NUR 5820 Module 2 Operating Budget Analysis Example

Building Next Year's Telemetry Unit Operating Budget: Volume, Hours per Patient Day, Nonproductive Time and the Assumptions Behind Each Line

Student Name

Master of Science in Nursing (MSN), Thomas Edison State University

NUR-5820: Financial Management in Nursing Practice

Mentor Name

Month Day, Year

Building Next Year's Telemetry Unit Operating Budget: Volume, Hours per Patient Day, Nonproductive Time and the Assumptions Behind Each Line

The first module defined the vocabulary on the telemetry unit's monthly report. This paper uses that vocabulary to build the unit's operating budget for the coming fiscal year. It projects volume, converts volume to staffing hours, adds fixed positions and nonproductive time, prices each line, and estimates supplies and other expenses. Every number rests on an assumption, and each assumption is stated next to the calculation it drives, because a budget that hides its assumptions cannot be defended or revised. Figures are illustrative but built from realistic inputs for the same 30-bed telemetry unit described in Module 1.

Projecting Volume

The budget begins with patient days. The unit has 30 staffed beds. Over the past two years, average occupancy was 88% and 91%, and the hospital's planning office expects a modest increase as a nearby practice begins referring more patients for rhythm monitoring. The budget assumes 90% occupancy, or 30 beds multiplied by 365 days multiplied by 0.90, which gives 9,855 patient days. Seasonal patterns matter for scheduling but not for the annual total: winter months typically run above 95% and late summer near 82%.

This assumption carries more weight than any other, because nearly every variable cost depends on it. If occupancy came in at 85% instead, the unit would see 547 fewer patient days, and a budget that did not flex would show unfavorable variances all year.

Converting Volume to Staffing Hours

The hospital's staffing standard for telemetry is 9.6 hours per patient day, counting direct-care registered nurses and patient care technicians combined. This target was set by the nursing department after benchmarking against similar units and reflects our usual pattern of one RN for four patients and one technician for eight. Multiplying 9,855 patient days by 9.6 gives 94,608 productive hours, or 45.5 productive FTEs.

Productive hours are not paid hours. Nurses take vacation, holidays and sick time, attend education, and orient new staff, and someone must work those shifts. The unit's nonproductive rate over the past two years averaged 12% of paid hours. Dividing productive hours by 0.88 gives 107,509 paid hours, or 51.7 paid FTEs for variable direct-care staff. The skill mix assumption splits these hours 65% RN and 35% technician.

The 9.6 standard is an average. Day shifts usually carry more hours than nights because of admissions, discharges, procedures and rounds, so the schedule will place more staff on days while the annual total still matches the budget. The manager should check that the shift-by-shift pattern adds up to the budgeted hours before submitting the budget, because a pattern that exceeds the total will produce unfavorable variances from the first month.

Fixed Positions

Some positions do not vary with census. The unit needs a charge nurse and a monitor technician on every shift, around the clock, regardless of how many patients are present. Each 24-hour position requires 8,760 productive hours a year, or 9,955 paid hours after the same nonproductive adjustment, which is 4.8 paid FTEs per position. A unit secretary covers days and evenings, about 2,912 hours a year, and the nurse manager is a salaried position.

Pricing the Lines

Salaries are priced from the hospital's wage scale, using the average rate for each job class with a 3% midyear merit increase averaged across the year, plus a 6% allowance for shift and weekend differentials. The direct-care RN average is $47.50 an hour, the charge RN $52.00, the patient care technician $21.00 and the monitor technician $22.00. The finance office loads health coverage, pension matching and employer payroll tax onto every salary dollar; these benefits are budgeted at 30% of salaries, as directed by the finance department.

Supplies are budgeted per patient day. Last year's medical and surgical supply cost averaged $30.10 per patient day; with an expected vendor price increase of about 3%, the budget uses $31.00, giving $305,505. Education, orientation and minor equipment are budgeted at $74,000, which reflects an expected four new graduate hires. Jones (2008) showed how nurse turnover costs measured in an earlier year can be adjusted for inflation with the Consumer Price Index, which helps a manager estimate what replacing departing nurses will cost when a new study is not practical; our orientation line uses the same reasoning.

Two smaller items complete the picture. Salary increases granted midyear are averaged over the year rather than applied to all twelve months, and differentials are estimated from last year's actual share of night and weekend hours. Small differences in these assumptions can move the salary line by tens of thousands of dollars, which is why each is written down.

What the Budget Leaves Out and Why It Matters

The budget does not plan for overtime or agency nurses. Overtime is not a planned cost; it is a variance that appears when vacancies, sick calls or unexpected census exceed what the schedule covers. Bae and Fabry (2014) reviewed research on nurse work hours and found strong evidence linking long hours and overtime to adverse outcomes for nurses, though evidence for patient outcomes was less conclusive. Treating overtime as unplanned keeps it visible on the monthly report and supports the case for filling vacancies.

The budget is also a statement of value. Dall et al. (2009) estimated that higher registered nurse staffing reduces complications and length of stay, producing medical cost savings that are rarely credited to nursing budgets. When finance asks whether the unit can trim hours per patient day, the manager can point to that evidence and to the unit's own outcomes.

Conclusion

The proposed operating budget totals about $7.3 million, or roughly $741 per patient day, for 63.7 paid FTEs. Its most important assumptions are 90% occupancy, 9.6 hours per patient day, a 12% nonproductive rate and a 65/35 skill mix. If any of these change, the budget should be revised, and the flexible budget used in the variance module will show how.

References

Bae, S.-H., & Fabry, D. (2014). Assessing the relationships between nurse work hours/overtime and nurse and patient outcomes: Systematic literature review. Nursing Outlook, 62(2), 138-156. https://doi.org/10.1016/j.outlook.2013.10.009

Dall, T. M., Chen, Y. J., Seifert, R. F., Maddox, P. J., & Hogan, P. F. (2009). The economic value of professional nursing. Medical Care, 47(1), 97-104. https://doi.org/10.1097/mlr.0b013e3181844da8

Jones, C. B. (2008). Revisiting nurse turnover costs: Adjusting for inflation. JONA: The Journal of Nursing Administration, 38(1), 11-18. https://doi.org/10.1097/01.nna.0000295636.03216.6f