Assessing Critical Business Indicators

 

In order to be a sound financial manager, you need to know the fiscal intricacies of your organization or department. Decisions about future expenditures should be based on careful calculations of organizational or departmental needs. By using critical business indicators, you can more effectively balance the fiscal realities of your budget with the functional demands of your department.

In this Discussion, you examine the use of critical business indicators to assist in financial decision making for a health care department or organization.

The Instructor has assigned a problem from the Zelman, McCue, and Glick online text.

 

To prepare:

 

Review this week’s Learning Resources, focusing on how critical business indicators can be used in financial decision making.

For the problem you were assigned, complete the calculations and then answer the questions included.

Select a different business indicator than you used in your problem. Reflect on how this critical indicator could assist a nurse manager to more effectively balance the demands placed on a department while still meeting budgetary constraints. Find an example.

Assess the ramifications of making a decision without having the types of information these business indicators provide.

If it was imperative for you to make a certain purchase or launch a new initiative, but your break-even point was calculated as higher than the expected revenues, what are your options?

 

Post your response to the question you were assigned and explain your reasoning. Suggest how nurse managers could use the critical business indicator you selected to both meet the needs of a department or organization and remain within budget. Provide a specific example. Describe potential ramifications of making a financial decision without using business indicators. Specify strategies for addressing a situation where a break-even point is higher than expected revenues.

 

Respond to at least two of your colleagues on two different days using one or more of the following approaches:

Share an insight from having read your colleagues’ postings, synthesizing the information to provide new perspectives.

Offer and support an alternative perspective using readings from the classroom or from your own research in the Walden Library.

Make a suggestion based on additional evidence drawn from readings or after synthesizing multiple postings.

 

(I will send the Responses soon)

 

For the Assigned Question:

 

You may choose any of the four  problems (#9, #10, #11 or #12) on pages 414–415 of the text (eBook) Financial Management of Health Care Organizations: An Introduction to Fundamental Tools, Concepts, and Applications (3rd  ed.). 

 

Required Readings

 

Baker, J., & Baker, R. W. (2014). Health care finance: Basic tools for nonfinancial managers. Burlington, MA: Jones and Bartlett Learning.

 

Chapter 11, “Financial and Operating Ratios as Performance Measures” (pp. 121–128)

 

Review: This chapter introduces a number of different tools that can be used to measure the performance of an organization. These include liquidity ratios, solvency ratios, and profitability ratios.

 

Chapter 14, “Using Comparative Data” (pp. 157–169)

 

Review: In this chapter, you are introduced to the criteria for identifying other health care organizations that are comparable to your own. Data from these organizations can then be used to evaluate your own organizational performance.

Zelman, W., McCue, M., & Glick, N. (2009). Financial management of health care organizations: An introduction to fundamental tools, concepts, and applications (3rd ed.). Hoboken, NJ: Jossey-Bass.

Retrieved from the Walden Library databases.

Chapter 7, “The Investment Decision” (pp. 271–328)

 

This chapter explores three methods by which large, multiyear investment decisions can be evaluated. This chapter also explores various capital investment alternatives.

 

Chapter 9, “Using Cost Information to Make Special Decisions” (pp. 374–422)

 

In this chapter, the authors delve into fixed and variable costs, which largely help determine decisions about services and how much to charge for them. The chapter also explores break-even analysis, which studies the relationship among revenues, costs, and volume.

Kaufman, K., & Grube, M. (2009). Making the right decisions in a consolidating market. Healthcare Financial Management, 63(7), 44–52.

Retrieved from the Walden Library databases.

 

This article discusses how a difficult economy can impact consolidation in the U.S. health care industry. The authors describe both opportunities and challenges with consolidation.

Required Media

 Laureate Education (Producer). (2012). Opportunity analysis. Baltimore, MD: Author.

In this video, Dr. William Ward demonstrates how to conduct a benefit/cost analysis, calculate a break-even point, perform a return on investment analysis, and create a profit and loss statement. He highlights the uses of each.

 

 Document: Finance and Economics in Healthcare Delivery Transcript (PDF)

 

MSN Discussion Rubric

Criteria

Levels of Achievement

Outstanding Performance

Excellent Performance

Competent Performance

Room for Improvement

Poor Performance

Content-Main Posting

30 to 30 points

-Main posting addresses all criteria with 75% of post exceptional depth and breadth supported by credible references.

