Budget Preparation and Implementation in Pharmacy Practice

Budget Preparation and Implementation in Pharmacy Practice

INTRODUCTION 

Budget preparation is an important task of the pharmacy department of any hospital and requires all factors into consideration. Preparation of a budget is planning which calls for the compilation of all relevant facts and figures. 


‘Budget’ according to the Institute of Cost and Works Accountants, London, “is a financial or quantitative interpretation before a defined period, of a policy to be pursued for that period to attain given objectives”. In the words of Halma, “budget is an instrument through which hospital administration, management at the departmental levels and the governing board can review the hospital's services about a prepared plan in a  comprehensive and integrated form expressed in financial terms”. 


Larson quoted certain political aspects of budgeting in hospitals and believes that hospital pharmacists should consider them for an effective budget. These factors are: 


• Personal considerations 

• Institutional considerations 

• Demographic considerations 


The budget plan should be reasonable as most pharmacy activities affect other departments of a hospital. It is the duty of the chief pharmacist (director of the superintendent of the pharmaceutical services) to take all necessary measures to ensure that the different departments or functional budgets are compatible with each other or complementary to each other. The activities of all departmental budgets are generally in harmony with each other ensuring a smooth going for a hospital. 


1. Budget directs capital expenditure in the most profitable direction and results in more economic use of capital. 


2. Hospital pharmacists can reduce wastage and losses to a minimum and can thus ensure an increase in productivity as regards hospital equipments and medicines. 


3. Budget provides data for preparing questions and filling tenders.


4. It acts as a safety signal for the chief pharmacist/ administrator and indicates when manufacturing can be safely undertaken. 


5. It acts as a friend and guides the management by offering more efficient working in a hospital. 


6. It helps to over-rule the possibility of hasty decisions because all the policies are carefully framed under the heads of the department along with available statistical evidence. 


PREPARATION OF BUDGETS 

Each budget is classified into the following three divisions. 


Income Account 

To prepare a budget, income is calculated by maintaining daily/ weekly/ monthly/ annual records. Thus, the average total sum represents the income of the department from various sources. Generally, the income in the hospital pharmacy is limited to the sale of drugs to in-patients as well as out-patients. It further depends upon the type of patients i.e., the category of patients: 


1. Those who give full payment. 

2. Those who give partial payment. 

3. Those who cannot pay at all. 

4. Employees of the hospital. 


To provide detailed statistical data, the following steps are to be considered:

 

1. Number of prescriptions received according to the categories mentioned above. 

2. Total number of prescriptions dispensed. 

3. Number of working hours. 

4. Medication cost per prescription. 

5. Medication cost per patient/ day. 

6. Medication cost per clinic visit. 

7. Average drug cost per prescription. 


As the income is generated from a combination of sources hence it is desirable to separate each of them to give a much more accurate evaluation and statistics.


Expenditure Accounts 

Fixed expenses generally remain fixed/ same at all levels. Expenditure accounts are further sub-categorized into the following expenses: 


• Administration expenses 

• Expenses for professional care

• Expenses for out-patient 

• Emergency expenses 

• Miscellaneous expenses 


The pharmacy department prepares expenditure accounts using the following expenses: 


1. Salaries and wages: These include salaries and wages of pharmacists, assistants, clerks, and others. Salaries and wages include a complete break-up of all salaries and wages paid to permanent and temporary staff (full-time and part-time). This chart should be prepared in a tubular form to give an overall view at a glance. The chief pharmacist/ administrator should sub-divide the staff into three important categories; administration, professional and non-professional staff. The total of all these expenses constitutes the anticipated salaries and wages, expenditure for next year.


Break up for Salaries and Wages
Fig.1: Break up for Salaries and Wages 

2. Supplies and materials: The head of the department should prepare a financial statement showing the amount in rupees budgeting for each item presenting the actual cost of materials and supplies. This helps in the preparation of estimates for next year's financial year. If the budgeting figures and estimated figures match each other, that means the previous budget was well prepared. On the other hand, if the figures are different, it needs a re-evaluation of the previous budget as well as the estimated budget. For the addition of new materials and supplies, the chief pharmacist should ascertain its cost and submit them for the next budget. 


3. Drugs and pharmaceuticals: Preparations are categorized as those dispensed by hospital pharmacy or those used in OPD emergency and other departments. Charges for the latter are submitted to the respective department. 


4. Purchase expenses: The budget should include the cost of necessary purchases from an outside pharmacy (cost of prescription but it includes those intended for outpatients).


5. Miscellaneous supplies: Miscellaneous expenses include; glassware, labels, stationary, uniform, repair, maintenance, etc. in practice, there should be a close connection between the chief pharmacist and the accounting department for the maintenance of statistical data.


Equipment and Construction Budget 

In the hospital, always a separate budget is prepared for equipment and construction because it requires major monetary funds. While preparing budgets for machinery, and equipment both professionals and administrators consider depreciation values. 


Professional equipments: Balance, cabinets (metal, wooden), water distillation stills, mixing tanks, stirrers, metallic filters, homogenizers, capsulation machine, tablet manufacturing equipment, autoclave, prescription case/cabinets, pressure pumps,  vacuum pumps, refrigerators, weighing machines, typewriters, work tables, etc. 


Administrative equipments: Nook cases (metal, wooden), notice boards, calculators, computers, cash registers, clocks, desks (wooden), lockers, filing cabinets (metal), and work tables.


IMPLEMENTATION 

As budgeting is an essential tool in the process of planning and control and is an instrument of forecast to achieve your objectives. It is not only the responsibility of the budget division but should be the joint effort of a committee consisting of the heads of the entire functional department. 


The need for implementation can be clearly illustrated by comparing two captains sailing down a wide and shallow river. Both know roughly the direction in which it is flowing but the first one is provided with a proper guideline and the other with nothing. The former will be able to reach his destination as soon as possible while the latter will have to rely upon judgments to avoid obstacles. 


The usual budget proposals are annually prepared, but they can vary proper budgeting system facilitates the hospital administrator to take the right decision according to the local needs, requirements, and the order of priorities.

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