Healthcare Business Analysis
Decisionmaking process in creating a budget
Abudget is a financial document that contains a detailed plan inwriting (usually in monetary form) expressing the expected financialimplications of the various management strategies for attaining theorganization’s primary goals and objectives in the coming financialperiod (Clowes, & Scriven, 2015). A budget is a very importanttool for any given organization. By enabling the organization tocreate a spending plan for its finances, the budget ensures that thecompany will be able to meet all its important obligations. Given theimportance of the budget, significant effort and time should beinvested in the budget preparation process. The following are some ofthe decision-making processes that financial managers must utilizewhen creating budgets:
Selecting the budget team. The budget process should involve relevant stakeholders within the organization. These can include the treasurer, finance committee, human resource managers, program and department director, finance staff, and a representative from the board
Develop a budget calendar. It is critical to have timeframes and deadlines for budget preparation to ensure that such operating budgets are available on time
Prepare for the budget process. Preparing for the budget process entails setting financial goals and objectives, determining and gathering relevant and sufficient data and building a template for the budget, and forecasting present year results
Develop the budget. This is the most important step in budget development and it is here that most decision processes are encountered. The financial manager will have to review several internal and external factors and develop budget assumptions, determine organizational needs, assess available funding and project future revenues, consider changes in expenses and revenues, examine how economic factors will impact on the organization, and prepare and issue the final budget.
Determine approaches to monitor the budget. This involves determining when and how the budget will be evaluated.
Roleof variance analysis in operating budget
Varianceanalysis is an important tool when it comes to the management andmaintenance of operating budgets. Budgets allows organizations to setfinancial targets for the coming financial periods. However, it isnot a given that actual results will be the same as the budgetedresults. Therefore, to ensure that the company attains its primarygoals and objectives, it is critical that the financial managers findways of managing and controlling the budgeted versus the actualcosts. An important tool that allows mangers to maintainorganizational productivity by properly managing budgeted versusactual costs is variance analysis. Through variance analysis,organizations are able to determine where costs are not performingaccording to plan and bring such costs back into the desired range(Keagy, & Thomas, 2012). Periodic variance analysis can helpPatton-Fuller community hospital to manage overall financialperformance by facilitating comparisons between actual and expectedfinancial results.
Differencebetween managerial and financial accounting
Financialand managerial accounting are integral functions that alloworganizations to manage its operational activities. In addition tobudgets and variance analyses, both financial as well as managerialaccounting are vital elements of healthcare finance. It is thereforeimportant that individuals obtain an understanding of these twointegral concepts. Managerial accounting focuses on the provision ofadequate information within the organization so as to support thedecision needs of managers as they implement strategies and managethe interests of a diverse stakeholder base (Richardson, 2017). Onthe other hand, financial accounting focuses on financial statementswhich are used to report the financial performance of theorganization to stakeholders and others outside the company (Warren,Reeve, & Duchac, 2016). Financial accounting follows theGenerally Accepted Accounting Principles (GAAP).
Generallyacceptable accounting principles are guidelines that must be used byorganization when publicly reporting financial performances. They areused in the United States to ensure that the recording and reportingof financial information is done in a uniform manner (Cleverly, &Cleverly, 2017). GAAP can be used by healthcare organizations such asThe Parton-Fuller community hospital to earn a rating of financialstrength and establish the creditworthiness of the institution.Examples of GAAP applied in healthcare include financial stability,consistency, continuity, credit worthiness, periodicity andregularity. When developing the 2010 budget projections, some ofthese principles were applied:
Financial stability. Under GAAP, healthcare organization uses the accrual method where revenues that are still outstanding may be reported. When developing the budget projections, sources of funding such as government reimbursements were shown despite not being received yet.
Assets and liabilities. The GAAP method enables organizations to disclose assets and liabilities. The 2010 budget lists liabilities to show management areas that might need special attention. Also, assets (other revenues) in the form of donations were considered
Bargaining power. A stable GAAP that shows operating budget gives the organization a bargaining edge. The 2010 projected budget showcased improved operating incomes and reduced operating losses. This shows improved management efficiency and can act as a bargaining power
Thetwo labor alternatives, recommendation and analysis
Followingconcerns that the heavy workload on the nurses overworks the nursesand negatively impacts on patient care, Caterina Hassack who is thechief nursing officer suggested that the Parker-Fuller communityhospital hires more nurses. Hiring more nurses will reduce theworkload on the existing nurses thereby improving patient care andreducing nurse turnover. However, while pondering on the situation,the CEO wonders whether instead of hiring more nurses, giving thenurses a salary rise might help solve the problems currently beingexperienced within the organization. Therefore, the two laboralternatives are 1) to increase the nurses’ pay by $1 per hour ofto hire new nurses to help decrease the patient to nurse ration from5:1 to 4:1. After considering the two labor alternatives, the chieffinancial officer simulated that hiring new nurses to change to a 4to 1 nursing ration will increase the annual costs by $4, 730, 400while increasing nurses pay by $1 per hour will increase annual costsby $630, 720.01.
Giventhat both alternatives will help increase patient care and reducenurse turnover by either reducing the nurse workload (hiring newnurses) or motivating the nurses ($1 per hour salary raise), Irecommend implementing the $1 per hour salary raises. There is a hugecost difference between the two alternatives ($4,730,400 -$630,720.01 = $4,099,679.99) making the less costly alternative moreviable. Implementing the $1 per hour salary raises to motivate thenurses more only leads to a 1.286% increase in salaries and benefitsin the 2010 projected budget. The other alternative will increase thecost even more further impeding improvements in operating income.Opportunity cost refers to the foregone gain of the other alternativewhen one alternative is chosen. In this scenario, there is a chancethat despite salary increase to motivate the nurses, some might stillquit because of the workload. Therefore, the opportunity cost istotal reduction in nurses’ turnover. However, by implementing asalary raise, nurses will be more satisfied since they will feel thatthey are being properly compensated. In turn, the nurses will carryout their duties with renewed vigor and more efficiency therebydelivering improved patient care which increases patientsatisfaction.
Cleverley,W. O., & Cleverley, J. O. (2017). Essentialsof health care finance.Burlington, MA: Jones & Bartlett Learning
Clowes,R., and Scriven, V. (2015). Budgeting:A Practical Approach.Pearson Higher Education.
Keagy,B. A., & Thomas, M. S. (2012). Essentialsof Physician Practice Management.New York, NY: John Wiley & Sons.
Richardson,A. J. (2017). The Relationship between Management and FinancialAccounting as Professions and Technologies of Practice. TheRole of the Management Accountant – Local Variations and GlobalInfluences (Routledge Studies in Accounting).http://scholar.uwindsor.ca/odettepub/103
Warren,C. L., Reeve, J. M., and Duchac, J. (2016). Financialand Managerial Accounting.Cengage Learning.
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