Managing Healthcare Management

A Report on Finance Management in Healthcare Organization

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Finance plays most important role in the organization as it is required to carry out all the crucial operations of the enterprise and increases overall performance. Firms operations in healthcare sector has to carry out crucial tasks like rendering services to the patients and purchasing other equipments. So for this management of financial resource is a necessity. Furthermore, financial risk analysis is important for business as through this overall risk associated with acquiring funds or investing in other market can be determined easily (Gapenski, 2012). For analysis risk series of steps are present and on the basis of this management can take measures for effective management. Whereas different type of costs are present that management has to bear for carrying out its operations such as opportunity, fixed, variable etc. In the present report small voluntary organization of UK has been chosen that is facing financial issues so the local council will consider business case for the same for funding through local supporters.

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In the present scenario small voluntary organization has been considered what was funded for three years as part of urban development fund by government of UK to deal with the effects of long term unemployment and urban deprivation (Berger, 2008). Presently health station is facing issue of financial crisis so it has been decided whether to transfer it to local bodies or retain it. The business case consists of series of steps which are

Step 1 Strategic context

The main aim behind setting up strategic context is to provide clear reason in relation with the financial requirement of the project and to ensure that operations can be carried out in future or not. It is necessarily required to determine the affordability of the proposal while developing strategic context for business case (McLean, 2002). Presently current position of the health station is not up to the mark as sufficient finance is not present so as to carry out overall operations. So to improve overall condition appropriate sources have to be determined through which firm can easily treat patients who are culturally sensitive linked with maternity and child care etc. So main decision has to taken in this regard so that company does not have to transfer operations to the NHS trust and functioning lies within the hands of management. By taking appropriate decisions it is possible to deal with the adverse situation of financial crisis and monetary requirements can be fulfilled easily.

Step 2 Define objectives and assessing benefit criteria

Objectives and benefit criteria are defined after identifying the strategic context. Presence of clear objective and benefit criteria are the starting points for development of business case (Courtney and Briggs, 2004). The objectives and benefits of services are assessed as per the needs of patients in health and social care sector. The objective set to obtain funds from various sources can provide different benefits to the health station like they can easily treat patients with advanced techniques and situations like transferring operations to local NHS can be prevented easily.

The objective set by health station are as per need of patients and other requirements. Furthermore, services are rendered to people who are culturally sensitive. Station serves large area of population and main motive is to improve maternity care and child care services especially in the provision of late clinic, health education and sickle cell awareness programmes (Penner, 2004). But for the accomplishment of this objective adequate funds are required and it is necessary to determine appropriate sources for the same.
Identifying benefit criteria

Benefit criteria are derived from service objectives that supports in selecting an option and evaluating it which is generated in the investment appraisal. The benefit criteria takes into consideration three categories such as benefits that can be financially quantified, benefits that cannot be financially quantified and last one of benefits that can be quantified easily.

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Determining the best suitable criteria is very crucial step in the development of business case. As per the case benefit criteria can be grouped as improvement in services, situation of financial inadequacy will not arise in the future, needs of customers can be satisfied easily, improvement in quality of services etc. These objectives have been determined keeping in view requirement of the patients and through this health station can sustain in the market for longer period of time. Main aim to search for the appropriate source of funding so as to deal with the situation of financial crisis and this can provide base to the firm in every possible manner (Moseley, 2009). Benefit criteria directly represents the benefits that can be obtained by setting different objectives keeping in view the aims and objectives of the organization. Whereas due to inappropriate sources of funding presently healthcare station is able to render services to its customers and it can also lead to shut down of the activities if corrective measures are not taken on time.

Step 3 General options

The main aim of this step is to assess possible options with the help of which it is possible to meet objectives so as to gain benefits (Harrison and Harrison, 2012). Appropriate sources of finance available for the healthcare stations are shown below through which firm can easily deal with financial crisis.

Bank loan

It is considered as one of the major source of finance that can satisfy financial requirement of the entity. Healthcare station can approach financial institutions present in the market and can compare interest rates at which amount can be obtained. Main advantage of using this source is that it enables firm to keep cash in hand and improves liquidity position. But on the other hand organization has to pay high amount in the form of interest which is major expense (Akortsu and Abor, 2011). Through this source amount can be acquired for long period of time but company must have repayment capacity on the basis of which loan can be granted by financial institutions. Presently financial position of Healthcare station is very weak due to which it is not possible to carry out operations such as providing treatment to patients and rendering other kind of services that are essential.

