The Budget – Its Preparation and Implementation (Hospital Pharmacy)
Pharm.D 4th Year Notes
Learning Objectives
After studying this topic, students should be able to:
- Define a hospital budget.
- Explain the objectives of budgeting.
- Describe the principles involved in preparing a pharmacy budget.
- Discuss the different divisions of a hospital pharmacy budget.
- Explain expenditure and income accounts.
- Understand equipment and construction budgeting.
Introduction
A budget is one of the most important management tools in a hospital pharmacy. It is a financial plan prepared in advance that estimates the expected income and expenditure of the pharmacy department for a specific period, usually one financial year.
A well-prepared budget helps ensure the efficient utilization of financial resources, proper planning, cost control, and uninterrupted pharmaceutical services.
Definition of Budget
According to Halma Halma,
"A budget is an instrument through which hospital administration, departmental management, and the governing board review hospital services in relation to a prepared plan expressed in financial terms."
Importance of Budget
A hospital pharmacy budget helps to:
- Plan future financial requirements.
- Ensure uninterrupted drug supply.
- Control unnecessary expenditure.
- Improve resource utilization.
- Measure departmental performance.
- Assist in administrative decision-making.
- Support expansion of pharmacy services.
Objectives (Goals) of Budget
A good budget should achieve the following:
1. Development of Standards
- Establishes financial and operational standards.
2. Comparison of Performance
- Compares actual performance with planned targets.
3. Analysis of Deviations
- Identifies differences between expected and actual results.
4. Corrective Action
- Determines whether deviations are controllable or uncontrollable and takes corrective measures.
Political Aspects of Budgeting (According to Larson)
A pharmacist should understand the political aspects of budgeting for successful approval of the budget.
1. Personal Considerations
- Professional reputation
- Previous budgeting experience
- Ability to justify financial requirements
2. Development of Confidence
- Build good relationships with hospital administration.
- Obtain support from other departments.
3. Institutional Philosophical Pressures
Budget should align with:
- Hospital objectives
- Vision
- Mission
- Future development plans
4. Demographic Pressures
Budget should consider:
- Population served
- Disease patterns
- Community healthcare needs
- Changing healthcare demands
Principles of Budget Preparation
An effective budget should be:
- Realistic
- Practical
- Flexible
- Based on previous records
- Supported by statistics
- Economical
- Easily understandable
- Capable of controlling expenditure
Budget Planning in Hospitals
Before preparing the budget, management should:
- Define departmental objectives.
- Establish policies.
- Estimate future workload.
- Predict hospital growth.
- Assess available resources.
The budget should never restrict innovation but should remain flexible enough to accommodate changing conditions.
Divisions of Hospital Pharmacy Budget
The pharmacy budget consists of three major divisions:
I. Income (Revenue) Budget
II. Expenditure Budget
III. Capital (Equipment and Construction) Budget
I. Income (Revenue) Budget
Income refers to the money earned by the pharmacy department.
Sources of Income
- Sale of medicines to in-patients
- Sale of medicines to out-patients
- Drug supply to hospital departments
- Processing of prescriptions
- Requisitions from special departments
Important Statistics Used for Estimating Income
- Number of prescriptions dispensed
- Prescriptions handled by each pharmacist
- Working hours
- Prescription volume per hour
- Medication cost per patient-day
- Medication cost per clinic visit
- Average drug cost per prescription
- Average salary cost per prescription
- Average supply cost per requisition
Types of Patients (Income Classification)
Patients may be classified as:
- Full-paying patients
- Partially paying patients
- Non-paying patients
- Physicians
- Hospital employees
Separate accounting provides more accurate financial analysis.
II. Expenditure Budget
The expenditure budget estimates all expected expenses of the pharmacy department.
