Healthcare Financial Management

FINANCIAL MANAGEMENT OF HEALTHCARE ORGANIZATIONS

Introduction:

Financial resources should be utilized in an economically beneficial manner. This calls for a greater need to interpret and apply financial information, so as to formulate strategies that lessen risk, and improve the economic worth of an organization. The study assists one to read and deduce the health financial statement and establish its cost of capital, as well as utilize discounted cash flow analysis and financially assess a planned healthcare possession (Lighter 2000).

A clear understanding of these factors aids in proper planning through evaluation of the internal environment and the external market to gather essential data for strategic planning as well as involving the senior leaders in making crucial decisions. Senior leaders should take a leading role to ensure that the set goals and strategies achieve recommendable results. At the same time, there should be enough time for planning and measures and targets that translate set out goals and visions into a particular end point (Harbour 1997).

In this period of complication and challenge many healthcare organizations are searching for comprehensive strategies for setting up, managing and monitoring advancement to enhance cooperation and builds up confidence. This involves use of balanced scorecard which translates the organizational improvement towards the selected goals while keeping the track of progress. The system consists of three processes: planned management structure, communication tool and a tracking system of progress (Niven 2002).

Healthcare Financial Management

IMPORTANCE OF STRATEGIC PLANNING

(Freeman, 2001, p23), Strategic planning involves environmental evaluation to gather enough data that address issues affecting an organization and make informed decisions. Categorically, the approach consists of internal environment and external market assessment. Internal environment involves gathering data on patient background, satisfaction and financial position as well as employee composition and quality of services offered.

External market includes market allocation, service area demographics and financial position as well as competition level, customer evaluation of services and society needs. This planning encourages the senior leaders to give an insight concerning the evaluation and its findings and recommendations, as well as advice on the necessary directions and plans to be effected.

Planners can easily consider the appropriate time period to be taken to collect enough data and allow for dialogue but not long enough for the plans to loose force. The strategy addresses the organization issues and uncertainties concerning the future. This allows easy implementation of the strategy and for these issues to be removed.

More so, strategy facilitates solving differences of opinion and coming up with a common direction, and sets goals and targets to be achieved and makes sure that they are attained. However, setting up strategies should be unique after assessing the organizations strong and weak points, as well as it should align with the current and future culture, highly inspired.

BALANCED SCORECARD

Healthcare Financial Management

This is tool that assist in converting the organizations mission and plan targets and goals into broad lay down of measures that offers a framework for effective measurement and management process. The scorecard has the following benefits to the health organization: it aids an organization to be more customers’ sensitive and market oriented as well as supervising and evaluation of the execution of the strategy, (Kaplan and Norton, 1992, 71-79,).Similarly, it offers a communication and cooperation system, and ensures responsibility for performance at all sectors of the organization. More so, it ensures a constant response on the plan and boosts adjustments to market conditions and standards shifts.

IMPACTS OF BALANCED SCOREDCARD

There are four main perspectives or domains which are regarded as jointly connected in terms of strategy and performance: learning and growth, internal process, customer and financial perspective. (Paul Niven 7, 2002) analyzed a balanced score card as a tree, where learning and growth are the roots or the foundation upon which all other perspectives are built.

For instance, if a hospital finds out those patients are not satisfied (customer domain). Then it enforces employee training on part of customer service (learning and growth) which will in turn boost provision of services, hence reducing the waiting time in the emergency rooms (internal process), thereby improving the allocation of resources (financial perspective). The whole process ensures that customers are satisfied and the organization is well placed financially (Kaplan, 1996, p 75-85).

At the same time, balanced score card ensures equilibrium between financial and non financial sign of achievement, the internal and the external components of an organization, lag and lead indicators of quality. The lag indicators include past performance, patient satisfaction or income, while lead indicators include performance motivators or measurement of procedure and actions. Internal constituents comprise of employees and, external contain insurers or physicians etc.

Therefore, by ensuring equity between this factors links performance, quality, income and customer satisfaction to the strategic plan, as they are designed to generally improve the

Healthcare Financial Management

organization performance and the customers welfare.

(Freeman, 2001, p18), the balanced scorecard evaluates the connection between the strategy and the available measures. For instance, where reliable data can be found, it analyzes the connection between the employee measures and the organization measures of customers’ satisfaction, financial performance and other measures as well as a close inspection of the organization’s measurement processes. This analyzes identify issues or problems that affect performance greatly and assist in knowing the growth one can get by investing in peoples management in terms of profits, customer satisfaction and quality improvement. Similarly an organization can compare its progress with industry leaders to know its position.

