Prelims-Leadership.pdf

INTRODUCTION TO LEADERSHIP AND PRINCIPLES OF MANAGEMENT MANAGEMENT  Mbo- Management By Objectives  Mbc- Management By Contingency/Situation BASIC CONCEPTS OF NURSING LEADERSHIP...

INTRODUCTION TO LEADERSHIP AND PRINCIPLES OF MANAGEMENT MANAGEMENT  Mbo- Management By Objectives  Mbc- Management By Contingency/Situation BASIC CONCEPTS OF NURSING LEADERSHIP  Management By Exception AND MANAGEMENT  Management By Experience  Organization - set of coordinated  Division Of Labor activities/forces  Convergence Principle  Individuals,groups,families and communities are  Substitution Of Resources clients of health care organization  Delegation Of Authority  Shortest Decision Path DIMENSIONS OF HEALTH CARE ORGANIZATION 1. Nomothetic dimension -institution,roles and MANAGEMENT SCHOOLS OF THOUGHT expectations  Machinist 2. Idiographic dimension -individual, personality  Relationist and  Revisionist Needs disposition  Situationist REASON WHY PEOPLE ORGANIZE:  Attainment of objectives  Pooling of resources SELECTED THEORIES IN MANAGEMENT  Learning and compensation/service 1. SCIENTIFIC MANAGEMENT THEORY  Frederick Taylor-engineer and management TYPES OF HEALTH CARE ORGANIZATION expert, Father of Scientific Management  Ownership (Public, Private, Mixed PPP)  Proposed a set of techniques to increase  Stocks (Stock/Profit, Non-Stock/Non Profit) efficiency and productivity of each worker  Levels of Care (Primary, Secondary, Tertiary,  He timed and analyzed the movement of each Special Tertiary) worker performing a series of jobs, and CHARACTERISTICS OF HEALTH CARE designed the quickest and best method to ORGANIZATION make a task easier.  Input  He concluded that productivity will increase  Output with careful, systematic design of workplace  Throughput conditions, work methods, and proper training and instruction of workers.  Feedback  He proposed higher wages to each worker  Negative entropy with high productivity.  Cyclical  Equifinality Fundamental Principles of Scientific Management  Integration/coordination  The development of a true science of management, so that for example, the best INTEGRATION AND COORDINATION ARM method for performing each task could be  Administration determined.  Management  The scientific selection of worker, so that each  Supervision worker will be given responsibility for the task  Common to all is the concept of leadership for which he or she is best suited.  The scientific education and development of ADMINISTRATION the worker.  Over-all direction  The intimate, friendly cooperation between  Over-all machinery management and labor.  Directing the whole enterprise  With aim for 2. MODERN MANAGEMENT THEORY efficiency.effectivity,economy,productivity (SYSTEMATIC) MANAGEMENT  Henri Fayol (1841-1925), industrialist, real  Getting things done through people father of modern management theory  Concerned with specific aspect of organization  Believed that “with scientific forecasting and proper methods of management,  Part and parcel of administration satisfactory results were inevitable”. M’S IN MANAGEMENT/ELEMENTS  Management is not a personal talent, but a  Manpower skill.  Money  Identified 14 principles of management,  Materials which he claims not an absolute, but flexible  Machines and can be applied in any setting.  Methods 14 Principles of Management  Market/clientele 1. Division of Labor--the more people specialize,  Moment the more efficiently they can perform their  Manager work.( HOMOGENEITY OF ASSIGNMENT)  2. Authority- Managers need to be able to give  Authority and responsibility are clearly specified. orders so that they can get things done.  Activities are routinized. 3. Discipline- members in an organization need  A rational and impersonal climate exists. to respect the rules and agreement that govern the organization. 4. BEHAVIORAL SCHOOL 4. Unity of Command- Each employee must  Elton Mayo (1880-1949), Harvard professor receive his or her instructions about a particular  Made a study of human behavior at the operation from only one person. If an employee Hawthorne Plant of Western Electric Co from was responsible to more than one supervisor, 1927-1932. conflict in instructions and confusion of  Studied on how changes in the physical work authority would result. environment like intensity of lightning would 5. Unity of Direction-Those operations within the affect productivity. organization that have the same objective  It was found out that changes in output could should be directed by only one manager using be attributed to physical changes. one plan.  Mayo and his associates introduced a number 6. Subordination of Individual Interest to the of factors such as increasing wages, having Common Good-In any undertaking, the coffee breaks, shortening workdays and interest of the employees should not take introducing rest periods. Productivity precedence over the interests of the continued to improve. organization as a whole.  He noted that special attention given to 7. Renumeration- Compensation for work done workers developed group pride that motivated should be fair to both employees and them to improve their work performance. employers 8. Centralization/Decentralization. Decreasing Hawthorne Effect the role of subordinates in decision making is  Phenomenon based on the concept that human centralization; increasing their role is factors like attention, care and recognition and decentralization. Managers, although retaining not just physical work environment influence final responsibility, need to give their productivity. subordinates enough authority to do their jobs properly. Social Process Theory 9. Hierarchy- The line of authority in an  Mary Follet- collaboration and cooperation organization, often represented today by the Management by Objectives neat boxes and line of organization chart, runs  Peter Drucker in order of rank from top management to the lowest level of enterprise.