Looking Into Healthcare Financial Management … Essay
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Financial Management in Healthcare
Describe Kaufman's (2010) eight steps of strategic budgeting. Then select two steps and provide an explanation of how these steps are used in financial planning.
The creation of a strategic budget encompasses eight steps that are integrally linked. These steps are as follows:
Developing the Financial and Strategic Plans
This encompasses outlining the goals, objectives set by the organization to attain the goals, and the financial plan evaluates the realization of such objectives. The financial plan is generated subsequent to the completion of the strategic plan (Sussman, 2003).
Communication of the Objectives
This involves the communication of the set objectives with the different departmental managers. This offers a mutual understanding of the overall strategy of the organization and the financial necessities for the realization of the strategy.
The Provision of Feedback Concerning Targets
At this phase, the different departmental managers give their feedback and the major suppositions underlying the strategic and financial targets. In particular, the managers give a validation of whether the goals and objectives outlined in the financial plan are practically operational. This encompasses different aspects, such as the undertaking occurring in the different departments that facilitate the realization of the organization's strategic and financial goals for the forthcoming financial year and also the activities that might hinder and hamper such realizations.
4. Developing the First Pass Budget
The specific targets set in place for the financial plan are employed to generate the original budget. This budget decodes the expectations of the general strategy into tangible statistical bulls and departmental financial plans (Sussman, 2003).
5. Reviewing the First Pass Budget
At this phase, the different departmental managers are requested to assess the original budget that encompasses their distinctive targets. The main role that they play is to ascertain exemptions and to outline detailed, measurable substitutions that will balance such exemptions so as to sustain the departmental and organizational budgets well-adjusted (Sussman, 2003).
6. Making Adjustments and Finalizing the Budget
This phase takes into account working with the different departmental managers to make adjustments to the budget, mirroring the financial effect, in addition to substituting and completing the budget. This is done specifically with the departments that have a problem with the original budget and have substantial changes to the budget (Sussman, 2003).
7. Using the Budget as a Tool for Management
The budget can be employed for everyday management of the resources of the organization. The link between the budget and the organization's financial plan ought to remain lively during the course of the year (Sussman, 2003).
8. Restarting the Cycle
Subsequent to the end of a fiscal year, the whole process begins once again with reviewing and updating the strategic plan of the organization in the forthcoming year.
The two steps selected in this case, in their application in financial planning, are developing the financial and strategic plans, and the original budget. These are integral in financial planning. To start with, financial planning of any organization revolves around the different strategic objectives set by the organization for the short-term and the long run as well. It is through these objectives that a financial plan is able to be formulated with respect to the different resources required by the organizational departments. On the other hand, the original budget lays down the basis of the financial planning of the financial year taking into account the targets set to be achieved. This is integral in financial planning as it sets the basis and the different needs and requirements from the departments can be altered and adjusted (Sussman, 2003).
Question 3: Describe the concept of managing through corporate finance considering the following elements: cost, accountability, measurement, allocation of resources, and strategy and capital. Explain the practical applications of corporate finance activities as they relate to financial planning.
In definition, corporate finance takes into account the different financial activities and undertakings within an organization. An organization can be managed through the different aspects of corporate finance. To start with, the different strategies formulated are used to generate more capital for investment in the future. These strategies outline the everyday management of the organization to attain the objectives that have been placed for a new financial year. This is done by first of all ensuring that cost is minimized as the successful management of a corporation encompasses cost-effectiveness. The resources of the corporation have to be well apportioned to the different departments in accordance to their needs and their objectives. Managers of the departments within the organization have to lay down the different objectives and targets they have set in contributing to the strategies of the company and the required resources. However, the different managers of the departments have to be accountable in the manner in which they use such resources. At the end of the financial year, there is the measurement of the realization of the set objectives compared to the actual achievements in the financial year (Ehrhardt and Brigham, 2010).
The practical application of corporate finance activities has a great association with financial planning. In essence, corporate finance encompasses the financial activities associated with the running of an organization. More so, these are related to financial planning as the implementation of different corporate finance strategies have to be financially planned not only in the short-term, but also in the long-run. The corporation cannot be run or operated without financial planning (Megginson and Smart, 2011). For instance, the strategies formulated not only have to account for the short-term objectives, but also reflect the position where the company wants to be in the long-run.
Financial analysis plays a significant role in the building of a solid strategic plan for a health care organization. To start with, the financial metrics in the financial analysis are a benchmark for evaluating the performance of the organization. Through financial analysis, it becomes possible to institute and monitor distinctive and measurable financial strategic objectives on a matched, incorporated basis. This, therefore, facilitates the organization in its strategic planning, enabling it to function in an efficient and effective manner. In addition, through financial analysis, the health care organization is able to analyze its performance in previous fiscal years and set proper strategic objectives. In addition, through this benchmarking, the organization is able to gauge itself in the healthcare industry. Financial analysis is also important in creating a strategic plan in the sense that the organization is able to measure its financial soundness. Through the analysis, the healthcare organization is able to ascertain how efficiently and effectively its financial resources are being expensed and utilized. In this manner, the organization is able to come up with strategic objectives, within its plan, which are able to generate extra funds for future investments (Kono and Barnes, 2010).
In accordance to their article "Understanding the Health Care Business Model: The Financial Analysts' point-of-view," Bukh and Nielsen (2010) point out three main ideas with respect to understanding the health care business model. These three main ideas are the major interconnections that drive the value generation of the organization, the general criteria that determine long-term performance and the points of departure for value creation. These are three substantial elements that comprise a health care business model so as to create the foundation for the communication that arises between financial analysts and management.
i. Criteria that Determine Long-Term Performance
According to Bukh and Nielsen (2010), despite the fact that the critical goal from the perspective of a shareholder is considered to be increasing the share price by generating profit, business models take into account extensive criteria, for instance, sustainable development. The implication of this is that emphasis moves from just profit generation towards the direction of sustainable initiatives and an economic actuality that links business, the social order, and the environment. This aspect is important in understanding the Health Care Business Model because an organization that links sustainability to its business strategies is intended to bring about a desired position for all stakeholders in the future periods (Rice and Smith, 2002).
ii. Points of Departure for Value Creation
The authors point out three features of the organization's aspects that are part of its performance. These include: value proposition, resource base and value chain. To start with, the resource base of the organization is significant as it places emphasis on the resources that, in certain, steer organizational value creation. The business model enables the healthcare organization to ascertain the vital behaviors, proficiencies, and market settings, in addition to making up the business's resources of logical wealth (Bukh and Nielsen, 2010). More so, in this standpoint, the organization considers resources as assets and inputs for the practice of creating value of the organization. It is important in understanding the business model as it enables the organization to envision its capability alignments, which are the unified grouping of resources, and capabilities entrenched within its substructure, and which generate value. On the other hand, the value chain within the business model is important as it enables the analysis of the organization's competitive edge sources.… [END OF PREVIEW]
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