Healthcare is a business and in today's economy, there is no time to squander on fruitless ventures. Healthcare encompasses every one of the components that are important to provide healthcare, innovation and financial development. That is to say, without a solid framework supporting the financial health of the healthcare organization, it can lead to detrimental results. That is why the break-even analysis is an excellent tool used to determine whether the business is able to cover all its expenses and begin to make a profit. Clinics and health systems that have an interest in including new equipment or innovation in the healthcare organization ordinarily assess procedure volume, payment rates; reliability of …show more content…
In fact, the break-even analysis will offer assistance with determining business income expected in order to pay/ repay ongoing operational expense (2016). Without the break-even analysis, a business is left without the proper financial insight to make wise decisions whether to add a product or service. For one thing, Demarzo & Fishman (2007) maintain the long-term obligation/repayment and credit assume diverse obligation in executing the ideal contract. In fact, “The long-term debt is effective for financing early consumption … relative to outside investors (2007).” First thing to remember is how fixed and variable costs factor into the analysis. Downes and Goodman (2014) maintain fixed costs incorporate pay rates, salaries of employees, interest costs, rent, depreciation, and insurance expenses, which appear differently in relation to variable costs (direct labor, materials costs), which are recognized from semi-variable expenses. In other words, semi-variable expenses fluctuate,as they remain fixed up to a level of sales, then reach higher and increase when sales enter a higher range (2014). Important to realize is that no expense is truly fixed and the presumption relies on the purpose of the planning period …show more content…
To begin with, a strategic plan is recommended to meet organizational goals. According to BMS Consulting “a strategic plan provides a blueprint of the goals and objectives a healthcare organization may want to pursue in the future with context of the potential impact on revenue, physician schedules, capital expenditures, staffing, marketing, space and equipment leases, etc., (2016). Under those circumstances, the author (2016) maintains an examination of historical data and production information is recommended for budgeting which included an examination of revenue by provider and by key service line or location. In addition, integrating a budget plan into the planning process is essential as, “ it is not uncommon for a medical practice to consider a potential opportunity, only to have a break-even analysis indicate that the risk is too great in relation to the potential benefit
Variable costs, for a manufacturing company, are those costs that increase or decrease as production increases or decreases. If production increases, then variable costs will increase; if production decreases, variable costs will decrease. For Claire’s Antiques, examples of their variable costs would be manufacturing labor, raw materials, and manufacturing overhead. Examples of manufacturing overhead would be the utilities that are used in the production facility, and the oils and lubricants used in the machinery. Fixed costs in a manufacturing company are those costs that remain constant regardless of the level of production. Examples of fixed costs for Claire’s Antiques are: sales and administrative costs, rent and/or mortgage on the production facility, and depreciation. Semi-variable, or mixed, costs are costs that have both fixed and variable costs. An example of a semi-variable cost could be if Claire’s leases their delivery trucks, and the lease includes a mileage fee. The monthly lease would be considered a fixed costs, but the mileage fee would be a variable cost. (Hofstrand, 2007). In most cases, fixed costs are usually higher than variable costs, and can absorb a great deal of profits. Because of this, some companies may consider converting their fixed costs to variable costs.
Strategic planning is crucial for the success of all business endeavors. Analyzing currents trends in technology, consumer markets, competition, and the workforce can play a pivotal part in whether or not the organization can survive. Overtime, strategic planning strategies must be modified in order to compensate for changes in the industry. Goals and strategic planning often necessitate change to ensure that the organization is performing at peak level, while offering the most beneficial and quality services to consumers.
Economic Benefit Attributed to Opening a Preoperative Evaluation Clinic for Outpatients, 83,407-10. Retrieved on November 8th, 2006 from
The current health care system can be difficult to navigate and often medical centers need management tools to help them develop strategic plans within their organizations. The SWOT-Analysis is one strategic tool that health care centers can use to formulate a roadmap for their organizations. The SWOT-Analysis examines internal capabilities (strengths and weaknesses) and external developments (opportunities and threats) when determining a strategic plan for an organization (Van Wijngaarden, Scholten, & Van Wijk, 2012). Van Wijngaarden et al. (2012) explains for SWOT-Analysis to prove meaningful throughout an organization, it is important for stakeholders to be part of the brainstorming to identify its’ internal capabilities and external developments. However, there are a few drawbacks to the using the SWOT-analysis tool that are important for health care centers to remain cognizant of when developing their strategic blueprints. Helms and Nixon (2010) state the SWOT-Analysis can be vague and too simplistic when developing a strategic course for an organization; it can be difficult to classify variables into the four SWOT quadrants; and no definite strategic path is identified after the SWOT-analysis is completed. For these reasons, they explain it can be helpful to use additional analysis tools in addition to the SWOT-analysis. One such tool the U.S. Army Medical System uses is the balanced-score card. The balanced-score card can assist health care centers in the clarification of their strategic objectives and goals, and facilitates communication throughout the organization (Chan, 2006). Chan (2006) also reveals balanced-score cards allow for constructive employee feedback l...
Based on Robert Hino’s interview, strategic plan is really important for hospitals because the strategic plan is a “living, breathing and critical part of how we do business." (Hino, 2013) All strategic plans must include following items:
1) Total Variable Costs are 60% of Total Costs; While the other 40% are from fixed costs.