( CHAIN OF Management as Decision Making COMMAND,LINE OF AUTHORITY)  Herbert Simon 10. Order- Materials and people should be in the  2 approaches to decision making: right place at the right time. People in particular 1. optimizing- search for best alternative should be in their jobs or positions most suited ( economic man ) for them. 2. satisfying- using the first workable solutions 11. Equity and justice -Managers should be both (administrative man) friendly and fair to subordinates. 12. Stability of Staff- A high employee turnover 5. MOTIVATIONAL THEORY rate is not good for efficient functioning of an  Douglas Mc Gregor- expressed two sets of organization. human nature 13. Initiative-Subordinates should be given the  He developed Theory X and Theory Y freedom to conceive and carry out their plans, even when some mistakes result. Theory X 14. Motivation and esprit de corps  average person is inherently lazy  does not like to work and will avoid work if he can  he works to survives 3. BUREAUCRATIC ORGANIZATION THEORY  avoid taking more responsibility prefers to be  Max Weber- Sociologist, like Taylor and directed rather than act independently Fayol, contributed to a classical approach to  has little, or no ambition organizational design.  not too intelligent  They believed that organizations with a  above all warrants security hierarchical structure are most efficient and  Task of Manager effective.  Theory X- to exercise strict control over his  Weber named the structure bureaucracy. subordinates to ensure that work is carried out properly. Characteristics of Bureaucratic Organizations Theory Y  Tasks are specialized.  Views human nature positively.  People are appointed by merit or promotion  People do not inherently dislike work, but rather because of their ability and not because of work as a source of satisfaction. favoritism and whim.  Work itself can be motivating and rewarding.  Career opportunities for the members are provided.   Average person can learn not only to accept management which entail planning, organizing, responsibility, but to seek it. staffing, directing, and controlling.  Task of Manager in Theory Y  To provide opportunities for the subordinates to be creative, and productive, MODULE 2: INTRODUCTION TO LEADERSHIP AND and to encourage growth and provide MANAGEMENT guidance. LEADERSHIP CONCEPTS: THEORY Z- William Ouchi  Leadership= ability to influence others to seek 7 basic criteria Japanese seven “S” defined objectives Hard “S”  Ability to move others 1. superordinate goals- holds organization 2. strategy- method  Ability to persuade others 3. structure- facilities  A function and not a role or title 4. systems- coherence of all parts  Dimensions of leadership Soft “ S “ Leader---- follower---- situation 5. staff- right people TYPES OF FOLLOWERS 6. skills- training 1. Alienated- independent,passive,disruptive 7. style- manner of handling people 2. Sheep- dependent, uncritical, do as told 3. Yes people- (most dangerous), Motivation and Hygiene Theory dependent,uncritical, but active  Ferdinand Herzbergs- Two Factor Theory 4. Survivors- least disruptive,lowest risk, better safe Hygiene Factors: than sorry  salary 5. effective – self-leaders, good followers  supervision  relations 4 ESSENTIAL QUALITIES OF EFFECTIVE  safe and tolerable working condition FOLLOWERS: Motivation factors:  Self-management  satisfying meaningful work  Commitment  opportunities for advancement and  Competence and focus achievement  appropriate responsibility  Courage  adequate recognition ELEMENTS OF LEADERSHIP Hierarchy of NEEDS  Authority  ABRAHAM MASLOW  Power French and Raven sources of power: 6. SYSTEMS APPROACH > legitimate power > expert power  System is defined as a set of assemblage of > coercive power >referent interconnected independent things that form a > reward power > information complex whole. BASIC COMPONENTS /ELEMENTS OF  These things may be physical, like part of an LEADERSHIP: engine; biological, like parts of the human  Vision body; or theoretical, like concepts, principles  Influence and techniques.  Authority  A system is considered open if it interacts with  Power its environment, and closed if it is completely  Responsibility independent of others.  Accountability  All organizations interact with their environment. POWER TRIANGLE:  They are independent on their external 1. Communication environment for their existence. 