budeting & costing
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easiest way to learn budegting and costingTRANSCRIPT
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Financial Management
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Health financing Problems?
Lack of fundsMal-distribution of resourcesRising cost of medical careWastage of resourcesInefficiency in spendingLack of coordination
These problems generate the need for a strong financial management system in the health sector
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Every Government Official is accountable and responsible for proper utilization of government funds authorized by legislature and show proof of proper use of such expenditure.This accountability is the basis of Financial Management.
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What is Financial Management all about?Answers the basic questions:- How to finance (fund) health care?Where to invest in health care?What is the outcome of investment
in health care?
F.M. deals with the “procurement of funds and their effective utilization for the achievement of common goal of the organization.”
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Basic decisions under Financial Management
Financing DecisionInvestment DecisionDividend Decision
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Financing DecisionDeals with the procurement of funds from
various sourcesSources of funds in the Health Sector
so u rce s o f Fu n ds
P ub lic &G o ve rnm en t so urces
P r iva te S o u rcesin clud ing
V o lu n ta ry o rg .
E x te rna l C oo p era tion1 .In te rna tio na l
2 . B i la te ra l
H e a lthS ec to r
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Investment DecisionConcerned with the effective utilization of
funds in one activity or the other.Types of investment decisions:- Long-
term & Short –term. Investment in the Health sector can be
in the various forms:Purchase of High Quality & sophisticated
Medical Equipments.Construction of hospitals, PHC’s & CHC’sInvestment in various Health
programmes, such as leprosy, TB, HIV/Aids etc.
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Dividend DecisionIn simple terms, Dividend means return
on investment.Practically there is no return in public
healthLogically-------------- “Every Investment bears a return.”
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ExampleIn India we have Pulse polio programmeTarget population is all children below 5 yrs of age.In this case the investment is identifiable: The amount spent by the govt. to launch & sustain this programme.Identify the return?
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Tools of Financial Management
CostingBudgetingAccountingAuditing
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Cost
Costs provide the basis for preparing Budgets.
Cost is intended as the value (expressed in monetary terms) of resources used to produce something.
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Cost AccountingFormal system of accounting for costs through which costs of products or services are ascertained and controlled.
NEED:Ascertainment of costCost monitoring and controlDecision making
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Cost ControlCost Containment - within the budget Cost Reduction - reduce budgeted
cost (eg. Non-utilization of certain facilities, idle capacity etc)
Cost Removal - cost not incurred but services availed
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Cost Containment
Need Flexibility to built into the system
Consider time factor –inflation Credit control Control Salary/wages etc –over time
salary, other fringe benefits
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Postponement of non-essential purchase
Economy in purchase/consumptionRational use of electricity, gas,
water etcPruning of miscellaneous areas-
printing, stationery, telephone bills etc.
Outsourcing of services
Cost Containment
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How to reduce costs?Substitution – eg. Generic vs branded
drugsEconomies of scale – utilizing fixed
assets fullyCost sharing – eg. Supply costs of deptts.Bulk purchasing – eg.drugs Reducing idle capacity – examine
utilization of staff
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The Budget
The device that allocates the shortage of public money
There is never enough money to do all the things people want done.
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The Budget
We use budgets to decide what is most important and who gets what proportion, or share, of public resources
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Therefore:
A budget (should) =
a priority list of government actions and policies
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BudgetIt is a document that projects the costs,
and in many cases the revenues, of defined activity, programme or project, or organisation
A good budget is a fundamental tool for financial management
It is a financial plan that quantifies the organisation’s programmatic goals and objectives by guiding the allocation of financial & human resources
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Good Budget ?Covers a defined set of activities
(single/whole)States the time period covered – fiscal yearIt is realistic about expected revenuesIt includes indirect costs –(eg. Fringe
benefits, OH costs, general admn etc.)It is based on collaboration between the
programme & financial managers
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Performance Budgeting
It is a presentation indicating the work done in the hospital for the particular year, the work proposed to be done in the ensuing year and the cost of carrying them out.
