Incremental Budgeting


Incremental budgeting is the most common form of budgeting in health care. The budget process starts with existing expenditure levels as a base and allows an in- crease of a certain percentage per budget year. The percentage increase might be tied to inflation, set at a hospital-wide rate, or both. Under incremental budgeting, the only spending proposals examined during


budget creation and justification are those that represent an increase above the base plus an established percentage.5


Incremental budgeting assumes that all currently


funded department operations are essential to the ongoing mission of the hospital, are currently being performed in a cost-effective manner, and must be continued during the next budget year. Incremental budgets can be either fixed or flexible. A fixed incremental budget,


called the static budget, remains set for a designated time period, such as a fiscal year. A flexible budget will increase or decrease based on a variety of factors related to patient volume. Using a flexible budget enables a department head to use key statistics, such as patient days, to align expenditures to patient volume most effi- ciently. The static budget and flexible budget can be used together to analyze budget variances (discussed later in this chapter).


Budget Responsibilities for the Nutrition Manager


As a health care nutrition manager, you will mostly likely be involved with bud- geting for both expenses and revenue. See Figure 9.1 on page 176 for a sample annual budget and chart of accounts for a food and nutrition department.


Expense Categories


Nutrition managers are typically involved in making budget decisions about the types of expenses described in the following sections. Each of these categories is a line item in the budget.


Salaries and Benefits


Salaries and benefits are often the largest component of the expense budget and require the most time and energy in the justification process. The following list in- cludes information you will need to evaluate your salary budget for the coming year:


› Know your current number of authorized full-time equivalents (FTEs) for the coming year.


› Know how many full-time and how many part-time employees will be on your staff (the distinction between full-time and part-time status affects benefit and


overtime costs).


› Know the hire dates and review periods for each employee, noting any who will be eligible for a raise during the upcoming fiscal year.


› For each employee, calculate regular paid hours, worked hours, time-off hours, overtime hours, and total hours.


CHAPTER 9: Budgeting and Managing Finances 175


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