2. Influence Basic input-output Model 3. Recognition  Input from external environment-people, capital and managerial skills, technical knowledge and FORMULA FOR EFFECTIVE LEADERSHIP skills  Knowledge ,attitudes and skills in leadership  Task of the manager-to transform these inputs  Therapeutic use of self into outputs through major functions of  Good interpersonal relations equals effecitve leadership  Leadership cannot be taught it is learned KINDS OF INFLUENCE  Assertiveness  Ingratiation-feel important  Rationality  Blocking- threat   Coalition- back up style  Idiographic  Sanction-  Transactional  Exchange- offer  Paternalistic  Upward appeal- obtaining support from top  Dynamic management  Benevolent autocrat LEVELS OF LEADERSHIP ACCORDING TO ACT OF INFLUENCE: ACCORDING TO MANAGERIAL GRID/BLAKE AND 1. Position- title, intimidation MUOTON 2. Permission- relationship level  According to task and relations concerns: 3. Production- result oriented  Impoverished leader/avoider 4. People development- empowerment level >low task low relations 5. Personhood- statesmanship, actualization  County club/friendly helper >low task high relations CHARACTERISTICS OF A LEADER  Middle of the road/compromiser= balance of  Do not have delegated authority task and relations  May or not may not part of the formal  Task centerd/tough battler= high task low organization relations  Emphasize interpersonal relationships  Dynamic/team centered/problem solver= high  Direct willing followers task high relations  Have goals that may or may not reflect those of the organization HOFSTEDE CONTINGENCY MODEL  BASED ON SITUATION AND MATURITY LEVEL OF THE SUBORDINATE:  1- TELLING  2- SELLING  3- CONSULTING/ PARTICIPATING  4- DELEGATING TYPES OF LEADER: 1. Formal 2. Informal BEHAVIOR OF LEADERS: 1. Passive or Non-assertive 2. Aggressive 3. Assertive FACE of LEADERSHIP: 1. Rational 2. Emotional LEADERSHIP THEORIES AND MODELS 1.. TRAIT THEORIES a) Great Man Theory b) Personality Trait Theory (traits and skills)  positive traits  negative traits c) Individual Character Theory (physical and TRAITS OF A GOOD LEADER psychological characteristics)  L- lead, love,learn  E- enthusiastic,energetic 2. BEHAVIORAL THEORIES:  A- assertive,achiever a) Field Theory of Human Behavior (LEWIN)  D- dedicated,desirous (authoritarian, democratic, laissez-faire)  E- efficient and effective b) Ladder of Influence and Double Loop Learning  R- responsible and respectful Model ( Chris Argyris) c) WAVE theory ( Alvin Toffler) STYLES OF LEADERSHIP d) Likert Scale and Linking Pin Model (Rinses  Continuum of leadership: Likert)  Boss centeredsubordinate  autocratic Leadership Style By Likert:  democratic  Exploitative- Authoritative  laissez-faire  ( Least effective performance)  Fists is used, centralized and downward, ACCORDING TO GETZEL’S AND GUBA very far social distance  Nomothetic  Benevolent-Authoritative   Reward system, restricted upward  Self-management or self-regulation communication, selective delegation,  Motivation condescending to staff associates  Empathy  Consultative  Social skills  Rewards and Punishment, Confidence in staff, suggestions are sought, wide decision Four Quadrant Model of EQ: making involvement  Recognition quadrant:  self-awareness  Participative  social awareness  (Most effective)  regulation quadrant  self-management  Complete confidence with staff, ideas  relationship management always sought, open and communication in all directions  Self-quadrant:  Self-awareness 3. CONTEMPORARY LEADERSHIP THEORIES  Self-management a) TRANSACTIONAL LEADERSHIP- exchange  Social quadrant:  Contingent Reward- incentives  Social awareness  MBE ( Management by Exception )-  Relationship management punishment, correction MULTIPLE INTELLIGENCES IN NURSING  Active Management By Exception- LEADERSHIP monitoring ( HOWARD GARDNER)  Laissez- faire Leadership- hands-off 1. Linguistic- word b) 2. Transformational Leadership (employee 2. Logical-mathematical- number,reasoning empowerment and development) 3. Spatial- picture Transactional 4. Kinesthetic- body  Hierarchy, competitive,task focus 5. Musical- music 6. Interpersonal-people  Exchange posture 7. Intrapersonal- self  Identify needs 8. Naturalist-nature  Rewards  Caretaker QUANTUM LEADERSHIP: PORTER-O’GRADY AND  Day to day operations MALLOCH (2003)  Management by exception  Change dominates the climate  Exchange for performance  Control is not an issue  Contract for benefits  Dynamic leadership Transformational  Creativity and innovations are encouraged  Networking,cooperative,process focus  Educational advancement, mentoring and  Employee development preceptorships are encouraged  Attends to needs and motives MOTIVATION  Inspires  ability to stir people into action  Role model  factors that initiate and direct behavior  Sense of direction  mobilizes or energizes human behavior  Self-management  Influence change in perception Sources of motivation:  Intellectual stimulation 1. Intrinsic motivation (internal) 2. Extrinsic motivation (external SERVANT LEADERSHIP ( ROBERT GREENLEAF)  Leader as steward of resources MOTIVATIONAL THEORIES:  A good leader should serve first A. Content Theories:  Empathy 1. Instinct theory- inherited or innate  Listening 2. Need theory  Healing  Awareness NEED THEORIES:  Persuasion  Abraham Maslow’s Hierarchy Of Needs  Conceptualization  The Two Factor Theory By Herzberg  Foresight  Mc Clelland’s Three Basic Need Theory  Stewardship  Douglas Mc Gregor Theory X And Y  Commitment  Theory Z By William Ouchi  Team building EMOTIONAL INTELLIGENCE IN NURSING HERZBERGS LEADERSHIP Hygiene Factors:  (Daniel goleman) 1. salary  Attribute of EQ: 2. supervision  Self- awareness 3. relations  4. safe and tolerable working condition  Basic to administration decision making  Basic to management planning Motivation factors: 1. satisfying meaningful work 2. opportunities for advancement and achievement ELEMENTS OF MANAGEMENT PROCESS IN 3. appropriate responsibility NURSING 4. adequate recognition P-lanning