Do you know about - Capital Budgeting in the Healthcare commerce
Federal Reserve Interest Rates! Again, for I know. Ready to share new things that are useful. You and your friends.Over the past few months, the proposed healthcare reform has been the branch of much conference and the healthcare manufactures has come under intense scrutiny as a supervene of the administration's efforts to curtail the addition cost of healthcare. As an offshoot of the addition cost of healthcare now more than ever hospitals have been placed in a situation whereby capital budgeting has become a principal tool; Not only for sustenance but mostly for survival. Absence of a sound capital budgeting course might potentially spell disaster for hospitals because an increase in cost accompanied by a decrease in earnings negatively impacts the lowest line and when funds are limited, it is principal to have a game plan of how the funds are to be used otherwise the hospital might find itself in a precarious situation.
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Capital budgeting refers to the prognosis of investment alternatives inspiring cash flows received or paid over a certain period of time. More often than not, the best alternative is usually the one that yields the many cash flow over time. This point can be disputed because other hospitals might place much emphasis on non-monetary results. In such cases, the best alternative is usually the one that comes as close as possible to yielding results that catapults the hospital closer to its objectives. Capital budgeting is a complicated process in the sense that great care has to be taken in the choice process and competing soldiery makes it the more challenging. Where there is competition, the possibility of politics being a factor is heightened and politics often times has its drawbacks especially when the voice of the minority is drowned out by the majority or the louder voice.
In order to best understand how capital budgeting works in the healthcare industry, we'll survey three distinct scenarios that do play out every once in a while in most hospitals throughout the country. For instance, Human Resources suggest a day care facility for employees with children. Justification being: turnover rate of employees will be minimized and more nurses will potentially be attracted to the hospital because of the day care services offered. Turnover is costly to the hospital. Therefore, even though the scheme does not increase revenue, the scheme will get to benefit the hospital straight through reduced costs.
The second scenario is the Imaging Services division proposes the buy of an additional Ct scanner to ease the bottleneck and the backlog of work in the department. buy of a scanner is quite costly and therefore, if the present one is functional is there a need for a second one? One might argue that the high quiz, for usage creates tension between employees, wear and tear of the machine increases maintenance costs, overtime pay for the technicians' increases overhead costs and the hospital is left vulnerable in the event that the current scanner seizes to function. These are all valid considerations. However, one wonders; does the total benefit exceed the total cost?
The last scenario is a group of doctors working for the hospital suggest the buy of a special machine that eliminates the need for in house hospitalization of patients. With the new machine comes the benefit of reduced hospitalization. With reduced hospitalization of patients, the hospital might be best placed to cut changeable costs linked with the use of the facilities and safety might be enhanced because the possibility of the hospital exceeding capacity will be greatly reduced by having fewer patients in the facilities. The only drawback is the heavy costs involved. The machine requires a large capital outlay upfront. Therefore, in as much as the buy sounds good, the other alternatives sound equally as good if not better.
Faced with the three alternatives, a financial owner in the healthcare manufactures should resolve the chance cost of capital. chance cost of capital works on the basic law of finance that states that a dollar today is not the same as a dollar tomorrow. Therefore, when analyzing the three alternatives, the time value of money should not be ignored because one might come to a wrong closing if one doesn't think the time value of money in the analysis. Hereafter cash flows are discounted to the present value using a stated interest rate. Once the present value of all the alternatives is established, then the alternative that yields the highest present value is carefully to be the best option. This recipe of prognosis is known as the discounted cash flow recipe and from a personal standpoint; this recipe should be used widely in the healthcare manufactures because it is guided by the leading law of finance stated above. I reply the fact that each hospital is unique and estimating the Hereafter cash flow is difficult in other instances. In this case, other methods should be considered. However, discounted cash flow recipe though imperfect at times should be given first priority if all else is clear and all the variables are known.
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