The Capital Cycle of Healthcare Organizations - Assignment Example

?The Capital Cycle The Capital Cycle of Healthcare Organizations To succeed in a competitive environment, the capital cycle of an organization must be competently managed. The long-term success of any organization depends on its ability to make capital investment decisions that will eventually add to and enhance its future capital capacity.  The financial strategy of a healthcare organization is defined in relation to the context of the capital cycle of any organization. The strategy should ensure that it fully caters for the management of the three most critical components of management that leads to capacity growth and expansion of capital. These are the design and the implementation of the financial plan, the design and the implementation of an appropriate capital structure as well as a means of strategically utilizing capital that is subsequently reinvested into the organization. There are two components of a capital structure. The first comprises of strategic planning and implementation, while the second comprises of the development of supporting infrastructure which include financial planning, capital structure and capital allocation. The importance of a financial plan to an organization is that it places the organization in financial equilibrium position, which defines its organizational capabilities. The financial infrastructure plays an important role in giving integrity and momentum to the capital cycle. Capital structure on its part looks at the questions relating to the financing of the organization, which is best described as a combination of debt and equity that seeks to finance the strategic plan. Capital allocation should be done in consideration with the best practices that relate to financial objectives and policies, review of the project and the approval of the capital expenditures of the organization. Due to the increasing costs of capital, it is very essential for healthcare leaders to direct their spending to high-priority and affordable initiatives that will best position the organization for success. To ensure feasibility in spending, the organization should ensure discipline around three key areas of assessment which include the capital capacity and position, feasibly and the impact of improved operating performance and strategic position and the viability of the strategic plans. Poplin (2011) observes that capital capacity has significantly reduced the hospital capacity, and defined the amount of capital available to the organization for funding both the routine capital requirements and the strategic plan of moving forward. Feasibility and impact of improved operating performance shows that organizations geographically located in markets that do not expect to experience organic growth have difficulties in closing the gap between projected sources and the application of finances over that time horizon. Strategic position and viability of strategic plans cautions executives to look closely at the strategic plans in line with the current financial plan. Some strategies may have to be extended to a later date while others may require some urgency in implementation. According to Coss (2009), labour efficiency in a healthcare institution is an important factor in the capital cycle. However, it is difficult to access individual worker’s productivity of the organization. In case it has to be done, a desired understanding of what defines a desired output is put into consideration. Healthcare investments that are aimed at improving the efficiency are increasing being considered by organizations. The various processes that are put into more focus include the workflow analysis, workplace architecture, product design, and information technology. The major difference is vested on the persons involved in the purchase of equipment and the actual users of the equipment. Different sets of purchasing and marketing motivators affect the purchasing decisions of high ranking decision making officials in a different way than those who regularly put the equipment to use. Different ways of allocating resources to capital resources to the desired equipment will thus vary depending on the type of group that is making the decision. The readiness of the organization to take risk influences the form of decisions undertaken by the organization. Organizations are faced by various risks in different situations. Efficiency risk determines how best and can a hospital provide high quality healthcare in a cost effective manner. Insurance risk on its part takes place when health providers accept per capita payment in exchange for providing healthcare to big population of people. Quality risk is the risk of providing quality services to the people. The financing decisions of the organization should be in line with the various risks encountered by the organization in its daily operations (Mulvany 2009). What is however seen as the most critical decision for the planners of financial strategies for a healthcare organization is the allocation of funds for equipment purchase. The various considerations put into place and the process of arriving at the most desired equipment at any given time is out into a bigger focus. Impulse buying of equipment is likely to put the organization into a financial problem, while blind purchase does not add any value to the services provided by the organization. Use of supporting data to determine the most important forms of equipment that are needed by the organization is essential to ensure proper performance and quality output (Sussman et al., 2009). To have a competitive edge over other healthcare organizations, an organization has to ensure a sound and completely managed capital cycle in relation to the strategies of the organization. The cycle is involved in allocation of finances in the desired projects and thus avoiding wastage. Financially sound organizations attract capital investors and are likely to have high output. Characteristics of a Financially Successful Organization Six essential characteristics define a successful