Capital Budgeting

The capital budgeting process determines which long-term capital investments that should be chosen during a particular time or period and is normally overseen by the finance department. “Capital budgeting allows managers to perform cost benefit analysis on proposed long-term investment projects.” (Kocher, C. (2007)However, the investors in stocks and bonds have no affect over the business and thus no control over the monies that are generated by capital projects or other operating businesses. After the project planning phase there is the then there is the “payback period”, which is the time there after the project to collect any rewards due. During this very important phase management have anticipate some type of projection of when the project will be able to pay back that which was spent on the initial investment. Firstly, determining the value of capital investment projects, such as buying a building or a piece of equipment and determining the value of stocks and bonds is all part of the financial process including estimating the ROI (Return on investment). Finance managers will need to acquire are should already have skills necessary to be able to forecast and make necessary adjustments when the economy is on a downturn and scale up when things are turned around. This skill set will determine your organizations success or failure. Furthermore, it is of utmost importance that financial managers have the ability to be able to gauge and assess risk measurement and management practices that supports organizations’ goals, objectives and capital investment adequacy including their ability to account for estimated losses and gains. Secondly, with on-going and continued advancements and changes in health care such as changes in payments methods, patient care access, home care and records security, it has become increasingly imperative that finance officials, nurses, physicians, managers as well as all other medical staff member establish and nurture a close working relationship and a strong relationship also is recommended. Thirdly, recent studies have shown an increase in a need for CFO (Chief Financial Officers) to implement a path for establishing a positive working relationship with physicians and other professionals in their working environment. Inasmuch as the, Chief Financial Officer and other medical staff partnerships is censorious to the organizational success. Although, they just speak different languages and have very different needs and requirements, it is necessary that they have open lines of communication. Fourthly, by appointing physicians to the finance committee you can help them understand how hospital finance works. Inviting them to take a tour of the department so they can gain insight on the entire financial process is also a good gesture. Furthermore, engaging the finance and medical departments and educating them with goals and objectives of the facility will also offer an advantage. The urgency for healthcare finance leaders, managers and nurses to gain the advantage of each other’s skill sets is amplifying very rapidly. As health care providers look for ways to manage for value, better coordination of care and continuance will dominate and steer the conclusions throughout the population and help to better understand the differing resource needs in every department. Those nurses, physicians, budget analyst and other medical specialist that work closely knitted with finance executives will more likely be able to identify opportunities to achieve higher quality outcomes and be more susceptible to communicate those needs as compared to those who work in closed and/or non-productive environments. These characteristics of a closely knitted working relationship provides a scenarios that implies a company that would reflect positive changes in the future economic and financial outlook with regard to those specific risks or vulnerabilities because of the open communication and dedication of the employees. Furthermore, managements need to understand the formulation in testing the sensitivity of the forecast regarding scenarios, such as slowdowns in collections and declines in revenues is vindicated. Charnes and Cooper introduced the concept of goal programming as an operational approach to capital budgeting which was “ instead of attempting to minimize or maximize the objective criteria directly, goal programming attempts to minimize the deviations between goals both sequentially and simultaneously, allowing for both scalar weighting and/or ordinal ranking.” . (Keown, A. J., & Martin, J. D. (1976) In conclusion, recently proposed changes in health care as a result of Patient Protection and Affordable Care Act (PPACA), signed into law in 2010 has become of great significance and therefore, will require more of a need to conduct business is open and transparent conditions to meet the new policies and laws standardization. “This transformation requires health system leaders and health finance scholars to re-examine hospital capital budgeting practices in the context of new delivery models”. (Reiter, K., & Song, P. (2013) In order to reduce some of the accountability burdens, medical firms are hiring financial managers who are amongst the most qualified to face critical changes and decisions when faced with keeping up with the trending patterns. The necessary skills to maintain the bottom line has become even more difficult as the medical industry continues to become more complex within itself. Uncertainty and obscurity of the future can heed the progress and stunt growth of your organization. Creating contingency plans in the event a disaster should occur is advisable in most business industries. References Keown, A. J., & Martin, J. D. (1976). AN INTEGER GOAL PROGRAMMING MODEL FOR CAPITAL BUDGETING IN HOSPITALS. Financial Management (1972), 5(3), 28-35. Kocher, C. (2007). Hospital Capital Budgeting Practices and Their Relation to Key Hospital Characteristics: A Survey of U.S. Manager Practices. Journal Of Global Business Issues, 1(2), 21-29. Reiter, K., & Song, P. (2013). Hospital capital budgeting in an era of transformation. Journal Of Health Care Finance, 39(3), 14-22.