Nursing Case Study on Fiscal Concerns in a Healthcare Setting

The four issues outlined in the case study are emergent in the operations of the intensive care unit. They constitute unexpected expenses that the unit did not include in the initial budget for the year on July 1. Budgeting, by its nature, involves allocations of available funds to different anticipated costs or needs for a certain period in the future. Such planning typically captures the costs and expenses that are recurrent in the operations of an organization or individual, and cannot always capture all potential expenditure needs in a period, particularly emergent needs. The basis of budgets is largely previous experience in the activities of individuals or organizations. While this is a logical basis of budgets and allocations for particular activities and needs in a period, it is not always likely to predict the needs and activities towards the future. This problem raises the issue of how organizations and their leaderships can tackle and fulfill new expenditure needs effectively when they arise in the middle of a financial year.

This assessment summarizes the scenario that confronts the intensive care unit and its management with only three months remaining in the fiscal year. The four issues in the case study require extra funds that the unit does not have. Nonetheless, despite the little remaining amount of the initial budget for the three last months of the financial year, the unit operates on a variable budget to which the management could make changes. The important constraint is that the intensive care unit cannot exceed the budgeted amount in total for the year.

The four requests in the unit’s operations to consider and their respective estimated costs are as follows:

  • The need for permanent staff lines to address high acuity on the unit
  • The need for 3 new “smart pumps” at a special price of $3,000 each now to meet Joint Commission standards for safety (total of $9,000)
  • The increasing demand for wound care supplies (part of the budgeted allocation for unit supplies) owing to a rising prevalence rate of pressure ulcers
  • The need to fund three nurses’ attendance of an out-of state conference on high risk medications ($600 for registration now and $1,500 travel costs in total)

Each of the four requests is important in the operations of the intensive care unit and the effort to achieve its objectives. Each of them promises significant value in efforts to enhance the skills of staff, strengthen the capacity of the unit and its staff to deliver quality services that can promote patient outcomes, and increase the efficiency of services at the unit. It shall be essential to remember that decision-making and resource allocation processes are critical components and determining influences of the successes of healthcare organizations to achieve desirable patient outcomes (ANA, 2015). The processes and effectiveness of leadership and management processes, including the methods of use of available resources, budgeting, planning, and coordination of resources, are critical determinants of the adequacy, quality, and effectiveness of healthcare services and settings in meeting and managing the needs of patients (Yoder-Wise, 2015). The implication is that it shall be important to consider all four issues in the case study equally without discrimination or exclusion. The appropriate way to address the four requests based on the budget print out shall involve the consideration that the intensive care unit works on a variable budget. The first step is to work out the total remaining funds for the unit in the present financial year. In total, the amount of budget remaining for the final three months of the year to the end of June is $127,600 (125,000+1500+700+400). In this context, the focus shall be on distributing this amount among the four issues based on reasonable considerations of urgency or immediacy of need, the possibility of saving costs, and the possibility of deferring some of them, or parts of some of them, to the following financial year. It shall also be essential to remember the need to avoid using up all the resources on the four issues alone, especially considering that there are still three months remaining to the end of the fiscal year, when a new budget is available for the intensive care unit. It shall be essential to save a substantial amount of the remaining resources to ensure their sufficiency to meet any needs that remain, or could emerge, during this remaining period of the year.

In the effort to address the issues effectively, as noted above, the urgency and immediacy of need shall be an important factor. In this regard, the management of the intensive care unit could defer some of the issues or parts of them to the new fiscal year. This is an appropriate step to ensure the application and adequacy of remaining financial resources to meet the costs of the most urgent needs. The projected travel costs for the three nurses to attend a conference is one expense in the identified issues that the management could defer to the new fiscal year. This is because the three nurses are only likely to travel near the time when the out of state conference occurs, in September. The projected cost of travel for each of the three nurses is $500, implying that deferment of this expense to the upcoming fiscal year would save $1,500 in total. In regard to the other three issues, deferment of expenses could relate to the possibility of limiting the quantity of expenditure to the minimum possible to meet the identified needs. With regard to Issue 1, it could be possible to defer a part of the costs of permanent staff lines by identifying the minimum possible level of personnel necessary. Likewise, it could be possible to defer the purchase of one “smart pump” to the new fiscal year and purchase two, and identify an amount of funds that can apply to meet the need for a minimum level of wound care supplies to meet the rising demand for them with increasing prevalence of pressure ulcers in the unit.

