NURS 523 Week 4 Financial Exercise 2 on Personnel and Capital Budgets Example

Financial Exercise 2: A Personnel Budget for a 32-Bed Medical-Surgical Unit and a Capital Request for Ceiling Lifts

Question 1: Distinguish the Operating, Personnel and Capital Budgets

Jones et al. (2019) describe the operating budget as the plan for a unit's day-to-day revenues and expenses over a year, the personnel budget as the part of the operating budget that plans staff hours and their cost, and the capital budget as the plan for buying long-lived assets whose cost exceeds a set threshold and whose benefits extend over several years. For most nursing units, the personnel budget is by far the largest part of the operating budget, which is why the next three questions focus on it.

Question 2: Calculate Patient Days and Required Productive Hours

The unit has 32 beds and a projected average daily census of 28 for the coming year. Its staffing standard is 8.0 nursing hours per patient day, covering registered nurses and nursing assistants together.

Patient days = 28 times 365 = 10,220 patient days.

Required productive hours = 10,220 times 8.0 = 81,760 hours.

An hours-per-patient-day standard assumes the unit's patients are about as sick next year as this year. Acuity matters: in a study of 9,199 inpatients on 24 general wards, each one-point rise in a patient's early warning score was associated with 0.22 more nursing hours per patient day (Kim et al., 2026). If the unit's patients are getting sicker, the 8.0-hour standard will understate the hours needed, and the manager should bring acuity data to the budget meeting rather than accept last year's standard.

Question 3: Convert Hours to Productive and Paid FTEs

A full-time equivalent represents 40 hours a week for 52 weeks, or 2,080 paid hours. Productive FTEs = 81,760 divided by 2,080 = 39.3 productive FTEs.

Not every paid hour is worked. Vacation, holidays, sick time and education make up about 10% of paid hours on this unit, so each FTE provides only 2,080 times 0.90, or 1,872, productive hours.

Paid FTEs = 81,760 divided by 1,872 = 43.7 paid FTEs.

The difference of 4.4 FTEs is the staff the unit must employ simply to cover time away from work. Jones et al. (2019) note that leaving nonproductive time out of the personnel budget is a frequent cause of chronic overtime, because the unit is staffed for a year in which nobody ever takes a day off.

Question 4: Apply Skill Mix and Price the Personnel Budget

The unit's skill mix is 70% registered nurses and 30% nursing assistants. Average hourly wages are $42 for registered nurses and $19 for nursing assistants, and benefits add 28% to wages.

The personnel budget of about $4.08 million averages roughly $400 per patient day for nursing staff. Shift differentials, overtime, charge nurse pay and unit leadership would be added in a full budget; they are left out here to keep the exercise focused on the core calculation.

Question 5: Evaluate the Capital Request for Ceiling Lifts

The manager proposes installing ceiling lifts in all 32 rooms at $9,000 per room, or $288,000. The hospital's employee health department estimates that the lifts would save $85,000 a year in staff injury claims and $25,000 a year in replacement costs for lost workdays, a total of $110,000 a year, over a 10-year useful life. The hospital uses a 6% discount rate.

Payback period = initial cost divided by annual savings = $288,000 divided by $110,000 = 2.6 years.

Net present value = annual savings times the present value annuity factor for 10 years at 6%, minus the initial cost = $110,000 times 7.3601, minus $288,000 = $809,611 minus $288,000 = $521,611.

Both tests favor the project: it repays its cost in under three years and returns far more than the hospital's required rate. The savings estimate is the weak point. A study of 124 Veterans Health Administration facilities found mixed and partly unexpected relationships between patient handling program compliance, ceiling lift coverage and injury rates, and the authors called for further research (Morales et al., 2026). The manager should therefore base the savings on the unit's own injury claims for the past three years and plan to audit lift use, because equipment that is not used saves nothing.

Question 6: What Is the Nurse Manager's Role in These Budgets?

The nurse manager's role is to build the budgets from sound assumptions and to defend them with data. For the personnel budget, that means presenting the census forecast, the hours standard and the nonproductive percentage, and bringing acuity data if the standard is too low. For the capital request, it means showing the payback and net present value along with the source of the savings estimate. Jones et al. (2019) emphasize that managers who understand the numbers are more persuasive in budget negotiations and better able to explain variances later in the year. A manager who can show finance how 28 patients a day become 43.7 paid FTEs and $4.08 million is far more likely to keep the staff the unit needs.

Question 7: How Would a 10% Rise in Census Change the Personnel Budget?

Personnel costs on a nursing unit are largely variable with workload over the course of a year, because staffing is adjusted to the number of patients. If the average daily census rose 10%, from 28 to 30.8, the calculation would change as follows.

Patient days = 30.8 times 365 = 11,242.

Required productive hours = 11,242 times 8.0 = 89,936.

Paid FTEs = 89,936 divided by 1,872 = 48.0.

The unit would need about 4.4 more paid FTEs. At the current average cost of about $93,500 per paid FTE, including benefits ($4,084,388 divided by 43.7), the personnel budget would rise by roughly $411,000. Jones et al. (2019) describe this kind of adjustment as the basis of a flexible budget, which recalculates what spending should have been at the volume actually achieved. A flexible budget protects the manager: if the census rises midyear and labor costs rise with it, the variance report will show that the unit spent appropriately for its volume rather than overspent. It also protects the hospital, because a unit whose census falls should see its labor budget fall in step. The manager should therefore ask finance to report the personnel budget on a flexible basis, so that conversations about overspending begin with the right comparison.

References

Jones, C. B., Finkler, S. A., Kovner, C. T., & Mose, J. N. (2019). Financial management for nurse managers and executives (5th ed.). Elsevier.

Kim, S., Cho, S. H., & Kim, E. (2026). Early warning scores as indicators of nursing hours in general wards: A cross-sectional analysis of inpatient physiological parameters. International Journal of Nursing Studies, 183, Article 105643. https://doi.org/10.1016/j.ijnurstu.2026.105643

Morales, M. J. G., Hilton, P., Hong, O., Bialous, S., Martin, M., Foley, M., & Lee, S. J. (2026). Exploring the impact of safe patient handling and mobility program compliance on patient handling injury rates. Journal of Safety Research, 97, 340-348. https://doi.org/10.1016/j.jsr.2026.03.014