p- planning O-rganizing o- organizing DAVID MC CLELLAND D-irecting l- leading 1. Achievement C-ontrolling c- controlling 2. Affiliation 3. Power PLANNING  Basic to management process PROCESS THEORIES:  Looking ahead/hyperopic/optimistic view 1.Expectancy Theory ( Victor Vroom)  Forecasting and estimating the future 2.Operant Theory(Bf Skinner)Reinforcement  Honest serving men= what.when 3.Equity Theory (Jo Stacy Adams) where,who,whom,how and why 4. Goal Setting Theory (John Locke) 5. Competent Theory Components Of Planning  WHAT TO DO- Nursing activities  HOW TO DO IT- Techniques, Principles  WHO IS TO DO IT-Prof. /Non- prof. EXPECTANCY THEORY (Beliefs and  WHEN TO DO IT- Time frame Consequences)  WHERE TO DO IT- Venue/Milieu  3 components: Perception of 3 things  HOW MUCH IS NEEDED- Budgeting a) Expectancy- belief/probability  FOR WHOM- Recipients/clients b) Instrumentality-performance/probability  WHY DO IT- Rationale c) Valence-value of an outcome Reasons Or Rationale For Planning: Operant Conditioning (Reinforcement or Behavior  SUCCESS FOR GOAL ACHIEVEMENT Modification) ( response-consequence connection is  EFFICIENCY AND EFFECTIVENESS learned)  REDUCES RESISTANCE TO CHANGE  Positive- praise, reward , commendation ( to  FOR EFFECTIVE CONTROL strengthen desired behavior )  Negative- used to inhibit Good Planning Vs. Poor Planning a) Punishment  GOOD PLANNING- Elements of scientific b) Extinction methods /nursing process are present c) Shaping ( fixed or variable ratio/interval  POOR PLANNING- There is a problem in any of the M’s of management  “ Failing to plan is planning to fail” MANAGEMENT FUNCTIONS IN NURSING Characteristics Of A Plan (Planning and Budgeting)  Major Criteria= Creative Thinking And NURSING ADMINISTRATIVE PROCESSES Foresight  Nursing administration:  3 Characteristics:  F- Future  NEA- nursing education administration  A- Action  NSA- nursing service administration  O- Organizationalidentification  Nursing education administration:  P-planning Types Of Planning  O-organizing  According to structure of organization  C-communicating  Centralized  C-coordinating  Decentralized  E-evaluating  According to scope/coverage  Nursing service administration  Strategic/ master plan ( what are the (sullivan and decker) right things to do )  P-planning  Operational plan/continuous or rolling  S-staffing plans ( how does one do things right)  O-organizng  Unit plan ( departmental plans)  D-directing  Extent and time of accomplishment:  C-controlling  Short range  Dm- decision making  Medium term  WHO concept:  Long term  P-planning  According to stability:  I- implementing  Master or strategic plans  E-evaluating  Contingency plans Scope Of Planning  Performance Budget- based on functions, 1. Environmental scanning (swot analysis) direct care, supervision and quality control 2. 2. Forecast or estimate the future  Program Budget- total or holistic rather than 3. 3. Development of mission itemized /vision/goals/objectives/purposes/procedures/p  Zero Based Budget- justifies old and new hilosophy and standards of nursing care budget in details, revenue basis for expense  Strategies and programs and collections 4. Proper programming or time management:  Sunset Budget- self- destruct at prescribed Principles of time management: period to ensure cessation of funded program  Contingency at predetermined date  Listing of tasks  Inventory Benefits Of Budgeting Process  Sequencing and prioritization  Planning  Setting and keeping deadlines  Coordination  Time allotment  Comprehensive control  Delegate if necessary  “ Is multi-tasking good?” Factors In Budget Planning  “Prioritization”  Patient  “Anyone who wants to get more work  Hospital or health care facility category or bed done should be mindful. Anyone who capacity wants to have more time should be  Personnel mindful. Mindful means one thing at a  Standards of nursing care and supervision time. It is how the brain works, no matter how people try to convince themselves Tools In Budgeting otherwise.  Budgeting process Tools In Project Planning  Number of personnel needed  GANTT OR TABLE OF SCHEDULE  Salaries and benefits  PERT- PERFORMANCE EVALUATION AND  Budget variances REVIEW TECHNIQUE ( key sequence,  Extraneous factors probability distribution in arrowed lines  Monitoring of resources and economy and  CPM- Critical Path Model- time and cost wastage estimates Models Of Planning 5. Prepare budget and allocate resources  Basic strategic model (mbo)  Budgeting- value for money  Issue based or goal based model ( swot)  Nursing budget- for nursing program  Alignment model- resources  Hospital budget- service hospital  Scenario planning expectations  Organic or self organizing model – natural, cultural Components Of Budget Plan  Functional model- actual 1. Revenue budget- summary of income management expectations Models 2. Expense budget- expense activity  Cross Sectional Model- external put together 3. Capital budget- outline physical dispositions organization and acquisitions 4. Cash budget- money receipts, cash receipts  Operational Model- past, present,future and disbursements integration Types Of Budgeting  Centralized Budgeting Some Basic Principles In Planning  Decentralized Budgeting  Planning by primacy  Planning flexibility Components Of Total Institutional Budget  Collaborative planning 1. Manpower Budget- wages and salaries of  Planning by feedback regular and contractual employees  Planning by efficiency