Planning and Budgeting for Women Cancer Foundation - Term Paper Example

? Planning and Budgeting for Women Cancer Foundation Important Factors to Consider When Making Pricing and Service Decisions During the process of budgeting and planning the healthcare facility has to ascertain that it has various factors put in place to be in a position to make appropriate pricing and servicing decisions. First, the financial manager and the top management have to figure out the form of business entity that will be organized in the healthcare business. The business might be integrated or unincorporated. Besides, the business has to determine the relevant procedures for registration. In most states, business registration information is found from the office of the secretary of state. As in the case of this business, the name of the business is Women Cancer Foundation which will be identified by all clients (Miller et al., 2006). The healthcare business also needs exceptional license or authentication which will comprise of an assessment of a background scrutiny on the partners or individuals operating the business. This will be followed by getting into contact with the insurance companies to acquire covers for liability and malpractice. There is no business that can operate or make service decisions without considering the insurance covers taken for the healthcare facility. The insurance and registration charges can be recognized in a budget as constant or fixed costs but can also be charged on a monthly or annual basis (Nah & Osifo-Dawodu, 2007). Another important aspect is the estimation of the probable revenue for the hospital. The source of revenue might include donations from international health non-governmental organizations, patient charges, insurance credits and tax reliefs. Before the services can be priced, all these revenues must be estimated to find the best fair price for the specific services. The policy makers must deduct a fraction of the bills to the patient that might not be collected, charity work anticipated by the health facility and the work it does. Moreover, the expected expenses must be figured out beginning with the visible facility. It must be determined the cost of setting up the structures, the maintenance costs of every department , the utilities and the costs of acquiring special equipment and the amount that will be used per day on each patient. In addition, the costs of maintaining some of the non-medical facilities must be determined which also include advertising g costs. However, care and due diligence must be excised to avoid passing all the costs to the patient with the main intention of accumulating profits. There are those cancer patients who cannot meet the costs of medication available given the state of economic recession that hits everyone within the nation (Nah & Osifo-Dawodu, 2007). There are factors to consider when planning and making essential decisions within the healthcare centre. It is required that the management must be familiar with the cost of staff. It must be noted that the staff and other employees who comprise of the consultants and contracts outsourced such as laundry and staffing of nursing need to be paid and given other allowances. The fringe benefits must be determined to ease out the process of budgeting. all the costs of beds, the number of hours worked for every staff and number of hours spent by patients on the beds must be determined inclusive of the costs of replacement of the beds must be factored in the budget and planning process (Wolper, 2004). Most importantly, the costs of expansion must also be factored in. The health care facility must plan as to whether their facilities might be renovated or new ones put in place. The potential benefits of the expansion must be considered to prevent erecting redundant structures. Thus the revenue must be estimated when doing a plan for the budget. This will also involve space for the parking garage, landscaping costs, window cleaning washing and grounds men. Besides, the funds set aside for emergency services must also be considered to enable the healthcare facility to be fully prepared whenever a disaster occurs (Wolper, 2004). 2. The Overall Planning Process and the Financial Plan The process of planning the Cancer Foundation should consider the financial condition of the facility. This must be done by establishing the present financial status in connection to the savings, income, debts and expenses incurred. A list of the short term assets and debit balances for the various items on the balance sheet must be determined. This provides a good foundation for the financial planning process. Upon accomplishing this step, the Foundation must develop clear financial objectives and targets which comprise of recognizing the sources and uses of funds and setting priorities for the funds available. Financial goals are important to the organization such that they will help in determining the kind of goals to be pursued and when to pursue them. The sources of revenue must be identified and probable expenses determined or estimated. Some of the major sources of revenue for the Foundation include donations, grants, savings, loans and receipts from the patients. The Cancer Foundation must then develop courses of action and create alternatives appropriate for making decisions. Some of the specific courses of action for the Cancer Foundation include, expanding the current