Budgeting: it's everyone's responsibility; Involving staff in budgeting might not always be comfortable, but it can yield smoother-running operations.

"Annual Budget"

Perhaps no two words in the business vocabulary can send such a palpable shudder through the whole of any organization. Budgeting can become the bane of an organization, causing the courageous to quiver and the most optimistic to lose hope. Often, and at the worst, it causes departments and divisions, and individual members, to don battle gear and clash arms.

Many organizations claim to have a participative budget process. In most cases, though, department managers stage a time-intensive "annual event" under the pressure of deadline, creating their individual budgets and submitting them to the chief financial officer (CFO) for compilation. The CEO and CFO then review these budgets composed in isolation and haste and begin making decisions about what is "approved" and what isn't. The resulting annual budget becomes a product of one-way communication (downward).

The consequences are recognizable to almost everyone:

* Adversarial relationships between management, departments, and programs lead to feelings of mistrust and frustration. Creativity is stifled, and competition arises among various parts of the organization.

* Budgetary requests and line items suddenly become "inflated" to offset unexplained budgetary cuts.

* A "spend it or lose it" mentality develops, leading to the misdirection and waste of resources.

What is left is an aggregate of organizational pieces lacking true integration. Is it any wonder that many budgets, once approved, are so often set aside (with disdain) and end up collecting dust during the succeeding 12-month operating period?

[ILLUSTRATION OMITTED]

The Problems: Our Own Perceptions

The first problem occurs when people are put in roles without the knowledge they need to succeed. Healthcare is notorious for promoting a good nurse to a managerial position, or an effective maintenance person to a department leadership role, without the proper managerial skills. They are set up for failure.

Second, financial information is often shrouded in a veil of secrecy, shared with employees only on a "need to know" basis. We, as administrators, tend to treat employees as if they have a limited ability to understand the complexities of organizational finance--yet these same employees leave after every shift to return home and conduct the same financial transactions, in type if not in scale, for their own families.

If employees look upon the budgetary process with distaste--and they often do--it is because we created an environment for that to happen. If we want our organizations to be wise in their stewardship of resources, we must meet our obligation to build them, first by educating all of those responsible for its performance appropriately, and then trusting them in the execution of that responsibility.

Here's How

Several steps are worth considering toward building a more universally informed budgeting process:

First, we must work to remove mystery from the financial realm. If we want fiscal matters to be treated with respect, leadership must first do the same by giving stakeholders the knowledge they need to do the job. This equates to a foundation in basic fiscal matters that underscores the relationship between daily responsibilities and finance.

Second, it is the primary responsibility of every organization's financial department to turn ambiguous financial data into meaningful financial information. Financial information about an organization should:

* Detail how the organization allocates and uses its resources

* Benchmark performance transparently

* Assist individual employees in relevant decision making

This process begins by teaching the basics to key employee stakeholders so they can comprehend the information they need to succeed and appreciate the importance of that which they are charged to execute. Start with the key financial statements: income and cash flow.

Income statement. This is not the so-called "expense" statement. The income statement measures the bottom line viability of the organization or delivery unit it represents. Good fiscal management requires that equal emphasis be put on both the expense and income side of the statement. Managing expenses is not enough because only so much slack can be removed from a system by focusing solely on one side of the equation. It has long been argued, and I think rightfully, that it is impossible to expense-manage an organization to excellence.

Awareness and decision-making based on relationships between income and expenses are what prevent an organization from being "penny-wise and pound-foolish." The income statement measures the return for each dollar spent and is therefore the most important statement to understand for those carrying out the daily tasks of the organization. Managers must be aware of how items under their direct control--such as overtime, the cost of supplies, and the costs of employee turnover--fit into the larger whole compared to the income that their services bring in.

Cash flow statement. This statement represents the resources available to meet an organization's current operating expenses. Cash flow is all about timing; it is no different than marshalling resources to make a personal mortgage or vehicle payment on time. Every organization has cyclic highs and lows as it goes through its fiscal year. These highs and lows exist on both the expense and income side, and this must be reflected in the budgetary process to avoid shortfalls or missed opportunities. When problems do exist in the cash flow statement, they are usually identifiable in the income statement (and the reverse is also true). Teaching these relationships to the employees who share accountability in decision-making and execution minimizes the unknown, allowing the organization to react fluidly to constant changes in the internal and external environments.

