New leader workshop: Key Budgeting Components for Success

Editor's Note

“I don't want to start by asking how many of you have been in your role for 1 to 5 years, or 5 to 10, or 10 to 20,” said Pamela Hunt, BS, MSN, RN, NEA-BC, FAAN, consultant and associate faculty at Indiana University, during the “Key Budgeting Components for Success” new leader pre-conference workshop. “The world and the expectations have changed. Instead, I want to assess your comfort with finance, budgeting, and with capital and operational budgets by asking, how many of you are really comfortable with this topic and are here to learn one or two new things?” A couple of hands went up. “How many of you are medium comfortable but starting to get uncomfortable with what you’re being asked to present or being asked to justify [financially]?” Another couple of hands went up.

“And how many of you are in here thinking, ‘I have this leadership role, and I'm a really good OR nurse; I'm really good with quality and employee relations, but I don't know what I'm doing when it comes  finance?” she asked, and here, perhaps not surprisingly, the majority of the people in the room raised their hands.

Hunt began by challenging today’s attendees with the concept that finances is a foreign language in which all perioperative leaders need to be fluent. She also advised leaders to abandon the concept of quality versus cost. “It’s not all about the money, and considerations should always include quality and cost,” she said. And finally, leaders should stop looking at financing as an exact science. “The budget is an educated guess,” she added. “I will tell you, the worst thing is not to be over or under budget; the worst thing is to be over or under budget and not know why.” Without a clear picture into the reason behind the state of the budget, no one can problem-solve and/or make an action plan to correct whatever the variance is that affected it.”

“The key word is educated,” Hunt emphasized. “It’s an educated guess based on revenue, case type, patient demographic, and more, which is why operators need to be a part of the budget development process. We know what’s happening in our departments, what changes or conflicts are coming down the pipe, and we can educate our financing departments.” According to Hunt, budgets are an agreement between leadership and the facility, and two key functions go into budget development: cash and cash flow. “Cash is King, and cash flow is Queen,” she said. “You make an educated guess on how much revenue is coming in, and your facility determines what you can spend on capital. That’s your budget.”

For the rest of the 3-hour workshop, Hunt walked through several budgeting concepts such as days cash on hand, debt to service coverage, average turnover cost per facility, calculating FTEs, call coverage relief, and more. More than budget planning and management, however, Hunt delved into how the staffing crisis has impacted and informs the financial health of a facility. “Everybody’s been wondering, where are the nurses?” she posed. “Here’s some data for you. In 2019, the average vacancy rate in hospitals was 23.7%. In 2022, hospitals reported an average vacancy rate of 75.4%.”

“We are seeing that going down, pretty much across the country,” Hunt said. “But there has been a direct impact on quality outcomes. There’s a lot of ground to cover to rescue that previous state.”