There are several basic approaches that can be utilized when conducting economic evaluations for any new health care intervention; which can include medications that are designed for the treatment and prevention of disease and how to relate the effectiveness with the overall monetary value of the new treatment. The economic tools that can be employed to perform such an analysis can be broken down into four basic parts that consist of cost-minimization analysis (CMA), cost-effectiveness analysis (CEA), cost-benefit analysis (CBA) and cost-utility analysis (CUA). These four categories will contain the major financial analytical techniques employed when evaluating medical treatments and interventions along with other types termed cost-consequence
Competitive advantage matters greatly to those responsible for the management of healthcare institutions. Together with rapidly escalating healthcare costs, increasingly complex medical technologies, and growing regulatory and legal pressures, healthcare organizations face a critical need to improve the quality of care at reduced costs (Cu...
First, there is a group called Leadership 2020. The goal of this team is to vision what the possibilities are in the health care industry and through brainstorming, data analysis, and trending determine what AHC should look like and be like regarding culture, product, service, etc. in 2020. This is activity is very much a conventional way of strategic planning as the leaders look internally and externally, determine strategy for the next 3 -5 years that will help the organization accomplish its vision and mission (McNamara, n.d.). The other strategic planning model is Alignment. The alignment model of strategic planning seeks to align all business segments with the achievement of the organizational goals (McNamara, n.d.). When reviewing AHC’s strategic plan it was obvious that all business segment line leaders aligned on the overarching goal of “Strategies enclosed support that AHC is a Not-For-Profit, Full Service, Health System Owned, Non Acute Provider Dedicated to Integrated Population Health that produces a Total Return on Investment for its Member Health Systems. DEEPER WIDER BETTER” (Executive Leadership Team, 2016). The strategic plan lists out each business segment, each process improvement or innovation strategy, and the personal accountable as well as the time frame for which it will be
In the modern world of the health-care industry, it is vital that an organization’s financial statement analyses be kept up to date and reported accurately within the company. A financial analysis is an evaluative method of determining the past, current and projected performance of a company (Investopedia.com, 2016). Collectively, patients seek superior quality of health care services and integrity from professionals who work in the hospitals and serve the communities worldwide. Although the health care industry is rapidly changing as time progresses, providers still have an obligation to satisfy the patients and deliver excellent care to those in need.
A strategic plan is a tool that delivers guidance in achieving a mission or goal with maximum proficiency and control for an organization. Strategic planning is used to transform and revitalize organizations. The plan helps provide an inclusive understanding of opportunities and challenges both internally and externally for the organization. The plan delivers an assessment of the strengths and limitations that are realistic within the company. A well-developed strategic plan will offer a comprehensive approach and empowerment for the stakeholders involved. It is an opportunity for learning and understanding priorities that will drive the business to succeed. Jones (2010), describes how in health care organizations, strategic plans characteristically concentrate on operational and organizational goals such as when to obtain new technology, how to meet competitive challenges, and what staffing, tools, or facilities are needed to ensure organizational survival. The mission and value statements are significant in determining the quality of a strategic initiative. Forcing the organization to look toward the future creates proactive objectives in which both short-term and long-terms plans and goals are necessary in order to succeed.
The 3 percent decline in sales causing a 21 percent decline in profits can be attributed to the identification of the accounting concept of operating leverage. Operating leverage is what business managers apply to boost small changes in revenue into sizable changes in profitability. Fixed cost is the force managers use to attain disproportionate changes between revenue and profitability. Therefore, when all costs are fixed every sales dollar contributes one dollar toward the potential profitability of a project. Once sales dollars cover fixed costs, each additional sales dollar represents pure profit. A small change in sales volume can significantly affect profitability (Edmonds, Tsay, & Olds, 2011). So, therefore, if sales volume increases,
reimbursement determinations. As a result, the camaraderie among physicians has developed into a more aggressive approach to impede competition (Shi & Singh, 2012). Little information is shared with patients in regards to procedures or disease control. The subjects are forced to rely on the internet for enlightenment on the scope of their illnesses (Shi & Singh, 2012). Furthermore, the U.S. health care system fails to provide adequate knowledge on billing strategies for operations and other medical practices. The cost in a free system is based on supply and demand and is known in advance of hospital admission (Shi & Singh, 2012). The need for new technology is another characteristic that is of interest when considering the health care system. Technology is often v...
The current dynamic healthcare environment is undergoing a tough competition due to various factors such as the cost, quality care, production, efficiency, and safety care. So, the healthcare system requires a significant change to implement strategic management in all its sectors. Additionally, it is important to formulate appropriate tools to execute these strategic plans effectively, and one such great tool is strategic alternatives. Since, one-size-fits all analogy cannot be applied to every single healthcare organization, so it is very important to closely evaluate the healthcare environment, and then select a suitable alternative strategy. In addition, it is unlikely that a single strategy will suffice for an organization so for the success
“For example, if the organisation decide to expand, fixed costs will definitely increase. Sometimes, organisations decide to reduce certain fixed costs to improve their cash flow, by moving to a less expensive workplace or reducing the number of employees”.