and effectivity 2. Capital Expenditure Budget- purchase of lands, buildings, and equipments Budgeting and Managing Fiscal Resources 3. Operating Budget- supplies cost,overhead expense and minor repair and maintenance INTRODUCTION Types Of Institutional Budget (Management Philosophy) Budgeting  Open –Ended Budget- single cost estimate  The process of planning and working to meet for each program in proposed unit or exceed the goals of the plan  Fixed Ceiling Budget- management sets  Performed by businesses, governments, and upper limit for spending individuals  Flexible Budget- alternatives   Demands for patient safety, reimbursement  Managers must be familiar with expense changes with healthcare reform, technological account categories and what type of advances, and the changing roles of expenses are included under each line item. healthcare providers require that budgets be  Advantage constructed as accurately as possible and for  Simplicity of preparation nurse managers to understand financial  Disadvantage implications.  Discourages cost efficiency THE BUDGETING PROCESS 2. Zero-Based Budget Budget  Assumes base for projecting next year's  Quantitative statement, usually in monetary budget is zero terms, of the plans and expectations of a  Requires managers to justify all activities and defined area over a specified period of time programs as if they were being initiated for Budgeting the first time  Planning and controlling future operations by  Requires expenditures to be justified under comparing actual results with planned current environment and organization's expectations objectives  Ensures that resources necessary to achieve  Advantage budget objectives are available at appropriate  Every expense is justified. times  Disadvantage  Budgets help management control the resources  Process is time-consuming and may not expended through an organizational awareness of be necessary. costs.  Budgeting involves planning and controlling future 3. Fixed or Variable Budgets operations by comparing actual results with  Fixed budgets planned expectations.  Amounts are set without regard to  To plan, the organization must know the following: changes that may occur during the year,  Population demographics such as patient volume or program  Revenue sources activities.  Statistical data  Variable budgets  Wage increases of market adjustments  Adjusted based on changes in revenues,  Supply and equipment price increases patient census, utilization of supplies,  Costs for new equipment or technologies and other expenses.  Staff mix  Regulatory and organizational changes THE OPERATING BUDGET  Timetable for the Budgeting Process  Also known as annual budget  Depending on the size and complexity of the  Coincides with the fiscal year of the organization, process takes between 3 and 6 organization months.  Statement of expected revenues and  Initiated by first-level manager expenses for a 12-month period  Proposal ascends through the managerial hierarchy. 1. Revenue budget  Final step in the process is approval by a  Represents patient care income expected for governing board. the budget period  Nurse managers should not expect to receive  Healthcare payers commonly pay a all of their budget requests, but they need to predetermined rate based on discounts or be prepared to defend their priorities. allowances. APPROACHES TO BUDGETING  Actual payment generated by a given  Approach varies: service or procedure often will not equal  Cost centers the charges that appear on the patient  Revenue centers bill.  Profit centers  Healthcare provider will be reimbursed based  Investment centers on a variety of methods including:  Nursing units are typically considered to be cost  Reimbursement of a predetermined centers, but they may also be viewed as revenue amount. centers, profit centers, or investment centers.  Bundled payments.  Negotiated rates. 1. Incremental Budget  Negotiated discounts.  Line-by-line  Capitation.  Finance department distributes a budget  Revenue projections are based on volume, worksheet listing each expense item or patient mix, discounts, reimbursement rates. category on a separate expense line.  Expense line is divided into salary and nonsalary items. 2. The Expense Budget   Consists of salary and nonsalary items.  Projection of overtime can be calculated by  Expenses should reflect patient care determining staff classification, then multiply objectives and activity parameters established the historical or typical number of hours of for the nursing unit. overtime worked by 1.5 times the hourly rate.  Cost centers  Smallest area of activity within an On-call hours organization for which costs are  Approximate number of hours that employees accumulated are put on call for the year should be estimated  Nursing managers are commonly given and that cost added to the budget. the responsibility for costs incurred by Premiums their department, but have no revenue  Some organizations offer premiums for responsibilities. certifications or clinical ladder steps.  Classification of costs Salary increases  Fixed costs- Costs that will remain the  Merit increases and cost-of-living raises also same for the budget period regardless of need to be factored into budget projections. the activity level of the organization  Variable costs- Depend on and change Additional considerations include changes in: in direct proportion to patient volume and ▪ Technology. patient acuity ▪ Clinical supports.  