Financial Management and Budgeting in Hospitals


Current nursing training schools have embraced basic accounting classes in their coursework. This is to ensure that their end product becomes better nurse managers either immediately after college or at later stages in their nursing career. Managing a hospital takes the same approach as any other business. It requires budgeting, cost reduction strategies, and how the use of financial statements among other financial accounts elements in making decisions. Management nurses are involved in budgeting for the proper utilization of available scarce resources (Bennet, 2008). This paper looks into different budgeting issues that management nurse involves in.

Different types of budgetary approaches for financial management

In a hospital context, other than the normal overall hospital budget, other smaller units require budgets addressing their issues. The following types of budgets are prepared by nurse leaders;

  • Operating budgets
    These are budgets that cover one year and makes different allocation for day-in-day-out activities in an organization.
    When preparing them, a forecast of the expected revenue and expenditure is made and if there is any amount at hand to be budgeted, it’s done so accordingly. The main aim of this budget is to keep an organization within its limits and control different activities. Though it has some elements of rigidity, it is flexible in some areas. Any capital investments to be made in a hospital are stipulated in this budget.
  • Capital budget
    To increase efficiency and customer satisfaction, hospitals constantly buy equipment that lasts for over one year. They are budgeted in the capital budget. The nurse leader undertakes the role of making such budgets; he/she ensures that other than the purchase cost of the equipment, operating costs will be covered by the budget. Such equipment includes X-ray machinery, operating tables, and hospital beds.
  • Product line budget
    This is budgeting alongside certain areas that have common similarities. For example, the surgery department can be considered as a single unit, and its expenditure and revenue are budgeted together. This is a simplification of the budgeting process. For something to fall in the product line budget, it must have been provided for in the operating budget.
  • Cash budget
    Cash is the lifeblood of an organization; nurse leaders are given the mandate of maintaining an appropriate working capital so that their hospital can meet its financial obligations when they fall due. Cash budgeting is more into the managing of available liquid cash for the good of the hospital. The budget ensures that all processes in the companies are met appropriately and there is no excess cash in the hospital.
  • Performance budget
    It is an evaluation budget that aims at setting different targets for various departments and offering mechanisms to measure the effectiveness of a department in meeting the expected goals. It offers nurse leaders the chance to monitor operations and performances in different departments. In the year, the shortcoming of a department are interpolated and mechanisms to avoid them are put in place.
  • Special purpose budget
    This budget targets a certain project in the hospital, it focuses on investments that are long-term but do not fall under capital budgeting an example is constructing an X-ray unit or opening a new clinic (Finkler & McHugh, 2008).

Direct and indirect expenditures for a nursing department

There are different expenditures in a nursing department. They can be classified as a direct and indirect expenditures. Direct costs are those expenses that can be attributed to the nursing department. If the department is not operating then the expenses stop accruing. Indirect expenses cannot be attributed to the nursing department directly but they are incurred for a smooth operation in the hospital. The table below shows direct and indirect costs in a nursing department.

Direct expenditure Indirect expenditure
Nurses salaries Administrative expenses
Medication expenses Housekeeping and maintenance expenses
Nursing equipments Information and communication expenses
Nurse duty gowns Security expenses
Stationeries used in the department Books and subscription
Depreciation of nursing equipments Building maintenance costs
Nursing Equipments insurance costs General hospital insurance costs
Doctors allowances Water bills

(Eellwood, 2008).

Nurse leader’s role in managing, monitoring, evaluating and communicating the department/unit’s budget

After making a budget, nurse leaders need to ensure it’s implemented. The managers are responsible for seeing its success. The first management tool in overseeing budget implementation is discussing the budget with people concerned. These people include line managers, units head and sometimes junior staffs. They should be made aware of the hospitals expectation and forecasts. How well they understand the forecast will determine how well a budget will be implemented. Strategies for successful implementation are made during communicating stage.

From time to time, the nurse leaders should monitor and evaluate how well the budget is being implemented. Depending with the budget type, the duration of evaluation ranges from a day to a year evaluations.

When a certain deficit is detected, action is taken immediately to ensure that the deviation from the expected is not accelerated. From time to time, new strategies may need to be implemented to see the budget a success (Clark, 2005).


Nurse leaders have a major role in financial management of a hospital. They are involved in budget making and implementation. This calls for basic accounting knowledge to the nurse leaders. They should differentiate between directs and indirect nursing costs and be able to use accounting information for decision making.


Bennet, J. (2008). Nurse executive: If the shoes fit, wear them proudly. Long-Term Living: For the Continuing Care Professional, 57(6), 56. Retrieved from MasterFILE Premier database.

Clark, J. (2005). improving hospital budgeting and accountability. hfm (Healthcare Financial Management), 59(7), 78. Retrieved from MasterFILE Premier database.

Eellwood, S. (2008). Accounting for Public Hospitals: A Case Study of Modified GAAP. Abacus, 44(4), 399-422. Web.

Finkler, A. and McHugh,M.(2008).Budgeting concepts for nurse managers. Philadelphia: Elsevier Health Sciences.

Removal Request
This essay on Financial Management and Budgeting in Hospitals was written by a student just like you. You can use it for research or as a reference for your own work. Keep in mind, though, that a proper citation is necessary.
Request for Removal

You can submit a removal request if you own the copyright to this content and don't want it to be available on our website anymore.

Send a Removal Request