluctuations can be observed. Departmental
budgets need to be prepared and coordinated. During this phase, units of service, staffing patterns, salary
and nonsalary expenses and revenues are forecasted so that preliminary rate setting can be done. Next,
departmental budgets are revised, and the master budget is prepared. At this point, operating, payroll, no
salary, capital and cash budgets can be incorporated into the master budget. Then the financial feasibility of
the master budget is tested, and the final document is approved and distributed to all parties involved.
During the budget period, there should be periodic performance reporting by responsibility centers.

In India usually annual budget estimates for coming financial year are prepared in the months of
September/October of the current year. Since budget proposals for next year are required, to be submitted by
the Directorate of Medical, Health and FW on October 25 current year to the State Government. SO the
exercises of the budget preparation started at the District level.

Every head of the office is required to prepare budget estimates in respect of salaries of establishment,
contingent expenditure and various other items, i.e. POI/repairs to vehicles telephone, office expenses, rent
of building, etc. in hospitals requirements in respect of medicines, diet, equipment, hospital contingencies,
surgical dressings, clothing, linen, etc are also needed to be worked out. Only cost of sanctioned posts and
existing budget items are included in budget estimates. For new items,, separate proposals with full details
are required to be made on a form called schedule of new demands. The estimates should be accompanied
by explanatory notes, and every major increase or decrease from current year’s allotments must be clearly
and precisely explained. The budget estimates should give closest possible attention to his work. All likely
factors should be taken into consideration while preparing estimates.

Preparing budget estimate

Item no: Income or Actual last Current year Budget next year
expenditure year Budget Actual Proposed Approved

Steps in budget estimate preparation:

1. Preliminaries:
i) Formulate the budget objectives
ii) Form budget committee and appoint a budget officer:

Budget needs budget committee in an organization

1. To receive and approve all forecasts, departmental budgets, periodic reports showing comparison of
actual and budgeted income and expenditure.
2. To request for special studies of deviations from the budget and consider revision of budget to meet
changed condition.

iii) Formulate budget timetable

iv) Draw an organization chart specifying who will provide key information and who can be held
accountable for performance.
v) Create a data base
It will contain:
 Summary of financial statements for previous one or two years.
 Gather information about other hospitals to which ones patients may look as alternatives.
 Create a database of the hospital providing information about space, physical layout, number
of beds, operation theatres, diagnostic centre, total and effective capacity, specialist doctors,
manpower, power, water, parking space, limiting factors, etc.
vi) Capacity in terms of units of service of income generating capacity centres, with case mix index.

2. Estimation of income:
The sources of income are:
1. Charges for hospital services: payable by the patients either on their own or through third parties.
The services could be broadly categorized under
a. nursing home beds.
b. Ancillary services such as operation theatre, diagnostic centres.
c. Outpatient department.
d. Other operating income like blood bank, ambulance, canteen etc.
e. Miscellaneous income like rent from hospital properties, scrap sales.
2. Investment income:
a. Interest from fixed deposits.
b. Dividend income from share.
3. Donations: in kind or crash, for general or specific purposes, and through cash boxes, charity
shows, donation drives.
4. Grants: to meet expenditure on specific activities or specialized programs, and to cover deficit on
current account.
5. Transfer of restricted funds to general revenue income

Forecasting income:

It is a statement of and/ or a quantitative assessment of future conditions about a particular subject (eg.
Income) based on some specific assumptions. One could forecast income for the budget year after adding a
percentage to the previous year. Estimating income for the budget year would involve:
1. Assessment of the likely demand from existing and potential customers.
2. Make a conscious effort to optimize use of available resources; and
3. Estimate the income considering the above two factors.
The following information is required to be able to make a realistic estimate of future income:
1. Capacity of each department in terms of number of shift per day and number of working days in a
2. Current level of activity/capacity utilization for the previous.
3. Any new developments in the catchments area of the hospital, which are likely to have a bearing on
demand for hospital services.
4. Steps proposed by the hospital management to augment hospital revenues such as revision in rates,
purchase of new equipment and working extra hours.
5. Patient’s profile classifying patients under medical and surgical, linking categories of patients to
demands made for various services.
3. Budgetary plan:
The budgetary plan is made based on the operating costs, the funds available and the cash available
within the institution. The plan is made based on:
1. Operating expenditure forecast:
Recurrent (operating) costs are required for the operation or maintenance of facilities and
services. The more important costs are for salaries and wages, supplies like drugs, dressings,
reagent, fuels etc., utilities including electricity, water, telephone, etc., and equipment
maintenance and purchase of spare parts.