facilities, proceeding with the same facilities offered or modifying the current facilities to suit the increasing needs of the cancer patients. Besides, the Foundation may also decide to take up new facilities or build new facilities to meet the growing needs in the market. Most importantly, creativity is highly needed when making vital decisions, especially when considering the most viable options. The decisions made must be satisfying to all sets of stakeholders within the organization. The healthcare center must assess the available alternatives or probable courses of action bearing into mind the current life trends and the economic conditions. The management must ensure that consequences of their actions are taken into consideration such as the prices charged for their decisions. Decisions concerning the type of stock to invest must be taken with a lot of caution. The concept of opportunity cost must be considered when trading off some securities for others. This is because the decisions are part of the financial condition of the Foundation. The benefits to be fetched from the decisions must be evaluated with caution to help in raising good returns for the Foundation. Lastly, the Foundation must then create and execute a profound financial action strategy. In this phase the process of financial planning requires an action plan, where methods of achieving the goals are chosen to acquire immediate short term goals or long term goals. In executing the financial action plan, the top management should seek the advice of other stakeholders. For instance, insurance services might be needed in buying insurance policies or investing in various set of securities such as bonds, mutual funds and ordinary stocks. 3. Using Time Value Analysis In Making Sound Management Decisions In making profound management decisions time value analysis can be used in solving arithmetic multipliers found from the tables. At any time, tables are the most proficient way to carry out a time value analysis. Time value analysis is used in determining the present and future returns of an investment over a time period. For instance, if the Foundation had to invest a principle amount of $ 10,000 with an interest rate of 10 %, the future value for this amount in a year’s time will be $ 10100. This means that the amount accumulated as interest is $ 100. This derived using the formula: Where P is the principle amount, n the number of periods and I the interest rate Besides, given the future amount expected from an investment the Foundation can calculate the present amount needed to invest at a given rate to obtain the amount stated. For example if the future amount needed in future is about $ 10450 at an interest rate of 4.5% per annum in one year’s time; the present value will be $ 10,000. This is derived as: (Cleverley, Cleverley & Song, 2011) Where FV is the future value, PV is the present value, I is the interest rate and n is the number of years or periods for the investment. 4. Recommendation of the Major Investment For The Organization Using Net Present Value and Break-Even Analysis Break-Even Analysis The Foundation must ensure that it does incur losses in the derivation of its returns. The management must ensure that the sales volumes are just equal to the costs incurred. This is because lower sales volume would not be profitable while higher volume of sales would be more profitable. In determining the break even analysis emphasis is placed on the connection between the variable cost and the fixed cost and the selling price of the services. For example, in case the monthly rent of the Foundation is about $1500, the insurance cover $ 750 per month, the costs of materials $ 45, labor $ 60 and an average selling price of $ 150 the break even analysis can be assessed as: Fixed costs Amount in dollars Monthly rent $ 1,500 Insurance $ 750 Total fixed costs $ 2,250 Variable costs Materials $ 45 Labor $ 60 Total Variable costs $ 105 Selling price $ 150 The Breakeven point analysis will be; Breakeven point = fixed costs/ [selling price-variable costs] Breakeven point = $ 2250/ $ [150-105] Breakeven point = $ 2250/ $ 45 Breakeven point = 50 In case the Foundation breakevens the expenses would be same as the revenues amounts hence the profits are equal to zero. The Net Present Value Analysis for the Cancer Foundation When the Foundation needs to take on an investment or project, it is vital to estimate the profitability of the investment. The total inflow must exceed the cash outflow from the project, for the project to be feasible. A project that results into a positive net present value must be considered given that the amount coming into the business exceeds the amount going out of the business. Valuable investment is essential for any form of business and it will ensure the Foundation’s continuity and perpetuity. The Discounting of cash flows is required in estimating the future cash flows of the project at any point in time is normally in the current period. A prediction of the future cash flows in every period with a certain discount rate in consideration is important, which replicates the project’s risk and the occurrences leading to the cash inflow (Brigham & Houston, 2009). One method of establishing the viability of a project is by analyzing its net present value. At a higher level net present value is more like the discounting cash flows. When using the net present value, the cash flow’s present value inflows is compared with the present cash flows’ outflows. Though it can be sometimes complicating, it depends on the project’s viability and the level of leveraging which might also involve determination of the likely taxations of the project. However, the internal rate of return is more accurate through tedious in determining the feasibility of a project. The Cancer Foundation must however note that it is not advisable to invest in a project that might hold up the available funds which might jeopardize the normal deliverance of the services to the clients (Cleverley, Cleverley & Song, 2011). 