Also, the organization’s mindset is directed towards the future with an awareness of the hanging trends, market needs, technological advancements, and to cope and to operate within the changing environment (Herkimer, Jar. , 1988). Budgeting, expressed In dollar terms, involves detailed plans. There are several types of budgets that may dictate the organization’s mission and structure and managerial preferences. They are: 1) Statistics Budget; 2) Expense Budget; 3) Operating Budget; and 4) Cash Budget.
In addition to budget decisions, there Is timing. Healthcare services organizations should consider two types: 1) Conventional verses Zero-Based Budgets and 2) Top-down versus Bottom-up Budgets. Planning and budgeting are Important managerial activities. It allows health services managers to plan for and set expectations for the future, assess Flanagan performance on a timely basis, and ensure that operations are carried out In a manner consistent with expectations (Sheepskin, 2008).
Without planning and budgeting, the business will be disorganized Pricing and Service Decisions In healthcare organizations, the managerial accounting department decides whether an established price for a particular service is profitable. Managers in a charge- based environment must set prices on the services that their organization offers. In addition, determine discounts for managed care plans or business coalitions. Pricing and service decisions affect a business’s revenues and costs and determine viability in long term.
Health services managers should have a better understanding of the pricing and service decisions they face, because they have the power to set prices. The healthcare providers may be price takers or price setters. When they are price takers, apply target costing, and when they are price setters, apply full cost pricing or marginal cost pricing. In making pricing and service decisions, managers should rely on managerial accounting and actuarial information.
Pricing decisions involve setting prices on services for which the provider is a price setter, and service decisions involve whether or not to offer a service when the price is set by the pay (the provider is a price taker) (Sheepskin, 2008). Without good pricing and service decisions, the business will lose profit and/ or lose customers. Ultimately, it can lead to business closure. Cost Allocation Cost allocation is a pricing process within the organization whereby managers allocate the costs of one department to other departments.
There is no objective tankard established; therefore, a business must establish prices that would be set under market conditions. The purpose and goal for cost allocation is to assign all of the costs of an organization to the activities incurred (Sheepskin, 2008). Basically, cost allocation allows managers to make better decisions on cost control, on what services they provide, and how these services should be priced. The best results produced will come from managers who perceive the cost allocation process to be accurate and fair, and the allocation process should promote cost reduction within heir department/organization.
In the end, the managers will be held accountable for costs associated with services by their departments. Managers must know two important elements in cost allocation basics: cost pools and cost drivers. The more confidence that all managers have in its validity, the better the organization will function (Sheepskin, 2008). Without cost allocation, there will disorientation and chaos, because one department will have more cost allocated than the other. Time Value Analysis Time value analysis is the process of assigning appropriate values to cash flows.
This s important part of healthcare financial management because it involves the valuation of future cash flows (Sheepskin, 2008). A timeline is the first step in time value analysis. Time lines illustrate and can help managers visualize cash flows analysis such as compounding, discounting, annuity, perpetuity, state rate, and periodic rate that managers must know so that financial decisions are made wisely. Without time value analysis, managers would not be able to appropriately assign values to cash flows, and it could lead to disorientation and financial ruin.
Financial Risk and Required Return Unfortunately, there are risks and complications in businesses. In healthcare organizations, taking financial risks may mean investment in new hospital beds or a new managed care plan. A return that is earned less than the expected amount means the financial risk is greater. Managers in health care organizations should develop strategies to manage business and financial risk. One such strategy is to develop risk measures by using a standard of reference. This will allow for some comparison to another measure and a Judgment can be made.
For an example, Capital Asset Pricing Model (CAMP) is the relationship between the market risk of a tock, as measured by its market beat, and its required rate of return (Sheepskin, 2008). A clear understanding of business and financial risk is essential if the health care organization wants to remain viable in the health care market. Without an understanding of the financial risk and required return, health care organizations can be blind to concepts that are failing and destined for financial ruin.
They run a greater risk of losing profit. Reflection The various duties required by managers of healthcare organizations is complicated and multi- faceted. They must know so much in order to make the business run efficiently and successfully. They must understand a multitude of functions. Therefore, working with other experts, accountants, and managers from different departments is crucial in running a lucrative business. This includes planning, acquiring, and utilizing capital in the most efficient way possible.