This chapter provides an overview of the operation budget process, including the development of a budget, implementation, performance, and evaluation. Common financial terms and tools are discussed so that an understanding can be achieved regarding the delivery of cost effective care.

Operational budgets account for the income and expenses associated with daily activities within a department or organization. Revenue is generated based upon billable services such as: hours of service, procedure, and patient days spent on a inpatient nursing unit. Expenses are associated with the cost of service delivery including: supplies, equipment utilities, and staff.

Budget preparation requires data gathering related to a variety of elements that influence an organization including: scope of service, goals, history, consumer demographic information, competitive analysis, regulatory influences, and strategic initiatives. Scope of service frames the types of service and sites at which services are offered which leads to determining billable services. Goals outline the achievements that are expected, which may mean introducing new technology, treatments, or programs. Understanding demographics and the competition provides knowledge about meeting the customer’s needs. Past history of a department or section often provides insight as a baseline for developing a budget. It is very important to include plans for growth and quality initiatives, while meeting regulatory requirements, as adjustments often need to be made due to changes from year to year.

Revenue projections are based upon predicted services. Reimbursement needs to be taken into account because charges for services need to be covered by payers or the organization may sustain a loss. Ambulatory Payment Classification (APC) and Diagnosis Related Groups (DRGs) are two sample payment classification systems.

Expenses are determined by calculating the cost of supplies typically used, estimating how much time staff members will be committed to the service, and including indirect expenses that may be incurred. To make a profit the revenue needs to exceed the expenses.

Budgets are generally monitored on a monthly basis along with quality indicators. The economic success of an organization is dependent upon those that deliver services, including nurses.