Financial Performance Management of a Health-Sector Organization - Amedisys - Case Study Example

Financial Performance Management of a Health-sector organization Introduction The ability of public health organizations to provide essential services and also to respond to emergencies can be considered as strength of such organizations. The systems and organizational capacity assessments and measures are considered as components that are important in infrastructure of public health. It is considered that there is a long tradition in hospitals to use financial indicators to measure operational and fiscal activities. Hospitals are considered to use financial indicators to promote sustainability of organizations and also to improve its capacity. Financial indicators are also used by hospitals to manage their financial risk. In this regard, public health organizations make uniform classifications of revenues and expenses. There also have to be infrastructures for data reporting in an electronic manner. The practices of financial analysis should include indicators that are extensively based on revenue streams and expenses of an organization. Health care organizations also should extensively report their financial results and there should be associations that are considered as professional for the workforce of such organizations. Discussion a. Financial and non-financial performance indicators Amedisys is considered as a health organization located in US. Its organizational capacity is considered as the ability of such organization to utilize its resources in an efficient manner to improve its performance. With regard to public health sector organizations, organizational capacity can be defined as the intrinsic ability of the government to direct, develop, and marshal physical, human, financial, and informational resources. In the context of business world, organizational tools and resources are considered to constitute the organizational capacity. These resources are considered as important means by which organizations seek to achieve their mission in the business environment. Organizational capacity can be considered to be concerned with maximization of the potential of an organization with regard to efficiently acquiring resources and provide services to consumers. Figure 1: Organizational capacity (Suarez, Lesneski and Denison 2) The above figure shows the steps that are there in the process of continuous quality improvement of public health organizations. In this regard, there are some key elements such as benchmarking, measurement, agency process optimization, data driven analysis, and strategic focus. Financial indicators provide information regarding financial performance and condition of an organization. Such information is considered as the basis which guides the decisions of organizations with regard to making needed changes. Such changes are considered to optimize the agency processes of organizations and also help them to reduce the gaps with regard to financial performance. The measuring of an organization’s financial condition and performance provides key information with regard to efficient use of resources and also on control and accountability. If it is found that the present performance of an organization is not up to the standard that is desired by the management, necessary corrective measures can be taken by the organization to close performance gaps and assess the results which helps it to gain insights with regard to future applications. The selected financial ratios that are used by public health organizations are as follows: I) Operating margin: Operating margin is considered to be a measure of an organization’s operating efficiency and pricing strategy. It represents that portion of the revenue that is left after paying for all the variable expenses such as cost of production, raw materials, wages, etc. by a company. A high operating margin is considered to be important for an organization to be able to pay for its fixed costs such as interest cost of debt. II) Current Ratio: Current ratio provides an idea regarding the ability of the company to pay for its short term liabilities such as payables and debt. It is a measure of the liquidity position of the company. It also gives an indication regarding the efficiency of the operating cycle of the company. A higher current ratio is desired by a company because it implies the capacity of the company to meet its short term liabilities. III) Debt to Equity: It is considered as the amount of debt of an organization with regard to the amount of equity capital. It is a measure of debt that is considered as outstanding by the hospital with regard to each dollar that is invested in the company Amedisys. IV) Debt per capita: It is considered as total long term debt of the company Amedisys divided by its total population. It is used to monitor the changes that are there with regard to its outstanding debt over a period of time. V) Revenue per employee: Sales revenue per employee is an important indicator of revenue that is generated by each employee in an organization. This ratio looks at the sales figure for an organization relative to its number of employees (Taylor 53). A high ratio is desired by an organization in this regard because organizations want highest possible revenue per employee. VI) Revenues per capita: It is concerned with the total revenue of the organization Amedisys divided by its total population. It is used to compare the revenues of the company with regard to fee that it charges over a period of time. Organizations tend to place a lot of emphasis on financial measures such as accounting returns and earnings. They did not place significant importance on drivers of value such as quality, innovation, and employee and consumer satisfaction. In this regard, organizations in the health sector are implementing new measures with regard to performance measurement systems. Non financial measures are considered to have numerous advantages as compared to financial measures. Non financial measures are considered to have a closer link to long term strategies of an organization. Financial measures tend to focus on annual performance of an organization with regard to accounting yardsticks. They generally do not consider the progress with regard to competitors and consumer requirements. Financial measures tend to overlook non financial objectives of an organization which are also considered as very important in achieving long term strategic goals, competitive strength, and profitability. The company Amedisys should focus on consumer satisfaction. Investments in this regard by the company have the potential of improving economic performance of the organization by increasing its revenues. It can also improve the loyalty of existing consumers and can significantly attract new consumers. The company should also seek to invest in development and research or in consumer satisfaction programs. Such expenditures can be charged against profits of the company in the period in which it is incurred thereby reducing its profits. Such expenditures also have the potential to improve the future profit making capability of an organization. b. Difference between financial performance targets of public and private organizations It is considered that there is absence of formal performance management systems in public organizations. In this regard, private organizations consider that the role of employees, stakeholders, and consumers are very vital for the success of an organization. As a result, private companies constantly monitor the performance of employees with regard to improving their performance. Private organizations tend to measure both intangible and tangible fields of activity. The major indicators in this regard are quantity, quality, level of efficiency, and consumer satisfaction. The main aim of performance measurement systems of private organizations is to cover an organization’s total expenditure and span of activities. The main indicators of public organizations in this regard can be considered as level of collected experience. Accumulated skills and knowledge can also be considered as important indicators of public organizations. c. Balanced Scorecard Approach (Paul 26) Like other organizations and businesses, an effort is made here to apply the benefits of Balanced Score card in a health organization such as Amedisys. Any assessment of the progress of any organization is done basically in two ways such as by the balanced Score card approach which is used as a performance metric to assess the performance of any organization and also by the strategic planning and management systems. There are various Balanced Score card goals which comprise mainly financial, customer perspective, internal business processes, growth and learning among others. The financial measure includes market share, profitability, and costs and revenues. Customer perspective measure comprises customer turnover or retention, customer value, and customer satisfaction. Internal business processes measures comprise productivity improvement, operation metrics and measures for the assessment of performances of processes. The growth and learning measures comprise level of organizational capability, employee satisfaction, employee retention or turnover, and the nature of the organizational climate or culture. For a health organization such as Amedisys, it is of utmost importance that they provide quality service to its consumers at affordable prices. This will add value to its consumers which can have a considerable impact on its revenues and at the same time reduce the operational costs of the company. It will also increase the satisfaction level of consumers of the organization. The Balanced Score card system is a new framework which allows organizations to translate the strategies and visions effectively so that it clearly conveys the strategy of the organization through the measures chosen and also through the Strategy Map objectives to reflect those objectives on the organization’s Balanced Score card. Conclusion The company Amedisys is a health organization located in US. The measuring of the organization’s financial condition and performance provides key information with regard to efficient use of resources and also on control and accountability. If it is found that the present performance of the organization is not up to the standard that is desired by the management, necessary corrective measures can be taken by the organization to close performance gaps and assess the results which helps it to gain insights with regard to future applications. Works Cited Paul, Niven. Balanced Scorecard Step by Step: Maximizing Performance and Maintaining Results, 2nd Edition. 2006. NJ: John Wiley & Sons. Suarez, Virginia, Cheryll Lesneski and Dwight Denison. Making the Case for Using Financial Indicators in Local Public Health Agencies. 2011. Web. 20 March, 2014. Taylor, Paul. Consolidated Financial Reporting. 1996. London: SAGE. Read More