A financial plan details how an organization will source for funds and how these funds will be used.
In this healthcare organization, it is crucial to have a stable financial plan. The plan incorporates different stakeholders to ensure smooth running of the organization. Additionally, a financial plan details assumptions in budget making, elements of the budget, possible capital expenditures, and contingency plans to get funds. This is in line with goals and strategic plans of the healthcare organization. Detailed in a three-year plan, the goals are to improve competitive advantage and reduce production costs in the first year. The second goal is maintaining a competitive advantage through increased service quality and profit maximization (Swayne, Duncan & Ginter, 2009).
Budget assumptions are conditions within and without the organization that may affect the financial plan.
However, in the budget making process the assumption is to make them constant. This way they do not affect the budget and do not render the organization to unexpected contingencies. The following are the major assumptions.
First, the healthcare organization assumes that the customer numbers will increase with time. This follows a normal distribution. Hence, this means that the organization will continue registering a certain level of profits (Hansen, Mowen & Guan, 2007). Additionally, it shows that the organization will meet all its immediate costs. This includes fixed and additional costs. The second major assumption is that the organization will abide by any new regulatory changes. This includes changes in renewal of licenses, tax codes, and labor laws.
Although these are rarely likely to change in the short-term, there is possibility that in the long-term they will change. The third assumption is the cost regime of the organization. While making a budget, it is crucial to look into the cost regime of the organization.
This informs an organization about the areas that require immediate checks. The budget making process caters for any changes that may come about in the cost regime (Hansen, Mowen & Guan, 2007).
Elements of the Budget
The healthcare organization’s budget will have the typical elements of a normal budget and other additional specifications as per the operations of the organization. First, the budget should have revenue sources. In this case, the main source of revenue will be the service fees charged to patients. Other sources may include profits made from sale of drugs, consultation fees, among other miscellaneous charges (Swayne, Duncan & Ginter, 2009). Second, the budget contains the costs inherent in the organization.
The major costs will constitute the salaries paid to staff including doctors, nurses, and security staff among others. Additionally, the healthcare organization will be paying lease fees or rent charges depending on the agreement with leaseholders. The other costs may include disposal charges, ambulance charges, purchase fees, and cleaning services. The third major element is miscellaneous.
This includes other sources of revenue, contingencies, and other costs. This subjective part of the budget looks into the future. This allows the healthcare organization to extrapolate the budget allocations to years ahead. This will be in line with the strategic goals that the organization has set out to achieve (Ahrens & Chapman, 2007).
Any organization may have plans to expand and grow so that the shareholder value can increase. This is achieved through investment.
However, it is crucial to ensure that an organization embarks on investments that are viable and likely to be profitable. Additionally, the projects must have the interests of the shareholders at heart. The best way to evaluate a project is through capital budgeting. Through this process, an organization vets its projects to look into their profitability and viability.
Additionally, the process enables an organization to decide on which project to embark on when faced by a number of options. In the strategic blueprint, the organization would like to improve its competitive advantage. This can be achieved through investing in specific projects that shore up an organization’s competitive base (Ahrens & Chapman, 2007).
The organization can invest in a pediatrics wing. This will be tailored to cater for child patients specifically. It will employ doctors from specific disciplines such as eye specialists, dentists, nutritionists, and general health practitioners. The capital expenditures that the organization can associate with such a project include salaries to be paid to staff workers, sales that the main organization may lose from the start of the new project, among others.
The healthcare organization needs to set aside a considerable amount of money to start this project. However, it is crucial to note that this cost is highly dependent upon the size of the pediatrics wing. A large pediatrics wing that caters for a wide range of services will definitely cost more. It is also important to consider the effect on the overall operations of the organization before embarking on the project. During the three years strategic plan set out, it is impossible to embark on new high value projects. It can only present a time when the organization completes previously considered and vetted projects. On the other hand, a simple project that looks like an expansion of the healthcare organization such as the construction of a pediatrics wing can be done in three years (Swayne, Duncan & Ginter, 2009).
Any budget making or futuristic process has contingencies. These are factors beyond the control of the organization. They range from highly catastrophic to highly profitable. However, most of the contingencies are mild either from the positive or negative side. It is the responsibility of an organization’s management to foresee those contingencies. However, not all contingencies can be forethought.
For example, it is not possible to foresee an upcoming earthquake with the capacity to bring down wards and operation rooms. In the budget making process, foreseeing contingencies is crucial as it may define the financial health of an organization. The following are some of the budgetary contingencies (Schreyogg & Busse, 2006).
The prices of important acquisitions such as drugs and laboratory equipments may increase during the period been considered. To cater for this, the accountant should look at the past trends in price movements and cater for the same in the budget. It is crucial to cater for inflation when making a budget. This is because it directly affects the cost structure.
This includes salaries and cost of purchase. Any budget making process should also set aside some money for contingencies. Such contingencies were considered above and they include natural catastrophes and possibility of a humanitarian move. A humanitarian move may be triggered by disasters such as violence and unrest, fires, or gross accidents. This calls for medical personnel and the healthcare organization to render not-too-costly services as part of corporate service responsibility (Schreyogg & Busse, 2006).
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