Main categories include:
- Administration
- Professional patient care
- Out-patient and emergency services
- Miscellaneous expenses
Components of Expenditure Budget
A. Salaries and Wages
Includes salaries of:
- Pharmacists
- Assistant pharmacists
- Clerks
- Storekeepers
- Helpers
- Other supporting staff
Salary estimates should include:
- Permanent full-time staff
- Permanent part-time staff
- Temporary staff
- Vacant posts
- Proposed new posts
- Overtime payments
B. Supplies and Expenses
Includes:
- Office supplies
- Packaging materials
- Labels
- Stationery
- Cleaning materials
- Maintenance items
Preparation requires comparison between:
- Previous year's budget
- Current year's actual expenditure
- Estimated expenditure for the next year
C. Drugs and Pharmaceuticals
Includes cost of:
- Medicines
- Pharmaceuticals
- Medical gases
- Surgical dressings
- Special pharmaceutical products
Drugs supplied to other departments should be charged to those departments.
D. Purchased Services
Includes:
- Cost of prescriptions prepared by outside pharmacies
- Contract pharmaceutical services
E. Miscellaneous Expenses
Includes:
- Bottles
- Labels
- Glassware
- Uniforms
- Reference books
- Printing
- Stationery
- Licenses and permit fees
- Equipment maintenance
- Repair charges
III. Equipment and Construction Budget
This budget deals with capital investments.
It includes:
- Purchase of new equipment
- Replacement of old equipment
- Construction
- Renovation
- Major repairs
- Building expansion
Many hospitals classify expensive equipment as capital items requiring separate budgeting.
Depreciation of Equipment
Depreciation is the gradual reduction in the value of equipment due to:
- Wear and tear
- Aging
- Continuous use
- Technological advancement
Depreciation helps estimate replacement costs.
Examples of Professional Equipment
- Analytical balances
- Cabinets
- Water stills
- Mixing tanks
- Stirrers
- Filters
- Homogenizers
- Capsule filling machines
- Tablet compression machines
- Granulators
- Autoclaves
- Hot air ovens
- Refrigerators
- Weighing machines
- pH meters
- Conductivity meters
- Polarimeters
- Vacuum pumps
Examples of Administrative Equipment
- Bookcases
- Notice boards
- Calculators
- Computers
- Printers
- Scanners
- Cash registers
- Filing cabinets
- Desks
- Work tables
- Clocks
- Lockers
Advantages of Budgeting
- Better financial planning
- Efficient inventory management
- Improved cost control
- Prevents wastage
- Better manpower planning
- Assists hospital administration
- Supports departmental expansion
- Improves quality of pharmaceutical services
Limitations of Budgeting
- Depends on accurate estimates
- Time-consuming
- Requires experienced personnel
- May become outdated due to changing conditions
- Unexpected emergencies affect planning
Flow Chart
Hospital Pharmacy Budget
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Budget Preparation
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Income Budget
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Expenditure Budget
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Capital Budget
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Budget Approval
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Implementation
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Monitoring
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Performance Evaluation
Exam-Oriented Short Notes
Budget
A financial plan prepared in advance to estimate income and expenditure for a specified period.
Income Budget
Estimates revenue generated from pharmaceutical services.
Expenditure Budget
Estimates salaries, medicines, supplies, maintenance, and other operational expenses.
Capital Budget
Deals with purchase of equipment, building construction, renovation, and major repairs.
Depreciation
Gradual reduction in the value of equipment due to usage and aging.
Important Viva Questions
- Define a hospital budget.
- State the objectives of budgeting.
- Explain Larson's political considerations in budgeting.
- What are the three divisions of a pharmacy budget?
- What are the sources of pharmacy income?
- Write a note on expenditure budgeting.
- What is a capital budget?
- Explain depreciation.
- List the components of salary and wage expenditure.
- Mention five advantages of budgeting.
Key Points for University Examination
- Budget is a financial planning and control tool.
- Pharmacy budget consists of Income, Expenditure, and Capital Budget.
- Income is estimated using prescription statistics and pharmacy workload.
- Expenditure includes salaries, drugs, supplies, purchased services, and miscellaneous expenses.
- Capital budget covers equipment purchase, replacement, construction, and renovation.
- Budget improves planning, financial control, efficiency, and patient care.
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