Sherry Hewedy
Prof. Tara Paxton
Term Paper
March 23, 2017
Budgeting in Healthcare
The high-quality medical care is possible only under the condition of concentrating all the
changes and founds in the hospital itself, otherwise neither the hospitals, nor the clinics will
improve the financial status.
Financial Management means planning, organizing, directing and controlling the financial
activities such as procurement and utilization of funds for an organization. It means applying
general management principles to financial resources of the initiative or organization. The scope
of financial management can cut across a wide range of the organizations departments and can
involve investment decisions including investment in fixed assets.
Investment in current assets is also a part of investment decisions called working capital
decisions. Financial management also involves making financial decisions. These relate to the
raising of finance from various resources which will depend upon decision on type of source,
period of financing, cost of financing and the returns thereby.
Dividend decisions are also part of financial management. The finance manager has to take
decision with regards to the net profit distribution. Financial management is generally concerned
with procurement, allocation and control of financial resources of a concern. The objectives can
be to ensure regular and adequate supply of funds to different departments of the organization, to
ensure adequate returns to the shareholders which will depend upon the earning capacity, market
price of the share, expectations of the shareholders, to ensure optimum funds utilization. Once the
funds are secured, they should be utilized in maximum possible way at least cost. Also financial
managers ensure safety on investment making sure funds should be invested in safe endeavors so
that adequate rate of return can be achieved. Finally they also plan a sound capital structure. There
should be sound and fair composition of capital so that a balance is maintained between debt and
equity capital.
Financial management practices effective in creating and monitoring an operating budget.
In other words, certain financial management practices have shown a considerable amount of
success in the more effective when linked to overall corporate strategy. Linking the two gives all
managers and employees a clearer understanding of strategic goals. This understanding, in turn,
leads to greater support for goals, better coordination of tactics, and, ultimately, to stronger
companywide performance. Companies that apply best practices find that communication plays
an important role in creating this link. Design procedures that allocate resources strategically:
Within any company, competition for resources is inevitable. Every function and business unit
needs funding for both capital and operating expenses – usually in excess of the actual resources
available. This makes it critically important for companies to design procedures so that resources
are allocated to support key strategies. Organizations that adopt best practices find that resource
allocation is part science, part art. Fortunately, following certain best practices leads to better
results. One such practice is coordinating the review of operating and capital budgets. Doing this
gives managers insight into the ways in which changes in one budget affect the other. Tie
incentives to performance measures other than meeting budget targets: Many organizations still
evaluate managers primarily on how closely they hit budget targets. While this may seem logical,
in reality this type of one-dimensional evaluation tempts manager to manipulate figures in order
to hit budget targets. Such manipulations are not always in the organization’s best interest. In
organizations that adopt best practices, meeting budget targets is secondary to other performance
measures. Such companies use a balanced set of performance measures to chart progress toward
strategic goals, and use the same measures in their incentive programs. This reinforces the
importance of key strategies and communicates what results will be rewarded. Link cost
management efforts to budgeting: By linking cost management efforts to budgeting, companies
improve the quality of information available for managers to use in developing their budgets.
Accurate cost information is fundamental to budgeting. Companies that use accurate cost
management techniques and provide budget developers with ready access to cost information
improve both the accuracy and the speed of their budget process. Reduce budget complexity and
cycle time: Organizations strive to reduce budget complexity by streamlining budgeting
procedures. Such streamlining allows management to collect budget information, make allocation