organization regardless of the industry in which they operate in. Any organization that has the following characteristics is referred to as a successful organization. Leaders of a financially successful organization exhibit characteristics of both financial literacy and soundness in the undertaking of their duties. For an organization to be deemed as financially successful, its financial leaders must possess the ability to visualize, engage and execute plans set by the executive. Senior leaders of the organization have the ability to think where the organization is headed to and thus set its activities in line with the mission statement of the organization. These leaders possess the knowledge and skills to motivate the work force so as to achieve a common mission. The business environment is dynamically changing, and thus leaders of a successful organization can respond quickly and in an appropriate manner and at the sometime address the arising issues in the internal operations of the organization. CEOs of all financially successful organizations exhibit high literacy levels, show interest in the finances of the organization and are financially responsible. Moreover, they are able to recognize the need and advantage of proper financial leadership. The CEOs are involved in the setting of concrete goals and objectives, and have the capability to lead their team towards achieving these goals. Organizations that have such a strategy make use of services of a Chief Finance Officer who is a strategic leader and an important member of the executive team in determining the financial position of the organization. The belief that the senior management in a consistent manner will deliver on their expectations guides their process. Successful organizations are committed to adhering to corporate finance principles and have a single financial perspective. This creates a very important component of the philosophy of management. The organization, board, and the management team can adopt and choose to maintain a single financial perspective, which binds the entire process of decision as it transforms the entire leadership team into a single financial philosophy. Financially successful organizations are characterized by a principle that holds that financial performance must be sufficient enough to meet the financial requirements of the strategic plan. Moreover, the strategy should be able to improve the financial integrity of the organization in a context which is appropriate to the credit and risk. This principle is very important to the board of directors and the executive as it aids in their decision making and to measure their success. The main goal is to ensure that the financial condition of the organization at the end of the fiscal year is at its best and keeps improving with time. Leaders of a successful financial organization are committed to financial learning and advancing their financial skills and knowledge. This is because they understand that financial leadership is only possible through acquisition of the necessary financial knowhow. Most of the organizations maintain a strong and continuous education process which is essential in teaching and reinforcing financial skills that are critical in corporate finance. The reality of sound financial management occurs when a basic set of finance skill is learned and acquired by the management of the organization as well as the entire organization. Another characteristic of a financially successful organization is the existence of a planning philosophy and process which provides a platform for both long term strategic goals and its daily operations. The planning philosophy defines the vision, strategy, financial goals and objectives of the organization. Likewise, it defines the tactics of achieving the desired results. A financial plan plays a very important part of the management’s control of complex decision making and the direction of the operation results. Every major strategic opportunity that arises has to be vetted in relation to the strategic plan. This makes the capital planning and allocation to be a formal, serious, highly defined and disciplined process which identifies the projects to be funded and those that should not. Financially successful organizations have a disciplined plan of executing its plans. The senior management of the organization issues commands and directives to the execution team. The daily functions of a financially successful organization are performed in a proper manner. Managers follow the correct cycle that revenue allocation process ought to follow. Expense control management is observed as a way of ensuring that an organization is financially sound, and thus any compromising situation that has the potential of affecting financial performance in a negative way are avoided. Financially successful organizations are active in the management of their capital structure and have astute respect for the capital markets whether they are listed or otherwise. Increasingly, organizations by the use of active capital management structure, financially successful organizations seek ideas approaches that are aimed at lowering the present value of the current and the future debt service. Such an organization classify its rate of credit as an asset as well as a mechanism to improve the organization’s access to capital and lower the overall capital costs. Thus, they spend quite a considerable amount of time building good reputation with the rating agencies, bond insurers and other constituents of the capital markets. References Top of Form Coss, T. A. (2009). Marketing for capital investment: Improving labour ef?ciency in health care, Journal of Medical Marketing. 233 – 241 Mulvany, C. (2009). Risky business, Healthcare Financial Management. 63, 11 pp 34-36 Poplin, B. (2011). Making Informed Capital Investment Decisions For Clinical Technology, Healthcare Financial Management, 65, 2, pp 64-68 Sussman, J. H., Grube, M. E., & Samaris, D. (2009). Ensuring affordability of your hospital's strategies, Healthcare Financial Management; ; 63, 5; pp 42-50 Bottom of Form Read More