Thefinancial part of a strategic plan provides information regarding theproducts ability to provide value to the customers. Specifically, therelevant financial data relates to organizations activities ofselling, production, and administration. Regarding selling, thefinancial information provides the sales of the company, which iscomposed of the units sold and the prices. In overall, the sellingability is presented in the form of the revenues generated by thecompany by selling the various products or services. Second, theproduction information relates to the actual amount of resources usedin the process of creating the product or the service. Specifically,it entails the human labor, the machinery, and the materials. Otherresources are used in the production of goods or services but cannotbe traced in the final product in the form of direct materials orlabor. The resources are applied to the production process based ontheir drivers. An example of the resources entails generaladministration and small tools used in the production process. Smalltools can be measured by the use of total machine hours in theproduction process while administration resources can be based on theamount of direct labor that was used during the production period.The resources are applied as a percentage of the drivers (Zuckerman,2012).
Thefinancial part also entails the resources that were used in sellingthe product or the service. They entail administration, marketing,and advertising. All the resources are valued in their monetary termsand are deducted from the overall revenues to obtain the profit fromthe sale of the products (Langabeer, & Napiewocki, 2000).
Thefirst part of an integrated strategic plan is the vision of theorganization. The vision is the long-term goal that the organizationneeds to achieve through the conduct of its operations. The visiondepicts the main reason the organization was formed. It specifies thegoals that will be achieved in the long-term operation of theorganization (McKeown, Kerry, & Olynyk, 2012).
Thesecond part is the Mission of the organization. The mission entailsthe short-term goals that the firm needs to achieve to attain itsvision. They involve short-term objectives that provide direction tothe firm. The mission of the organization, unlike the vision usuallyhas a stated timeline when the organization expects to achieve thegoals (McKeown, Kerry, & Olynyk, 2012).
Thethird part is the core values of the organization. The core valuesare a set of behaviors that are accepted and adopted by theorganization to assist in the achievement of its long-term vision.Core values are used to differentiate the organization from itscompetitors that they share the vision. The core values form theidentity of the organization and serve as the guides for the behaviorof the employees (Zuckerman, 2012).
Otheritems include the SWOT analysis. The SWOT analysis explains thecondition of both the internal and the external environments of anorganization. Specifically, SWOT is an acronym for strengths,weaknesses, opportunities and threats. The strengths and theweaknesses are factors within the organization. The opportunities andthreats entail factors that are outside the control of theorganization- the external environments. The aim of SWOT analysis isto ensure that the organization is aware of its environment.Specifically, the organization is expected to use its strengths as acounter for its weaknesses. Besides, various strategies are utilizedon how the organization can use the opportunities provided by theexternal environment to increase its profitability. Theidentification of threats enables the organization to formulate aplan that minimizes the effect of the threats on the organization’soperations (McKeown, Kerry, & Olynyk, 2012).
Thefirst step in strategic budgeting according to Kaufman is to developa strategic and financial plan. The second step is to communicate thestrategy. It calls for the management and the board to communicatetheir plan to key stakeholders such as employees, customers,suppliers, investors, creditors and financiers (Kaufman, &Associates, 2003).
Thethird step entails obtaining feedback about targets. It calls for themanagers to get opinions from the various stakeholders regarding thetargets set in the strategic plan. An honest opinion is critical toassist managers to evaluate whether the targets are over or underambitious. The fourth step calls for the management to develop thefirst pass budget. The budget entails the transformation of targetsinto real financial figures (Kaufman, & Associates, 2003).
Thefifth step requires reviewing the first pass budget. The departmentalmanagers are given the task to review the first pass budget sincethey are more familiar with the fundamental relationship betweenforecasts and real figures. The sixth step entails making adjustmentsand creating a final budget. The finance team works in collaborationwith finance team to adjust the budget by obtaining feedback from themanagers about available alternatives (Kaufman, & Associates,2003).
