Finances | Leadership

How to Formulate a Nursing Budget

  • Creating a budget seems rudimentary in practice, but there’s lots of considerations when developing a nursing budget for a particular department. 
  • A decentralized nursing budget model allows all staff members to feel involved and offer input. 
  • These steps to creating a decentralized nursing budget will contribute to your organization’s overall growth and efficiency.

Amy White

RN, MSN – Chief Nursing Officer

May 10, 2022
Simmons University

Budgeting is a general concept used to allocate resources appropriately. Budgeting is a huge undertaking in healthcare, as the industry is costly and multi-faceted. There are two different types of budgeting used, both centralized and decentralized. 

Centralized budgeting is a type of budgeting organizations use where a small group makes all the financial decisions for all. As opposed to centralized, decentralized budgeting relies on department leaders to make financial decisions.  

In healthcare, this method includes both unit managers and staff to successfully complete the process. Decentralized budgeting also shares the decisions that are made with other managers and leaders in various departments, thus allowing more individuals to be involved in decision making.  

This type of budgeting is important in an organization as it empowers department leaders to make careful decisions as to best allocate the available resources to obtain goals within an organization. 


developing a nursing budget

Eight Steps to Writing a Decentralized Nursing Budget

Step One 

The first step is determining the organization’s productivity goals for the upcoming fiscal year.  Changes that should be considered include measures of patient outcomes and utilization.  

Step Two

Consider the projected workload and the number of days expected to complete the workload for the upcoming year.  With current staffing issues that include high turnover rates, it is important to look at these numbers for the projected year.  These numbers can be formulated by computer assisted technology that can create a close estimate of the projected workload based on current trends.  

Step Three

The number of patient care hours needs to be budgeted in order to maintain efficient staffing volume and ratios based on patient load in a specific department. 

Step Four 

Scheduling of staff must be considered and includes ensuring that the budget includes patient care hours based on days of the week and by shifts.  Acuity can change on a nursing unit based on the shift, days of the week, and the number of typical patients so it is imperative that these topics are considered when reviewing factors related to the budget. 

Step Five

As important as it is to focus on patient care hours and staffing schedules when reviewing the budget, it is equally important to plan nonproductive hours as well.  These include vacation, holidays, sick leave, and medical leave and must be reviewed to consider how many staff will be utilizing these days and how to ensure the staffing needs are still met. 

Step Six

The sixth step of decentralized budgeting consists of graphing and/or charting both productive and nonproductive hours.  Part of this includes forecasting how both patient days and staffing needs may increase and decrease over the next year.   

Many times, a unit can realize how productive or unproductive time is being used by graphing and charting.  By doing this, a unit can view how productive time has been spent such as patient care, conferences, educational activities, administrative meetings, and orientation versus unnecessary time management that could be avoided. 

Step Seven

Estimating the costs of the necessary supplies and services that must be purchased is another important area to be considered based on the current year and what may be anticipated in the next year.   

Typically, this is an area that may have an increase since supplies and services tend to rise with each passing year. 

Step Eight

The last step is the anticipation of capital expenses and investments for the upcoming year and these include large purchases that would need to be reviewed before making the decision to purchase.

Once these eight steps have been considered, a review of the proposed budget should be formulated and the accounting department will review the budget carefully.  If approved by the various administrators and managers, the budget will be sent again to the accounting department and the board of directors.  

analyze data for nursing buget

Analysis of Decentralized Nursing Budget

It is important for stakeholders and those who have an important role in funding to observe the reasoning and accountability of the quality of services being provided along with the costs.   

The information needs to be openly shared with staff in order to work within its framework and to understand the rationales behind it.  Often, this promotes a sense of ownership among the nursing staff. This can be an advantage since many staff have high turnovers and a decreased sense of value in their current positions.   

Advantages of Decentralized Budgeting 

  • more timely decisions are made 
  • motivation levels are increased  
  • less issues to work through with top management 
  • increased day to day problem solving  
  • facilitates the enlargement of an organization and its operations 
  • assists in developing junior management 

Disadvantages of Decentralized Budgeting  

  • possible loss of control due to involvement of various administrators and leaders 
  • increased costs due to repetitive management functions within an organization 
  • inconsistencies may be noted which leads to difficult control of a specific situation 
  • authority may be used for personal gain among those in lower administration and management 

Despite having positive and negative aspects, this type of budgeting allows decisions to be made by several individuals within different levels of administration. This ultimately allows team members to be involved and provide input. 

reviewing nursing budget

The Bottom Line

Decentralized budgeting offers this type of system and can help an organization grow due to the focus being less on day-to-day problem solving and more on the long-term vision for an organization.    

As a result, issues can be handled more efficiently, which can ultimately speed up the growth of an organization. By allowing for expansion to take place by hiring more individuals, this results in an improved workforce development.  All these factors serve to raise the overall capital of a company and ultimately contribute to the growth of an organization.  

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