27 to 29 points

-Main posting addresses all criteria with 75% of post exceptional depth and breadth supported by credible references.

24 to 26 points

Main posting meets expectations. All criteria are addressed with 50% containing good breadth and depth.

21 to 23 points

Main posting addresses most of the criteria. One to two criterion are not addressed or superficially addressed.

0 to 20 points

Main posting does not address all of criteria, superficially addresses criteria. Two or more criteria are not addressed.

Course Requirements and Attendance

20 to 20 points

-Responds to two colleagues’ with posts that are reflective, are justified with credible sources, and ask questions that extend the Discussion.

18 to 19 points

-Responds to two colleagues’ with posts that are reflective, are justified with credible sources, and ask questions that extend the Discussion.

16 to 17 points

Responds to a minimum of two colleagues’ posts, are reflective, and ask questions that extend the Discussion. One post is justified by a credible source.

14 to 15 points

Responds to less than two colleagues’ posts. Posts are on topic, may have some depth, or questions. May extend the Discussion. No credible sources are cited.

0 to 13 points

Responds to less than two colleagues’ posts. Posts may not be on topic, lack depth, do not pose questions that extend the Discussion.

Scholarly Writing Quality

30 to 30 points

-The main posting clearly addresses the Discussion criteria and is written concisely. The main posting is cited with more than two credible references that adhere to the correct format per the APA Manual 6th Edition. No spelling or grammatical errors. ***The use of scholarly sources or real life experiences needs to be included to deepen the Discussion and earn points in reply to fellow students.

27 to 29 points

-The main posting clearly addresses the Discussion crit

© 2012 Laureate Education, Inc. 1

NURS 6211: Finance and Economics in Healthcare Delivery

Week 11, Program OA

Opportunity Analysis

WILLIAM WARD:

Oftentimes, we come up with a bright idea for a new opportunity or a way to use
a piece of technology to help make us more efficient. And one of the first things
that we have to do is support the general concept with some financial analysis.

So here we have a 5 year marginal profit and loss statement that looks at our
business venture. We start out with the marginal revenue. We have 500 units in
the first year; we have a price of $800. And we have a collection rate of 80
percent. And if we multiply those numbers together, we wind up with marginal net
revenue of $320,000.

But we’ve got expenses to take care of and our marginal variable expenses are
500 units times $80 each, so, we’re told we’re consuming 80 bucks every time
we do this. And that’s $40,000. That’s the marginal variable cost.

But then there’s marginal fixed costs. These are costs that are not going to rise or
fall as volume rises or falls, but just the fact that we go into this line of business
means we must incur them. Salaries are $200,000, fringe benefits at 20 percent
is another 40,000. The operating cost of $10,000 per month adds $120,000. And
then lastly we have our rent of $50,000. When we sum all of that together, we’ve
got $410,000 of marginal fixed costs. And the sum of the 410 and 40 gives us
total marginal costs of $450,000. When we subtract that from the $320,000 of
marginal net revenue, we’ve got a loss. We lose $130,000 on this deal every year
that we do it.

If you stopped there, you’d probably say don’t do this deal. But we’re going to go
multiple years because it makes sense to do that. We don’t want to get a false
picture by just taking that snapshot of the first year. And over the course of all
five years, we’ve more than broken even. We’ve done a really nice job. We’ve
generated a positive revenue stream.

WILLIAM WARD:

A second technique that we can look at is something called break-even analysis.
I like to use breakeven analysis when I’m looking at a programmatic decision, as
opposed to an investment in a piece of technology or a new service line.

What I’m looking at is how many units of business do we have to do to just get to
the point where our revenues and expenses are equal to each other. Here we

© 2012 Laureate Education, Inc. 2

have a scenario in which demand is anticipated to be about 8,000 units a year
and market conditions are such that we can charge $1,100 for this new service.
We can do 16 and a half thousand units of business every year. The average
collection rate is 80 percent. The new service has annual fixed costs of $5
million. Our variable costs every time we do one of these, we consume $480, so
what we’ve got