Theseventh step entails using the budget as a management tool. Theorganization uses the budget as a guide for day-to-day operations.Step eight entails restarting the cycle. The cycle is restarted toensure that the budget is updated with relevant informational changesthat are necessary for decision-making purposes (Kaufman, &Associates, 2003).
Thedevelopment of a strategic plan plays a great role in the quality ofthe financial plan. The strategic plan is the identification of theuseful resources within the organization. Specifically, themanagement and the board of directors come up with identifiedpriorities as per the provisions of the vision and the mission of theorganization. Besides, the strategic plan identifies the objectivesof the company and provides an evaluation of the various environmentswithin which the organization operates. The strategic plan serves asa foundation for the financial plan. Specifically, it lays down theactivities that the firm wishes to commit its financial resources toprovide the best outcome for the various stakeholders. The financialplan provides information about the available financial resources.Besides, it outlines how the company should utilize the resources tosupport the achievement of its overall strategy (Kaufman hall, 2010).
Thedevelopment the first pass budget by the management plays a greatrole in the development of a financial plan. Specifically, the firstpass budget serves as the first financial plan for the company. Thebudget entails the transformation of targets into real financialfigures. A hospital can create forecasts about patients fromhistorical records of a patient’s information. The hospital candevelop other figures based on the actual relationships found in thedatabase. The forecasting ability of the financial managersdetermines the accuracy and hence the effectiveness of the financialplan in depicting the various financial resources and obligationsthat face the firm. In addition to converting estimations intoforecasts, the first pass budget provides a close to the actualfinancial situation of the organization. Consequently, it serves as ahint to the management about the possible figures of the finalfinancial plan. Besides, it serves as a basis for gathering moreinformation from the departmental managers during the review process.The first pass budget determines the ability of the plan to guidedecision-making (Kaufman hall, 2010).
Financialanalysis is the process used to evaluate projects, budgets and otherfinance related health activities for decision-making purposes. Theanalysis is used to determine the stability, liquidity, profitabilityand solvency of healthcare institutions. Financial analysis targetsseveral sources of financial information of the healthcareinstitution such as the balance sheet, the income statement and thecash flow statement. The key motive is to analyze past performance tofind possible alternatives to predict future financial performance.
Thehealthcare industries are dominated with constant changes in theregulation and reimbursement requirements. Such requirements create aconcern among healthcare providers to keep track of their financialperformance (Bukh, & Nielsen, 2011).
First,the understanding of the financial position of the health institutionis important to the creation of sound strategic plans. The ability touse ratios provides the clarity of data for managers of health careinstitutions. As a result, it is possible to create comparisons ofvarious data pertinent to the firms operations. Comparisons enablemanagers to identify changes in the various rations to initiateaction. For example, a decline in profitability rations initiates theprocess of identifying the related causes. A decline in profitabilitycan be caused by increased costs of operations or reduced revenues.In case of reduced revenues, the healthcare managers are able todefine strategies that are specifically designed to increase revenuessuch as increasing the rates are additional marketing of services toattract more customers. Besides, a decline in profitability due toincreased costs assists the management to design solid policies toreduce the operational costs of a healthcare institution. It allowsthe management to design strategies to adopt in a highly changingenvironment (Fried, & Fottler, 2008).
Secondfinancial analysis serves as the indicator of the institutions heathin regards to financial resources. The healthcare sector isassociated with strategies to accomplish capital-intensive projectssuch as the acquisition of high tech machineries. Financial analysisserves as an evaluative tool to evaluate the feasibility of acquiringsuch types of machinery. Specifically, it enables the evaluation ofavailable resources and the capability of the resources to sustainthe purchase. The analysis of financial information assist thehealth organization to make decisions related to appropriate courseof action such as the use of debt or cash to acquirecapital-intensive machinery. In addition, it can serve as a guide toother key strategic decision making processes such as varying thenumber of staff, branches or even the pricing for health servicesand products (Williamson, 1997).