2. Capital budget:
Funds should be available for expenditure on capital items. These are required for:
 Growth, with new facilities being provided, and
 Replacement of obsolete, worn out equipment, furniture and machinery.
The new facilities may be by way of buildings, plant and machinery or equipment. There will
be many competing requirements. Funds are never available to meet all the demands. Choice
has to be made. The needs may be classified as essential and desirable.

3. Cash budget:
Enough cash must be available to meet the obligations as and when they arise. There is need to
maintain the right flow of cash. Unnecessary cash in hand must be avoided; it must be invested
to yield optimum returns. This is done by cash planning.
Cash receipts and disbursements must be estimated: amounts and time.
Among the receipts will be the revenue for patient services.
The major item among disbursements is the pay roll. Salaries have to be paid on pay day. Along
with salaries, other items like contributions to provident fund have to be met. Payments have to
be met for electricity and water so also insurance premiums, taxes on vehicles and property, and
service contracts. Payments have to be made for supplies and expenses. Most of these payments
are usually made at the beginning of the month. Good planning will help in an even flow of cash
as required.

In calculating quarterly GDP, a third estimate published approximately three months after the end of a
quarter. It includes information not available at the time of the advance estimate or preliminary estimate, as
well as any necessary data revisions. This is called revised estimate. However, it is still subject to scrutiny
and potential alteration.
A budget revision is a process that allows budget specialists to make changes to a budget in order to
increase the company's financial standing. This can mean making revisions to pull in more income to pay
off liabilities or finding methods to satisfy the amount of expenses the business is currently spending.
 Steps of revised budget
1.Analyze Budget: Before any revisions or changes take place, the revision process needs to include
learning how the business budget is currently functioning. During the analysis, the budget specialist or
business owner needs to find out what the business needs in terms of expenses and earnings to operate
without going into debt. For example, the business may need to spend a specific amount on product
development and production in order to sell the products and make money. Using other tools and supplies to
construct the products for sale may sacrifice the product quality and decrease the amount of sales and
income for the business, for example.
2.Identify Troubled Areas: Find the areas or sections in the budgets that are troubled. These can be
found in both the spending and earning categories. For example, a troubled area in the earnings categories
can be a product or service not selling as well as expected, while a troubled area in the spending categories
can include excessive spending or spending beyond the budget limitations. Excessive expenses can include
too many business trips to luxurious places, frequent expensive business dinners with customers and too
many business cars with insurance.
3.Make Changes: Make gradual changes to the budget by cutting down expenses in order to use the
money to pay off liabilities or provide funding in categories in the budget that is in need. If there are
numerous changes, make some changes first and let the new budget function for a few months. Once you
can see that the changes are working, implement the other changes. Doing it over a period of time results in
a smoother transition for larger budget changes and allows workers to become familiar with their new
spending limits.
4. Monitor and Revise: Simply because the changes have been made does not mean that the budget is
now functioning ideally and successfully. The budget needs to be monitored frequently to ensure that no one
is spending beyond each category's limitations or continuing to spend frequently on luxurious expenses, like
business dinners or travels. If the budget is not working as expected, repeat the process in order to revise the
budget for a second time.


This is based on functions, which allocate functions, not divisions. Eg. Direct nursing care, in service
education, quality improvement, nursing research.