It is clear from the budget that projections in some areas were more accurate relative to others. The area in which the projections were most accurate was staff education. This is because the initial projection of costs and needs in the area for a year seems to have been precise. The allocation of $1,000 seems to be just enough to cover the costs and needs in the area – neither too much nor too little. Out of the allocation of $1,000 for this area, the unit has expended $600 by the end of the ninth month of the fiscal year, leaving $400 for the last three months. This means that on average, the unit’s expenditure in the area for the 9 months to date has been $66.66 per month. The remaining $400 is likely to be just enough to cover the costs of staff education in the three remaining months to the end of June, possibly leaving only a small amount. In comparison, the allocations for the other areas have been either too much or too little, as indicated by the remaining huge amounts or total exhaustion of the allocations by the end of the ninth month of the fiscal year.

Overtime and equipment represent the two areas in which the allocations were most inaccurate. Two considerations form the basis of this assessment. The first is that accuracy implies the preciseness of projections, such that an accurate projection is neither too little nor too much relative to the needs or costs in an area for a year. The second is that a lower than necessary allocation is more undesirable than a higher than necessary one, since in the former, the intensive care unit would not have any funds to meet a need in the area after exhaustion of the allocation. The two areas had the most inaccurate allocations because the unit has already exhausted the allocated amounts of $50,000 for overtime and $5000 for equipment with three months of the fiscal year still remaining. The other areas of needs/expenditure in the unit still have remaining funds with three months remaining.

By the end of the ninth month in the fiscal year, the variance for each category is as follows:

  • For personnel, the expected used amount is 300,000/12*9 = 225,000, remainder $75,000, but still $125,000 remains. Therefore, variance is +50,000.
  • For overtime, the expected used amount is 50,000/12*9 = 37,500, remainder $12,500, but actual remainder is $0. Therefore, variance = -12,500.
  • For supplies, the expected used amount is 18,000/12*9 = 13,500, remainder $4,500, but actual remainder is $1,500. Therefore, variance is -3,000.
  • For travel, the expected used amount is 1000/12*9 = 750, remainder $250, but actual remainder is $700. Therefore, variance is +450.
  • For equipment, the expected used amount is 5000/12*9 = 3,750, remainder $1,250, but actual remainder is $0. Therefore, variance is -1,250.
  • For staff education, the expected used amount is 1,000/12*9 = 750, remainder $250, but actual remainder is $400. Therefore, variance is +150.

The calculations of variance above indicate several cases of being over the budget in expenditure at the intensive care unit. Being over the budget means exceeding the budgeted allocation at a particular point in the fiscal year. Such situations were evident in the areas of equipment, supplies, and overtime in the case study. Factors that could have contributed to the situations of being over the budget in these areas of activities and needs in the intensive care unit’s operations include (Adam & Lindahl, 2017):

  • Unexpected/unforeseen and unplanned costs and expenditure needs early in the fiscal year
  • Unexpected changes in the scope of needs and expenditure needs (expanded scopes of needs/expenditure)
  • The management’s underestimation of complexities and difficulties of projects
  • Unrealistic estimates of cost/needs in the areas on the part of the management

As the intensive care unit enters the fourth quarter of the fiscal year in its operations, it shall need to take some steps to adjust the budget and allow adequate fulfillment of all the expenditure needs that could arise in that period. This is especially the case in the context of the four issues above and the fact that some of the areas of expenditure are already over the budget. Some of the steps that the unit’s management could take to adjust the budget are:

  • Limiting expenditure across the areas of needs or activities in its operations to the minimum necessary
  • Deferring the aspects of expenditure that are not vital or critical to the upcoming fiscal year
  • Reallocating the amounts remaining among the areas of need in the remaining quarter based on considerations of urgency, immediacy, and acuteness of need.

 

References

Adam, A., & Lindahl, G. (2017). Aggregation of factors causing cost overruns and time delays in large public construction projects: Trends and implications. Engineering Connections and Architectural Management 24(3): 40-56.

American Nurses Association (ANA) (2015). Nursing: Scope and Standards of Practice. Silver Springs, MD: American Nurses Association.

Yoder-Wise, P. (2015). Leading and Managing in Nursing (6th Ed.). St. Louis, MO: Elsevier/Mosby.