Third,financial analysis appeals to strategic planning by assisting thehealthcare organizations to analyze its performance for comparison tocompetition. The analysis of profitability, leverage, and operationsenables the identification of the health care providers to track andmatch the performance to that of competitors. Therefore, the firm isable to seek for possible causes of major differences in the ratiosof financial analysis that develop the trends in performance(Fottler, Khatri, & Savage, 2010).
Financialanalysis enables the healthcare organizations to evaluate theachievement of targets in the strategic plan. For example, theorganization can measure the quantitative objectives such asattaining a given level of revenue or a customer base. The managercan create additional strategies to accomplish the unmet goals. Themanagement can also widen the goals of the hospital for metobjectives to sustain growth. The relationship provides informationabout the ability of the business model to improve the quality oflife and provide excellence. The financial analysts view excellenceas the key relationship that determines market relationships, productinnovation and production (Nowicki, 2004).
Bukhand Nielsen (2011) provide the various elements that are important inunderstanding a health care business model. Specifically, they pointout the contribution of performance related elements that make up theactual structure of the company (Swayne, & Duncan, 2008).
Thefirst type of idea is the use of performance related elements tounderstand the business models of organizations. Financial analystsuse the elements as sources of information about the various aspectsof performance. They refer to the overall modules that make up thecompany such as the value proposition. The value proposition providesinformation about the company’s activities to satisfy thecustomers. Specifically, value propositions entail the services orproducts that are produced by the company and how they are designedto provide satisfaction by meeting a given need. Further, the valueproposition of a product provides information about the differencebetween the company’s products and services. Specifically, itdifferentiates a company’s products from those provided by theircompetitors. The element of difference enables financial analysts tovalue the competition abilities of the organizations (Stevens,Loudon, Migliore, Williamson, & Winston, 2012).
Underthe value proposition is the resource base. The resource base is alist of the various resources that the company uses in the productionof products and delivery of services. In addition to production, itentails the resources that assist the healthcare organization todeliver products to the customers. The value proposition entailselements of the value chain that are used in making the products oravailing the services. For goods producing healthcare organization,the value chain entails raw materials and components. Other importantresources entail the financial assets possessed by the health careorganization. Capital is an important resource that determines theproduction capacity of the firm, and thus it provides the ability toforecast the possible business model for a healthcare organization.Besides, the technological resources are essential to understandingthe business model of an organization since it serves as the keysynergy factor that connects the various business areas (Bukh, &Nielsen, 2011).
Thesecond key idea is the use of relationships between the variouselements to understand the business model of healthcareorganizations. The relationship between elements provides the actionperspective of the business model. Specifically, it providesinformation about the various processes and activities within thebusiness model. The interrelationships between business models arecharacterized according to value drivers, the value creationprocesses and the casual links that exist between the businessactivities. Value drivers relate to the success factors thatdetermine the future performance of a company. Financial analystsrefer to the value drivers as the growth drivers since they determinethe growth of the company due to their future orientation (Fried,2008).
Thethird key important factor in understanding the business model of ahealth care organization is causality. It refers to theidentification of the significance of links between the activities,resources, processes and value drivers in the healthcareorganization. The analysts are interested in understanding thehomogeneity between the production processes and the products or theservices of the organization. Besides, there is the need to evaluatethe use of technology in delivering the right products or services tothe final consumer. Consequently, technology becomes a majordeterminant in the business model since it is the key behind anorganization`s value proposition. Regarding causality, financialanalysts evaluate the interrelationship between the vision and themission of the company and the interrelationship with the customersegment that the company serves. The significance of theinterrelationships enables the valuation of companies and theidentification of the business models of production or servicedelivery (Williamson, 1997).
Bukh,P. N., & Nielsen, C. (2011). Understanding the health carebusiness model: The financial analysts’ point of view. Journalof Health Care Finance,37(2):8-26.
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