IMPORTANCE OF BSC TO THE LEADERSHIP

Application of balanced scorecard undergoes through a number of phases, (Niven, 2002, p 15). First of all, the senior-leaders should identify resources, needs and confirm leadership dedication. Secondly, they ought to identify the participants or teams as well as a complete review of missions and visions. More so, there is need to identify and agree on measures, and develop a strategy map and plan acceptable by all parties, so as to avoid discontentment where some might feel as if strategies are being imposed on them, hence affecting the effective of the scorecard (Inamdar, 2002, p180).

Thirdly, visions, strategies and measure should be well understood by both management and other staff. The scorecards built and, targets and alarm levels set. Data should be well standardized and presented. Then the balanced scorecard should be incorporated with management and planning processes, and all staff and stakeholders informed of its objectives. The data collected should at least predict the future with a high level of certainty, enough and accurate so as to make well informed decisions.

Healthcare Financial Management

Lastly, data should be updated, analyzed and reported regularly as planned. At the same time, measure values updated, results analyzed and reported, and the model refined. This ensures there is a well follow up mechanism, as it is useless to have a scorecard where the organization is not concerned with its progress to know what should be rectified or upgraded.

RECOMMENDATIONS:

Senior leaders especially the CEO must plainly display their support for the planning process, embrace it and show the way in championing the course of action and the follow-on plan, if the planning strategy will be successful. They should be play a leadership task through offering insights concerning the evaluation and its major findings and suggestions as well guiding on the possible directions and tactics to be effected.

Therefore, it is highly recommended that the senior leaders should own the process so as to show the other staff and stakeholders the way. Similarly, they should give guide in setting the organizations values, directions and performance anticipations as well as communicate with employees effectively, evaluate organizations progress and generate an environment that will achieve soaring performance (Freeman, 2001, p25).

More so, they should practice excellent citizenship by having well-built customer focus and encouraging constant learning. However, owning the process or having a leadership role in the process doesn’t imply controlling the outcome or ignoring others efforts to achieve high performance, instead the process should encourage each and every participant.

(Lighter 2000), Availability of both historical and current economic data makes it’s easier to determine the financial performance of an organization. Analyses of cash flow, operating income and return on capital aids an organization to know is current financial position. Similarly, through BSC an organization can easily determine which stage of the business cycle it falls into

Healthcare Financial Management

i.e. whether growth, sustain or harvest. These information aids an organization to assess whether a certain financial change would yield better results in future.

For instance, the Australian health system was able to provide its customers with quality affordable health care services despite their strict budget constraints, limited resources and communication barriers, which had rendered training difficult. This was achieved their launch of scorecard program with its measures and strategies being accessed by all leaders and employees so as to align their plans accordingly.

(Harber 1998, p58), Secondly, Peel Memorial Hospital in Ontario has also been able to provide adequate health services, despite the Government reduction on its funding through the use of BSC, which recommended extensive training. This has resulted to customer and staff satisfaction, as well as the hospital performance as greatly improved financially.

Healthcare Financial Management

Healthcare Financial Management

REFERENCE:

Cherry, J., & Seshadri, S. (2000). Six sigma: using statistics. Radial management, 42-45, November/December.

Freeman, L.N. (2001). Measure performance with a balanced scorecard, ophthalmic times, 17-26.

Harber, B.W. (1998). The balanced scorecard solution at peel memorial hospital, hospital

quarterly                                                                                                                                                                                                , 1,

(4):59, summer.

Harbour, J.L. (1997), the Basics of Performance Measurement; Productivity Press, Portland, Oregon.

Inamdar, W., Kaplan, R.S., Bower, M., Reynolds, K. (2002). Applying the balanced score card in health care provider organizations, J healthcare management,4,(7), 179-196.

Kaplan, R.S & Norton, D.P (1996), the balanced scorecard: Translating strategy into action, Harvard School press, Boston.

Lighter, D.E., & Fair, D.C (2000), Principles and methods of quality management and

Healthcare Financial Management

Healthcare, Aspen publishers, Gaithersburg.

Niven, P.R (2002), Balanced Scorecard Step-by-Step: Maximizing Performance and Maintaining Results; John Wiley & Sons, Inc, New York.

Niven, P.R (2003), Balanced Scorecard Step-by-Step for Government and Nonprofit Agencies; John Wiley & Sons, Inc., New York.

Six Sigma and the Balanced Scorecard. Available at:

www.healthcare.isixsigma.com/me/balanced_scorecard.htm