Expenditures may also be direct or ▪ Delivery systems. indirect. ▪ Clinical programs or procedures. o Direct costs- Directly affect patient ▪ Regulatory requirements. care o Indirect costs- Necessary but do not 2. The Supply and Nonsalary Expense Budget directly affect patient care  Identifies patient-related supplies needed to operate the nursing unit DETERMINING THE SALARY AND NONSALARY  Other operating expenses include: BUDGET  Office supplies 1. The Salary Budget  Rental fees  Personnel budget  Maintenance costs  Projects the salary costs to be paid and  Equipment service contracts charged to the cost center in the budget period.  Consider factors such as: THE CAPITAL BUDGET  Benefits  Budget identifies:  Shift differentials  Physical renovations  Overtime  New construction  On-call hours  New or replacement equipment planned  Premiums within a specified time period.  Salary increases  Usually, capital items must have an expected performance of 1 year or more and exceed a Benefits certain dollar value.  Full-time equivalent (F T E)  Capital budget is typically limited to a specified  Full-time position amount.  Can be equated to 40 hours of work per  Decisions must be made regarding how week for 52 weeks best to allocate available funds.  2,080 hours per year  Role of a nurse manager in the capital budget  Necessary to determine how many F T Es are process is often to identify capital needs that necessary to replace personnel for benefit time exist in his or her areas of responsibility.  Vacations, holidays, personal days  Calculating F T Es MONITORING AND CONTROLLING BUDGETARY  Determine hours of replacement time per PERFORMANCE DURING THE YEAR individual. 1. Variance  Then determine F T E requirement.  Difference between the amount that was  Divide replacement time by annual F T E budgeted for a specific revenue or cost base. and the actual revenue or cost.  An F T E budget is calculated from the F T E  Nurse managers are commonly asked to calculations. justify the reason for variances and Shift differentials present an action plan to reduce or  Differences in pay for evenings, nights, eliminate them. weekends, and holidays Overtime To assess variance, follow these steps:  Fluctuations in workload, patient volume,  Identify items that are over or under budgeted variability in admission patterns, and temporary amounts. replacement of staff due to illness or time off all  Find out why the variance occurred. create overtime.  Keep notes on what you have learned in preparation for next year’s budget.   Examine the payroll and note overtime or use  Magnet-certified hospitals of agency personnel.  Staff are taught about budgeting and  Validate the use of overtime or additional how the unit's money works. personnel and keep a note for your files.  Staff make informed decisions about what resources should be used, and 2. Variance Analysis understand the give-and-take of budget  Projected budget items will likely not be management. completely on target in all situations.  Nursing relationship in patient care  Organizations usually have an established  Nursing care is one of the largest level at which a variance must be investigated expenditures in healthcare organizations. and justified.  Caring, empathy, trust, and building a  Variances can result from expenses that relationship with patients are all follow a seasonal pattern important pieces of the nursing  Expenses can also follow a tendency or trend. relationship. Salary variances Budgeting and Managing Fiscal Resources  Volume variance  Result when there is a difference in the 1. B udgeting is the process of planning and then budgeted and actual work-load working to meet or exceed the goals of the plan. requirements 2. Demands for client safety, reimbursement changes  Efficiency variance with healthcare reform, technological advances,  Also called quantity or use variance and the changing roles of healthcare providers  Reflects the difference between require that budgets be constructed as accurately budgeted and actual nursing care hours as possible and for nurse managers to understand provided financial implications  Rate variance 3. A budget is a quantitative statement, usually in  Also known as price or spending monetary terms, of the plans and expectations of a variances defined area over a specified period. Budgeting is  Reflect the difference in budgeted and the process of planning and controlling future actual hourly rates paid operations by comparing actual results with planned expectations. Nonsalary expenditure variances 4. The budget process helps ensure that resources  May be due to changes in patient volume, necessary to achieve organizational objectives are patient mix, supply quantities, or prices paid available at the appropriate time and that  New, additional, or more expensive supplies operations are carried out within the resources could also influence expenditure totals. available. 5. The budget process increases the awareness of 3. Position Control costs and helps employees understand the  Monitoring tool used by nurse managers to relationships among goals, expenses, and compare actual numbers of employees to revenues, with employees committed to the goals number of budgeted F T Es and objectives of the organization.  List of approved, budgeted F T E positions by 6. Budgeting involves planning and controlling future category or job classification for the nursing operations by comparing actual results with cost center planned expectations. 