A Systems Approach

The best organizations view budgeting as reflective of day-to-day operations rather than as an annual event. Such an approach to budgeting must have four components; it must be:

1. fully participative

2. fully integrated

3. continuous

4. allowing of constant feedback in order to monitor progress and permit constant learning and adaptation

Compiling an annual budget is time-consuming and requires great amounts of communication and thinking on the part of all participants. If budgeting is to be a skill and viewed as important to everyone, leadership needs to treat it that way--not simply by setting guidelines and making people adhere to them, but by scheduling adequate group work time to accomplish it. It is important for nursing managers to understand how unchecked overtime by CNAs affects marketing by driving up rates, just as it is important for dining services to understand how the cost of raw food impacts the rest of the system.

In long-term care, we've seen the benefit of ongoing and fluid processes in the exercise known as care planning. All those with vested interests in a resident's care plan are present to identify changes or needs and then to build action plans or strategies to meet them. Sometimes there are competing interests or conflicting needs, but collaboration strategies are developed to resolve them. Care planning is a model for the budgeting process discussed here.

To be effective, the budgetary process should force difficult decisions regarding whether a certain allocation of resources furthers the organization's strategic initiatives or not. Conducting a budgetary process based in an honest evaluation of circumstances is also important for facilitating change. By working through the tough questions facing an organization, the sense of urgency needed to foster change is created. Informed organizational conflict surrounding resources can be healthy because it causes those charged with fiscal responsibility to be held accountable, and it forces prioritization of precious resources in light of the organization's overall vision and mission.

Why It Doesn't Happen

If all of this makes sense, then why don't employees embrace participation in the budgeting process? Perhaps it's because understanding and participating in fiscal decisions do in fact create accountability. Employees who understand and are involved in budgeting will, by definition, have personal accountability for those of their decisions that have financial impacts. This takes some working through.

I learned this lesson in our own organization when I was faced with the need to add another bed to our dementia unit. Financially, the addition of a bed to a 21-bed unit was determined to produce significant benefit if the operating expenses (especially for staffing) remained constant. More staff would obviously mean higher per-resident costs and, therefore, higher rates. Of course, I wasn't among those whose organizational life would be most affected by such a decision--the unit's direct caregivers were. To have a hope for this to succeed, they needed to make an informed decision about their program and to understand all consequences of the decision, both to them and the organization.

I decided to plead my case to the entire team by, first, presenting an income statement based on 21 beds and then a pro-forma income statement (i.e., a projected income statement) based on 22 beds, with staffing held constant, and leaving the decision to them. The day of the meeting I encountered concern from all sides. Our CEO knew the additional bed was critical to our future and was therefore concerned about my move to turn the decision over to the team. The team seemed tentative when I explained the reason for the meeting. Most telling was the comment from one of them when I showed a slide of our current income statement disclosing that we had been losing money: "Don't confuse us with finances." The next slide showed the financial situation that was expected to occur with 22 beds. I left the room, allowing the team to discuss their concerns in relationship to the financial consequences. (Needless to say, I worried about how I might explain a "no" to my boss.)

After a long-seeming weekend, the team's spokesperson came to my office Monday morning with a "yes, but...." The team requested a regular review of the workload and the option to reverse the decision if 22 residents produced a reduction in the quality of care. I agreed to this reasonable request.

All's well that ends well. While I could have avoided considerable personal discomfort by using my authority to force the change, the subsequent time and energy I would have spent repairing relations and dealing with the fallout of having imposed my will would have proven to be far more stressful. At least as important as this, though, was the practical result: the team's newly gained knowledge of unit financing brought about staffing improvements. Under their own direction, they eliminated a full-time nursing assistant position from one shift, where it had provided limited benefit, and reallocated those resources to hire a recreational therapy person solely for the dementia program.

In sum, the budgetary process is the bridge between organizational resources and its strategic operations. A "systems approach" to budgeting creates organizations that understand how the parts of an organization relate to one another to create the whole through a financial perspective--a perspective that makes meeting financial responsibilities a core organizational competency, rather than an exercise in blind one-upmanship.

BY VICTOR LANE ROSE, MBA, NHA 

Victor Lane Rose, MBA, NHA, is director of operations at Souderton Mennonite Homes, a CCRC in Souderton, Pennsylvania. For further information, phone [phone], ext. 219, or e-mail [e-mail]. To comment on this article, please e-mail [e-mail]. For reprints in quantities of 100 or more, call [phone].