What types of information do the CEOs of Fortune 500 companies need to determine the financial well-being of the organization and to plan for future endeavors? They need to know exactly what their business is capable of doing (capacity), what their business is currently producing (volume), how much they are receiving for the services provided (revenue), how much it is costing them to deliver those services (expenses), and finally, what amounts of money are left over (profit or loss).
NURS 6211: Week 10: The Financial Analysis Cycle
Nursing leaders in health care organizations need much of the same information as the CEO to make effective financial decisions. This week you examine the process of gathering and analyzing key business indicators for informed decision making.
- Evaluate strategies for gathering overall critical business indicators
- Apply benefit/cost and break-even analysis
- Analyze the use of return on investment and payback periods
- Apply profit and loss statements to budget decision making
Note: To access this Week’s required library resources, please click on the link to the Course Readings List, found in the Course Materials section of your Syllabus.
Baker, J. J., Baker, R. W., & Dworkin, N. R. (2018). Health care finance: Basic tools for nonfinancial managers (5th ed.). Burlington, MA: Jones and Bartlett Learning.
- Chapter 12, “Financial and Operating Ratios as Performance Measures” (pp. 127-134)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 15, “Using Comparative Data” (pp. 161-173)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.
- 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.
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.
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.
Discussion: 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.
By Day 1 of this week, your Instructor should assign you a problem from the Zelman, McCue, and Glick online text. If you did not receive an assignment, contact your Instructor.
- 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?
By Day 3
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.
By Day 6
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.
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