Summary of Financial Projections, Research Paper Example
Words: 984Research Paper
The Patton-Fuller Community Hospital operating budget has a number of changes, variances, and losses based on next year’s projection. The goal of the analysis is to determine if the preparation of the 2010 operating budget projections were inaccurate or differences caused by operational and financial shortcomings. The paper will also examine if Patton-Fuller Community Hospital will have deflated prices because of the unpredictable economy or because of ill-advised investment and a significant rise in salaries made by the hospital financial management that created the financial problems. The goal of this paper is to complete the 2010 projections that will provide some answers.
Accurate 2010 Operating Budget Projection based on 2009 Operating Budget and 2010 Budget Assumptions
Operating income, which is net of Total Revenue and Total Expenses, shows an increase of 1223%. This vast growth and increase has been. 2010 budgeted expenses increased by 1 percent from 2009 projected budget due to overall mild increase in salaries and benefits, physician and professional, utilities, interest, and provision of doubtful accounts. In contrast, it also showed an impact of 3% decrease in supplies. As an overall impact showed a 1,345% increase on the net income comparing the 2009 projection versus the 2010 budget, which has been changed. The comparison merely showed how big the impact of a certain small increase in revenue, when certainly there is only a 1% increase in expenses compared to the 3% increase in revenue; thus, clearly shows the great percentile difference based on the figures itself of 2009 vs 2010 projections and budget due to the different assumption per revenue and expenses inputs.
Proper identification and discussion of effective financial management practices in the healthcare setting and as applied to Patton-Fuller Community Hospital
In order to be effective in the healthcare setting applying effective financial management practices should include evaluation and planning. Healthcare financial management must include effective models that can evaluate the performance of current hospital operations while forecasting for the future. Most organizations depend on the senior management to forecast the financial performance but everyone in every financial department should at least be familiar with the process and concepts since they will be the ones that ensure the accounting is accurate. The hospital must be adept at financial transactions that possible could be a poor risk for the hospital. The financial management primary goal should be to control risk without putting the hospital in danger of large financial deficits. An old rule of thumb is that a hospital requires 150 percent of depreciation in the form of free cash year in and year out in order to maintain the physical plant and equipment, replace old technology and acquire new technology (Jennings, 2012).
Discussion on ineffective financial management practices in the healthcare setting and as applied to Patton-Fuller Community Hospital.
Due to the ineffective techniques used by the Patton Fuller Community financial department Budget Assumptions based from 2009 on the projected amounts, there is an overall increase by 3% due to the increase in patient volume caused by new managed care contracts. Operating income, which is the net Total of Revenue, shows an increase of 1223%. This vast growth and increase has been initiated mostly because of the 3% and 15% increase both net patient Revenue and Other Revenue respectively. In addition, as well, created an enormous 100 percent decrease based on the investment loss, which a red flag because the Patton Fuller Community financial department should have predicted this investment loss. Typically, hospitals get their revenue in a variety of ways: by providing medical services, by providing nonmedical services through donations and grants from individuals, foundations, or the government through investments (Lane, Longstreth, Nixon (2001). Traditionally, investments have different break-even points, which should have been included in the yearly financial reports. This way the hospital would not be surprised by a larger than normal loss which they could have avoided with budgeted adjustments.
The financial department needs to develop some checks and balances that include pre-reports every quarter to analyze any potential problems. CFOs must have an appreciation for the full complexities of hospital operations to fully align the financial objectives with the strategic objectives of the organization (Powell & Hodges, 2011). The hospital needs to hire some outside consultants that can give a fresh look at the financial management of the hospital with unbiased feedback. The hospital should develop some best practices for the financial management team that is aligning with the hospitals organizational financial and operating goals. The hospital should develop some consistent accounting methodologies that are consistent with every department and facility. The hospital should implement some type of Six Sigma methods that will help the accounting and financial department measures successes while ensuring everyone is head accountable. Financial planning should be integrated w/ strategic planning & operations planning (Hospital Impact.org, 2005). It is imperative that the financial management team create an environment that allows everyone to be involved with the outcomes. Each financial department sometimes only worries about the impact of their department instead of the big picture. The hospital needs to revamp their internal financial strategies in house. Hospital financial management is an important function that allows the hospital to deliver the best healthcare product to the public. At the end of the day, the financial department should be on the same page regardless of which part is responsible for the final report. Hospital organizations must protect the quality and accuracy of the financial statements to keep the hospital doors open. The hospital must maintain an adequate amount of cash to ensure the hospital is financial solid. All these suggested changes will help the hospital enhance the organization’s financial strength and integrity.
Hospital Impact.Org. HFMA’s 7 Principles of best practice financial management. Retrieved from http://www.hospitalimpact.org/index.php/leadership/2005/06/01/hfma_s_7_principles_ofbest_practice_fin
Jennings. (2012, March).Gazing into the future of financial management. Retrieved from http://www.wphospitalnews.com/gazing-into-the-future-of-hospital-financial-management/
Lane, S., Longsteth,E. & Nixon,V.(2001). A community leader’s guide to hospital finance. Retrieved from www.accessproject.org/downloads/Hospital_Finance.pdf
Powell,R.&Hodges,N.(2011). Review of financial management and cost accounting principles. Retrieved from www.ashp.org/DocLibrary/Bookstore/P881/Chp1.aspx
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