Management information system and cost accounting are two essential pillars of PB
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Zero Base BudgetingIntroduced by GOI in 1986It is not a budgeting process but a
management approach to the planning process
Under this approach, budget making for the ensuing year should be started from zero instead of treating the current year’s budget as a bench mark
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Zero Base BudgetingView all activities of the organisation
afresh and to determine priorities with reference to analysed objective criteria.
For eg. While deciding budget for pediatric department, expenditure on counselling may be deleted with the reason that it is not worth spending.
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BudgetIt is a document that projects the costs,
and in many cases the revenues, of defined activity, programme or project, or organisation
A good budget is a fundamental tool for financial management
It is a financial plan that quantifies the organisation’s programmatic goals and objectives by guiding the allocation of financial & human resources
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Some types of Budget
Plan & Non-Plan BudgetRolling & Fixed Plan Budget Capital & Operating Budget Departmental & Master Budget
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BUDGETThe government budget primarily constitutes
Revenue budget - refers to expenditures and receipts of an annually recurrent nature; for example, staff-salaries of a hospital is revenue expenditure
Capital budget - refers to investment expenditure incurred with the object either of increasing concrete assets of a material and permanent character or of reducing recurring liabilities.
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Health Family Welfare
General Administration
Vertical Programs Public Health And Health Care Programs
•Vector Borne Diseases Control•Tuberculosis Control•HIV / AIDS Control•Blindness Control•Leprosy Control•Cancer Control•Mental Health Program•Prevention & Control of Communicable Diseases
•Primary Health Care
•Secondary Hospital Development Program
•Bureau of Health Education and School Health
•Direction and Administration
•Drugs Logistics and Government Medical Stores
•State Transport Organisation
•Public Health Institute and Training
•Reproductive Child Health Program
•Immunisation Program
•Urban Family Welfare Program
Program Chart of Health and Family Welfare
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AYUSHMEDICAL
EDUCATION& RESEARCH
FAMILYWELFARE
HEALTH
Responsibilities in Health by levels of Government
CENTRALGovt. level
STATEGovt. level
LOCALGovt. level(ULB/PRI)
CommunicableDiseases
SecondaryHealthcareFacilities
Clinics &Dispensaries
RCH-II
PrimaryHealthcareFacilities
MedicalEducation &
Research
MedicalCollege
Hospitals
SecondaryHealthcareFacilities
Clinics &Dispensaries
MedicalEducation &
Research
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Structure of Health Budget
PLAN
NON PLAN
CENTRALLYSPONSOREDSCHEMES
StateFunds
EXTERNALLYAIDEDPROJECTS
REV
EN
UE
EX
PEN
DIT
UR
E
CA
PIT
AL
EX
PEN
DIT
UR
E
LO
AN
AC
CO
UN
TEX
PEN
DIT
UR
E“SOCIETY” ROUTE
(NRHM & RCH-II Flexi-pools; NACP-III)
22102211
42104211
62106211
“TR
EA
SU
RY
” R
OU
TE
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All India: Health as proportion of total Budget
Health as % of All India Budget
5.41%
5.58%
5.93%
5.10%
5.20%
5.30%
5.40%
5.50%
5.60%
5.70%
5.80%
5.90%
6.00%
2005-06 2006-07 2007-08
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Budgeting Process Budgeting is supposedly from below
Block to District to State
Exercise begins sometime around October -November
Draft discussed with Finance Dept (around December)
Finance Department reviews and indicates a ceiling
Draft is reworked to fit the ceiling Back to Finance Dept (around February) Finance consolidates demands of all Depts
and State budget finalised
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Health Budget Document: A Glance
Health budget is organised into numerous heads
Medical and Public HealthUrban healthRural HealthMedical Education & ResearchPublic Health
Family Welfare These consist of a large number of line
items (3000 to 7000)
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Performance BudgetingIt is a presentation indicating the work done in the
hospital for the particular year, the work proposed to be done in the ensuing year and the cost of carrying them out.