7. Planning involves first reviewing goals and STAFF IMPACT ON BUDGET objectives of both nursing and the organization. It  Misuse of sick time, excessive overtime or takes into account: turnover, and wasteful use of resources can a. Demographics result in negative variance. b. Sources of revenue  Manager plays a key role in explaining: c. Statistical data, including:  Unit goals.  Number of admissions or patient  Organizational financial goals. appointments  How each individual is responsible for  Average daily census helping the organization meet those  Average length of stay goals.  Patient acuity  Improving Performance  Projected occupancy or volume base  Organizations can implement a number for ambulatory or procedure-based of different programs and incentives for units or home care visits increasing employee awareness and d. Wage increases minimizing costs. e. Price increases for supplies and other o Displaying equipment costs on costs supply stickers f. Costs for new equipment or technologies o Participation in quality improvement g. Staff mix (e.g., RNs, LPNs, UAPs) and action teams serves to inform h. Regulatory changes for the budgetary staff of cost factors period o Bonuses i. Organizational changes 1. Controlling is the process of comparing actual 7. The revenue budget is client care income results with the results projected in the budget. expected for the budget period, usually reimbursed a. Two techniques for controlling budgetary based on a variety of methods including: performance are variance analysis and a. Reimbursement of a predetermined amount position control. b. Bundled payments b. By measuring the differences between the c. Negotiated rates projected and the actual results, management d. Negotiated discounts is better able to make modifications and e. Capitation corrections. 8. The expense budget consists of salary and 2. Depending on the size and complexity of the nonsalary items. organization, the budgeting process takes between 9. Concepts/definitions related to the budget process 3 and 6 months. include: a. Begins with the first-level manager who a. Cost center: smallest area of activity within an identifies needed resources for the organization for which costs are accumulated; upcoming budget period formulates a may be revenue producing, such as laboratory proposal. and radiology, or non–revenue producing b. The proposal ascends through the b. Classification of costs managerial hierarchy with each  Fixed: remain the same for the budget subsequent manager evaluating and period regardless of the activity level of the making adjustments as needed. organization  Variable: depend on and change in direct c. The final step in the process is approval by proportion to patient volume and patient a governing board, such as a board of acuity directors or designated shareholders.  Direct: directly affect patient care Typically, the budget process timetable is  Indirect: necessary but don’t affect patient structured so that the budget is approved care directly a few months before the beginning of the c. Expenditures new fiscal year.  Direct: expenses that directly affect client 3. Clearly articulating budgetary needs is essential care (e.g., salaries for nurses) for the manager to be successful in budget  Indirect: expenditures that are necessary negotiations because decisions are based on but do not affect client care directly (e.g., strong supporting documentation. salaries for maintenance workers) 4. Approaches to budgeting 10. The salary or personnel budget projects salary a. Cost centers: Managers responsible for costs that will be paid and charged to the cost predicting, documenting, and managing the center in the budget period. It includes benefits, costs of the area of responsibility (nursing overtime, on-call hours, premiums, salary units). increases, and other considerations. b. Revenue centers: Managers are responsible a. A full-time equivalent (FTE) is a full-time for generating revenues. position that can be equated to 40 hours of c. Profit centers: Managers are responsible for work per week for 52 weeks, or 2,080 hours ensuring that revenues exceed costs. per year. d. Investment centers: Managers are responsible b. After the number of required full-time for generating revenues and managing costs equivalents (FTEs) is determined for an and capital equipment and assets. organization, it is also necessary to determine 5. Types of budgets how many FTEs are necessary to replace a. Incremental or line-by-line budgets list each personnel for benefit time (e.g., vacations, expense item or category on a separate holidays, personal days). expense line, which is usually divided into salary and nonsalary items. c. Some facilities use a set percentage to b. Zero-based budgets assume the base for determine shift differential that needs to be projecting next year’s budget is zero. projected. Managers are required to justify all activities d. A projection of overtime for the next year can and programs as if they were being initiated for be calculated by determining by staff the first time. classification (RN, LPN, nursing assistant, and c. Fixed means budgeted amounts are set other employee classifications) the historical or without regard to changes that may occur typical number of hours of overtime worked during the year, while variable budgets are and multiplying that number by 1.5 times