Bank overdraft

It is the facility granted by bank to withdraw more amount than those lying in the account so by considering the present scenario it can be said that bank overdraft is also appropriate source of obtaining funds (Mohsin, 2013). Firm can easily deal with the situation of financial crisis and large amount can be obtained easily with the help of this. Main benefit of using this source to firm is that large amount can be acquired easily for specific period and treatment of patients can be done easily and in appropriate manner. Whereas high rate of interest is charged by bank for the service render which is major issue for the company and presently it will not be possible for firm to bear such large expenses due to weak financial position. So Healthcare station has to consider both pros and cons of this source before considering it as the source can influence financial requirement of the company.

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Trade credit

It is the another effective source of finance that Healthcare station can consider for dealing with the adverse situation that is being faced presently. Trade credit is considered as the short term source of finance where payment is made to suppliers at later date. Healthcare organization has to purchase different items from the market such as medicines and other equipments so in this case it will be beneficial for firm to make final payment late rather than paying on time. Main advantage of using this source is that it is flexible and low cost too as trade creditors does not charge interest on the outstanding amount. Furthermore, it is necessary for company to maintain healthy relationship with suppliers as they can support to deal with the situation of inadequacy of finance in future (Akintoye and Chinyio, 2005). This source has no disadvantage as compared with others so healthcare station can consider it for satisfying financial needs.

Angel investor

This source of finance can also be considered by firm where individual provides capital for business start up in exchange for convertible debt or ownership equity. They have assist firm to deal with the condition of financial crisis and funds can be obtained easily for specific period. Therefore, by considering this source firm will be able to treat patients who are culturally sensitive and their needs can be satisfied in appropriate manner. Further it is not required for firm to transfer its operations to NHS or any other type of trust due to inadequacy of funds (Butters, 2004).

Selling unproductive equipments

For satisfying financial needs firm can sell machines and tools that are of no use to the healthcare enterprise. This is considered as the cheapest source of finance for the health station as firm does not have to make payment to any party in the form of interest and in turn financial condition can be improved easily within short period of time. Furthermore, it has to be ensured by company that its asset base is strong so that in future financial needs can be satisfied with the help of this.

Step 4 Measuring the benefits

It is the next stage where non financial benefits of the business case are identified that can support firm to deal with the major challenges being faced. The benefits derived are matched to the option cost and are measured in order to rank the options present with the healthcare station (Nilsson and Furåker, 2012). Benefits are quantified financially and always considered in the cost benefit analysis of the business case. Each benefit derived from the option are identified using the benefit criteria. So in these options linked with sources of finance will be ranked in order to know its overall importance and advantage that source can provide to enterprise. Score of each criteria is measured from 1 to 10 like the options available with firm are bank loan, overdraft, trade credit and selling unproductive assets so scores are given to them in the following table shown below:

Options Score out of 10
Bank Loan 4
Overdraft 5
Trade Credit 8
Selling Unproductive Assets 7

So the score represent importance of all the options and through this firm will get idea which source to adopt by considering its advantage and disadvantage. It indicates best source of selling unproductive assets and it can be adopted.

Step 5 Identify and Quantify the cost

The main objective of this step is to assess and quantify the total net cost of the options being selected where estimates are made in relation with capital cost of the new investment, practices and change of work in the cost of firm (Shaoul, Stafford and Stapleton, 2010). It helps in determining the cost incurred in every activity and the best alternative can be chosen out of many. Running cost also plays significant role at the time of determining project cost.


Costing refers to the quantification of the values of resources required by the healthcare enterprise to provide services to the patients and other people having some disability etc. It provides clear idea about the activity whose cost is identified well in advance so as to know overall expenditure level. Furthermore, the information linked with costing helps in assessing the service cost associated with rendering services (Desombre, 2007). Costing supports in providing information linked with the expenses incurred in delivering services for instance Healthcare station provides services to people who are culturally sensitive so expenses incurred such as providing medicines and other services are considered. Following are the different type of cost that healthcare organization has to bear with the main purpose to deliver effective services to patients.

Capital cost

It is the cost incurred by healthcare station on different equipments and assets such as hardware, land building, vehicles, fee and equipment that are major source of income for the firm. Furthermore, by considering all the major cost prices of the services are decided so that capital cost can be recovered easily. Cost of building acquired by Healthcare station is the major expense that entity has to bear.

Revenue cost

They are not regarded as the capital expenditure but are linked with the day to day running cost such as utilities, salaries, repairs, maintenance of property, interest paid. All these are linked with the revenue cost of healthcare station that increases expenditure level.

Cost centre and cost codes

Cost centre refers to the place in the firm where costs are collected and cost code is linked with recording business transactions that is segregated into two parts where first one is cost centre for the transaction and another is indicator of type of expenditure.