Performance budgeting is generally understood as a system of presentation of public expenditure in terms of

functions, programes, performance units, viz. activities1 projects, etc., reflecting primarily, the
governmental output and its cost. It is essentially a process which brings out the total governmental
operations through a classification by functions, programmes and activities. Through suitable narrative
statements and workload data that form an integral part of the presentation, it indicates the work done,
proposed to be done and the cost of carrying these out. The main thrust of performance budgeting has been
on providing output-oriented budget information within a long range perspective so that resources could be
allocated more efficiently and effectively.
Its emphasis is on accomplishment rather than on the means of accomplishment. The purpose of government
expenditure is more important than the object of expenditure under performance budgeting. Thus
performance budgeting is a programme of action for any given year with specific indicators regarding tasks,
the means of achieving them and the cost of achieving them. It tries to define the physical and financial
aspects of each programme and activity and thereby establish the relationship between output and inputs.
Performance budgeting has to operate within the framework of clearly defined objectives which are to be
achieved through successful implementation of various programmes and activities undertaken by the
concerned agency. Performance budgeting, therefore, involves the development of more refined
management tools, such as work measurement, performance standards, unit costs, etc.

Performance budgeting seeks to:
1. correlate the physical and financial aspects of programmes and activities;
2. improve budget formulation, review and decision-making at all levels of management in the
government machinery;
3. facilitate better appreciation and review by the legislature;
4. make possible more effective performance audit;
5. measure progress towards long-term objectives as envisaged in the plan; and
6. bring annual budgets and developmental plans together through a common language.

Components of Performance Budget

The performance budgets have certain vital ingredients that need to be constantly kept in view:
1. a programme and activity classification that represents the range of work of each organisation;
2. a framework of specified objectives for each programme;
3. a stipulation of the targets of work or achievement; and
4. suitable workload factors, productivity and performance ratios that justify financial requirements of
each programme.

Formulation of Performance Budget

Each performance budget will in the first instance indicate the organisational structure and the broad
objectives that govern the approaches and work of the administrative agency. This is followed by a
Financial Requirements Table. This Table is the most important part of the performance budget and has
three basic elements:
 a programme and activity classification indicating the range of work of the agency in meaningful
 object-wise classification showing the same amount distributed among the different objects of
expenditure such as establishment charges; and
 sources of financing indicating the budgetary and account heads under which the funds are being
provided in the budget.

Steps in performance budgeting

Four basic steps are involved in the introduction of performance budgeting:
i) Establishing a meaningful classification of public expenditure in terms of functions, the
establishment, improvement and extension of activity schedules for all measurable activities of
the government;
ii) The establishment of work output, employee utilisation, standard or unit costs by objective
methods, i.e. bringing the system of accounting and financial management into accord with the
classification; and
iii) The creation of related cost and performance recording and reporting system.
iv) Resource allocation:
v) Budget execution: Resource allocation is followed by budget execution. Budget execution must
ensure achievement of objectives and for that the following budgetary and managerial
considerations must be kept in view:
 Communication of the grants to the various subordinate agencies well in time
 Ensuring the initiation of action for implementing the schemes provided for in thebudget
 Overseeing the regular flow of expenditures
 Prevention of cost over-runs; and
 Time phased plan for expenditure and work.
vi) Appraisal and
vii) Evaluation.

The calculation of budget estimate is important in managing the projects being undertaken by the
organization. The estimate is done based on the objectives to be fulfilled and the requirements of the
organization. The allocation of the budget for a financial year should be done carefully for the effective
management of the institutions. So it is important for us to understand how to calculate budget estimate
keeping in mind all the requirements and characteristics of the budget.

1) http://financial-dictionary.thefreedictionary.com/Revised+Estimate
2) http://www.egyankosh.ac.in/bitstream/123456789/25369/1/Unit-11.pdf
3) Basavanthappa B.T. Nursing Education, 2nd edition, Jaypee Publications, 2009, New Delhi.
4) Francis C.M, Mario C De Souza. Hospital administration, 3rd edition, Jaypee Publishers, 2004.
5) Kulkarni. G.R, Libert Anil Gomez, Salyashankar P. Finance management for hospital
administration. Jaypee Publishers, 2009.
6) www.ncbi.nlm.nih.gov/pmc/.../pubhealthreporig00153-0040.pdf