the developed with the understanding that hourly rate. adjustments may be made during the year. e. If the nursing unit uses a paid on-call system, 6. The operating or annual budget is the the approximate number of hours that organization’s statement of expected revenues employees are put on call for the year should and expenses for a 12-month period (the be estimated and that cost added to the organization’s fiscal year). To compare similar budget. periods, the operating budget may be broken down f. Some organizations offer premiums for into smaller periods. certifications or clinical ladder steps. A fixed  dollar amount may be added to the base affect the number of client care hours actually hourly rate of eligible personnel. provided versus the original number planned g. Merit increases and cost-of-living raises also or required. need to be factored into budget projections.  Favorable: fewer nursing care hours paid h. Additional considerations include: could suggest that client acuity was lower  The supply and nonsalary expense than projected, that staff was more budget identifies patient-related efficient, or that higher-skilled employees supplies needed to operate the were used. nursing unit.  Unfavorable efficiency may be due to  The capital budget identifies physical greater client acuity than allowed for in the renovation, new construction, and new budget, overstaffing of the unit, or the use or replacement equipment planned of less experienced or less efficient within a period. employees.  Two techniques for monitoring and c. Rate variances, also known as price or controlling budgetary performance are spending variances, reflect the difference in variance analysis and position control. budgeted and actual hourly rates paid.  Variance is the difference between the  Favorable: the use of new employees amount that was budgeted for a who were paid lower salaries. specific revenue or cost and the actual  Unfavorable: unanticipated salary revenue or cost that resulted during increases or increased use of personnel the course of activities. paid at higher wages, such as agency 11. Salary variances include: personnel. a. Volume variance: difference in budgeted and 17. Nonsalary expenditure variance may be due to actual workload requirements changes in patient volume, patient mix, supply b. Efficiency variance: difference between quantities, or prices paid. budgeted and actual nursing care hours 18. Position control is a list of approved, budgeted provided FTE positions for the nursing cost center and is c. Rate variance: difference in budgeted and used to compare actual numbers of employees to actual hourly rates paid the number of budgeted FTEs for the nursing unit. 12. When expenses occur that differ from the 19. Staff can acutely affect the organization’s finances, budgeted amounts, organizations usually have an making accurate client care documentation very established level at which a variance needs to be important. investigated and explained or justified by the a. A negative variance may result from staff’s manager of the department. misuse of sick time, excessive overtime, 13. Managers monitor the variance or difference turnover, or wasteful use of resources. between the amount that was budgeted for a b. The manager plays a critical role in educating specific revenue or cost and the actual revenue or staff about the financial goals of the cost that resulted during the course of activities. organization and their role in it. Nurse managers meet with their supervisors, 20. Managers help the organization meet its financial explain and justify variances, and present an goals by implementing programs and incentives to action plan to reduce or eliminate them. increase employee awareness and minimize costs. 14. Organizations establish levels, certain dollar 21. Staff benefit from seeing equipment costs on amounts, or percentages above the budget at supply stickers, medication costs on medication which a variance needs to be investigated, sheets, and understanding unit and organizational explained, or justified by the manager. financial goals. Improvement and action teams 15. Managers monitor the variance or difference also inform staff of cost factors. between the amount that was budgeted for a 22. Other ways to reduce costs include staff flexing specific revenue or cost and the actual revenue or and teaching staff about budgeting (as is done in cost that resulted during the course of activities. Magnet hospitals). Nurse managers meet with their supervisors, 23. Nursing care is one of the largest expenditures in explain and justify variances, and present an healthcare organizations; it is import to be in tune action plan to reduce or eliminate them. to the client population the nursing staff serves. 16. With salary expenditures, variances may occur in volume, efficiency, or rate. Typically these factors are related and have an impact on each other. a. Volume variances result when there is a difference in the budgeted and actual workload requirements, as would occur with increases in client days. Although staffing needs are increased, revenue will increase; thus, it is a favorable situation b. Efficiency variance, also called quantity or use variance, reflects the difference between budgeted and actual nursing care hours provided. Client acuity, nursing skill, unit management, technology, and productivity all 

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