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Fixed and variable cost

Fixed cost is the type of cost that does not changes with the alteration in level of output and remains constant whereas variable cost is directly affected by the level of operations carried out and fluctuates regularly (Ezeoha, 2011). Fixed cost linked with healthcare station is depreciation of building, salary paid to employees, insurance etc. Whereas variable cost linked with hospital is computer system, medical expense, laundry and other consumables.

Incremental cost

It is the additional cost of the rise in level of quantity and is linked with marginal cost which is the cost incurred by producing additional unit.

Unit cost

It is the cost incurred by healthcare station for rendering service to the patients and takes into consideration all the fixed and variable cost of the firm (Whaley, 2010).

Opportunity cost

This cost refers to the value of factor in its next best alternative use for instance if healthcare station is having two projects linked with investment and firm decided to choose one so in this case the benefit derived from second project is lost which is considered as opportunity cost.

Contributional cost

It is the difference between variable expenses incurred by healthcare station and income received by rendering services to the patients. So this is also considered as major cost to the firm (Helfert, 2009).

Step 6 Identifying sensitivity of risk

Determining sensitivity is the major step in the investment appraisal process which is linked with identifying the feasibility of the proposal present. In the present scenario healthcare station has many alternatives present to acquire funds but main aim is to decide which source is appropriate.

Financial risk

It is the risk associated with obtaining finance from different sources. Presently firm is dealing with the issue of financial loss but there are various risks associated with every financial source present with the organization.

Step by step management process is used for identifying the sensitivity of risk which are given below

  • Identifying the source of risk exposure is the first stage where sources of risk are divided into three categories namely risks that are not measurable and unknown, risks that are known but not measurable and last one are risks that are both measurable and known (Gapenski, 2012).
  • Quantifying the exposure where model is followed to identify the risk and cost benefit analysis is performed in relation with this. It helps in determining the real benefits that firm can obtain by choosing appropriate source of finance. Expected results from the source are identified which is beneficial for the entity.
  • Assessing the impact of the exposure on the business of firm is the third stage where it is determined the overall impact of source on overall operations of company for instance if organization adopted bank loan as a source of finance then it will enable firm to keep more cash in hand and can improve liquidity position (Berger, 2008).
  • Assessing the firm capability, competency is the next stage where it will be identified whether firm is able to repay the amount from different sources or not. Presently financial capacity of enterprise is very weak so measures have to taken for improvement so that healthcare services can be provided in appropriate manner.

Step 7 Identifying the preferred option

Out of all the available source preferred option for the firm is selling unproductive assets and trade credit with the help of which operations can be easily carried out by Healthcare station in future and it is not required to transfer operations to other NHS.

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Step 8 Present the outline business case

The main objective behind presenting business case is to demonstrate viability and acquiring fund from most appropriate source (McLean, 2002). This is presented in the form of report consisting of outcomes of strategic review and investment appraisal. The main points covered in the business case report are

  • Options available for funding such as trade credit, selling unproductive assets, bank loan and overdraft.
  • Preferred options that involves trade credit and selling unproductive equipments
  • Different type of cost such as opportunity cost, unit cost etc.

Step 9 Develop preferred option

In this stage entire business case is reviewed that supports in selecting the preferred option. After considering pros and cons of every source it can be said that trade credit is one of the best source for raising finance at the initial stage and in case if bank loan is considered then it will increase expenditure level of firm and financial capacity of company does not allows for the same.

Performance measures

To improve overall performance various measures are present that can be used and helps in evaluating the strategic performance.

Balance score card

It is framework that firm adopts for implementation of strategies and supports in management of activities by linking all objectives and measures to business strategy. Through this Healthcare station can easily implement proposal of raising finance.


It is the measurement of firm's policies, strategies and services where they are compared with standards set to know performance level.


From the above report it has become easy to understand the importance of managing financial resources in healthcare for rendering effective services to the patients. Due to inadequacy of finance healthcare station is not able to deliver appropriate services and has to take decision from which source to obtain funds so as to deal with the situation of transferring operations to NHS. So appropriate source identified is trade credit and selling unproductive assets that can save funds and can improve overall performance.


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  • McLean, R., 2002. Financial Management in Health Care Organizations. 2nd ed. Cengage Learning.
  • Moseley, B. G., 2009. Managing Health Care Business Strategy. Jones & Bartlett Learning.
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  • Penner, J. S., 2004. Introduction to Health Care Economics & Financial Management: Fundamental Concepts with Practical Applications. Lippincott Williams & Wilkins.
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