5. Management Of Financial Risk And Required Returns Given the fact that making financial decisions calls for risk and return assessment, it is not possible to have a good comprehension of the Women Cancer Foundation management without necessarily having a profound appreciation of the return and risk terms. As a matter of fact, managing a cancer foundation is much riskier comparing to managing the securities of a company that has a large number of health foundations with extensive geographical diversification. The Women Cancer Foundation might get involved in various stock markets or investment ventures. This depends on the Foundation’s access to funds and the perception towards risk. The distinction in liquidity and risk nature proposes that the actual opportunity available might be actually be more than the expected return in possessing the security of a large care firm (Cleverley, Cleverley & Song, 2011). Evaluation of the financial risk is a very important aspect in the sense that; uncertainty is part and parcel of the decisions made. The Foundation should consider selecting a portfolio that might be risky but profitable. Some of the risks have been analyzed at the end of section 5. In case the Foundation chooses to be risk neutral then it implies that its funds will be kept in savings account or buying facilities that will cost them less dollars. However, the decisions made concerning the finances must be based on the best evaluation of the risk and efficient gathering information. Appropriate information must be gathered at every stage of the process of making decisions which calls for varying the decisions with economic, social and personal status in the existing market. Direct ownership of the Cancer Foundation calls for direct control, whilst possession of the security of a large firm might call for that. Such form of control privileges have a tendency of cutting down on the opportunity cost. In case the investor perceives the risk as a benign essential of life, it might have less impact on the decision making. Nevertheless, makers of decisions for the most section of the Cancer Foundation might be risk averse in the faith that risks have to be avoided at any cost. In addition, in case risks must be considered by the Cancer Foundation, there must be potential benefit for doing so. Ventures of higher risk must make higher returns for the investment of the security and financial investment attractive whether individual or groups’ venture in any diagnostic facility. Considering that Women Cancer Foundation has to invest in the following two investments, various returns can be calculated plus the risk related to the investment in making a rational decision. Rate of return if state occurs Economic State Probability of occurrence Clinic MRI Very poor 0.1 -10% -10% Poor 0.2 0% 10% Average 0.4 20% 20% Good 0.2 40% 50% Very Good 0.1 50% 60% 1.0 The expected rate of return for the clinic portfolio is equal to 20% while the MRI is 25%. By comparing the two portfolios, the best portfolio would be the MRI given that it has superior expected rate of return. Clinic Erm portfolio [0.1*-10] + [.2*0] + [.4*20] + [.2*40] + [.1*50] = 20% MRI Erm = [0.1*-10] + [.2*10] + [.4*20] + [.2*50] + [.1*60] = 25% The variance between the two portfolios Clinics variance is = 0.3274 V; MRI = 0.4045 The standard deviation is the square root of the variance which 0.57 for the clinic portfolio and 0.64 for the MRI. From the portfolio above, using the expected rate of return one would be tempted to conclude that MRI portfolio is the best portfolio for investment. By considering the standard deviation, it is established that Clinic portfolio is the best portfolio since it has the least risk. Notably, when assessing the risk factor of a portfolio, the standard deviation is the best measure recommended (Ehrhardt & Brigham, 2009). References Top of Form Brigham, E. F., & Houston, J. F. (2009). Fundamentals of Financial Management. Mason, OH: South-Western Cengage Learning.Bottom of Form Cleverley, W. O., Cleverley, J. O., & Song, P. H. (2011). Essentials of health care finance. Sudbury, Mass: Jones & Bartlett Learning. Ehrhardt, M. C., & Brigham, E. F. (2009). Corporate finance: A focused approach. Mason, OH: South- Western/Cengage Learning. Miller, K. M., Wyllie, C., Joint Commission on Accreditation of Healthcare Organizations. & Joint Commission Resources, Inc. (2006). Planning, design, and construction of health care facilities. Oak Terrace, IL: JCAHO. Nah, S.-H., & Osifo-Dawodu, E. (2007). Establishing private health care facilities in developing countries: A guide for medical entrepreneurs. Washington, D.C: World Bank Wolper, L. F. (2004). Health care administration: Planning, implementing, and managing organized delivery systems. Sudbury, MA: Jones and Bartlett Publishers. Read More