Management information system and cost accounting are two essential pillars of PB
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Program Performance Budgeting vs Traditional BudgetingTraditional Budgeting
InputsLine ItemsControlIncremental
changes at marginCentralized budget
execution
Program Budgeting
OutcomesProgramsPerformanceResource Allocationbased on need Decentralized
budgetexecution (in the
long-run
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Zero Base BudgetingIntroduced by GOI in 1986It is not a budgeting process but a
management approach to the planning process
Under this approach, budget making for the ensuing year should be started from zero instead of treating the current year’s budget as a bench mark
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Issues of ConcernBudgeting in India is an annual exercise- plan expenditure unspent Long term projects – generally delay occur in implementation leading to lapse of funds March –rush expenditureLack of flexibility – rigid budget lines Not need based
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Issues of Concern Lack of Vision, planning, research,
evidence Inability/ unwillingness to move away from
“Tradition, Rules, Regulations” (at the cost of society, wasting scarce resources)
Lack of feedback, monitoring the system, disconnect/ disintegrated functions & systems
Lack of ownership, accountability, transparency
Lack of public participation
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Costing An effective tool for budget control
Cost Centres : represents allied group of activities or functions Eg. Laboratory services
Cost Units : represents measurable details of service rendered in the cost centres Eg. X-ray investigation
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The Model to Estimate Costs:Making a Cake
Inputs
•Labor•Equipment
•Oven•Pans•bowls
•Materials•Flour•Sugar•butter
Processes
•Assemble ingredients•Turn on oven•Mix the batter•Prepare the pans •Pour batter into pans•Bake for 25 minutes•Frost the cake
Outputs
Frosted Cake
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Moving From Inputs to CostsIdentify the inputsMeasure themValue themMultiply amount of each input used by its
unit costSum up
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Measure the Inputs – Providing ANC Labor
Nurse – how much time is spent providing ANC
Receptionist – how much time is spent supporting the nurse
SuppliesVaccine usedNeedlesSyringesHow much of the
office supplies are used to provide ANC
EquipmentHow much of the exam
table is used to support ANC
How much of the office computer is used to support ANC provision
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Classification of CostsFixed vs. Variable
Direct vs. Indirect
Joint vs. Non-joint
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Fixed vs. Variable Costs
Fixed:Costs which do not vary with the level of output
Variable:Costs which do vary with the level of output (e.g., supplies, nurse hours, etc.)
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Fixed or variable?Hospital building
Brochures given to clients
Salary given to nurses
X-ray machine
Surgeon: paid on a per-procedure basis
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Direct vs. Indirect Costs
Direct:Value of resources specifically attributed to the production of a service
Indirect:Value of resources used to support the production of a service
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Direct or Indirect?Salaries of clinical staff
Physicians salary
Electricity bills
Salaries of accountants
Hospital building
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Joint Costs Definition: Costs of resources used to produce more than one type of output (shared equipment, labor, etc.)
Usefulness of joint costs definition: Identifies resources whose costs should be allocated to different outputs
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Allocation of Joint Costs of ANM
40% FP
30% ANC
20 % Curative %
Annual salary Rs.1,10,000
10% MIS
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Cost-Benefit Analysis (CBA)A technique of economic evaluation which values both costs and benefits in monetary terms: compares them and assessing whether the health programme/s or project is worthwhile
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Cost-Benefit Analysis (CBA)Estimation and evaluation of net profit in
terms of rupees associated with alternatives
It is used to justify particular health
services programme is relatively more beneficial.
Benefits include social benefits (where applicable)
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Cost-Effectiveness Analysis (CEA)
Comparison of costs and outcomesOutcomes are measured in natural
units Clinical outcomes:- Diseases cured- Diseases prevented - Lives saved- Years of lives saved
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AccountingAccounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof.
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Accounting ProcessIdentify the transactionAnalyse the transactionJournal entries Post to ledger Trial balance Financial statements
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Financial Auditing
It is required to verify that the procedures adopted are in confirmation with regulations, of utilizing funds.
Internal Vs External Audit
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