Assessing Critical Business Indicators for Healthcare Organizations – Health System Example

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"Assessing Critical Business Indicators for Healthcare Organizations" is a well-written example of a paper on the health system. Healthcare managers are continually facing challenges in terms of choosing and implementing the best strategies that would increase revenue. It is therefore of great importance for them to focus greatly on critical business indicators in order to balance the monetary aspects of their organization. These indicators can help them chose more effective strategies for implementation. This paper examines the critical business indicators that assist in financial decision making for healthcare organizations. Laurie Vaden is faced with a difficult decision on whether to increase the charges for the exams from $100 to $125.

Since her volume is 100 exams per month, then her current revenue equals $10000 and this is gotten by multiplying the volume by the current cost per exam. Her variable costs equal to $1500 and this value is arrived at by multiplying the volume by what she pays for the lab i. e. $15. Therefore her profit margin equals $7500. Increasing the cost per exam to $125 will reduce volume by 10 percent and hence her projected volume would be 90 exams per month.

Her variable costs would change to $1350 and her total contribution margin to $9900. Since the avoidable costs remain the same then her projected product margin would be $8900. According to Zelman, McCue, and Glick (2009), "If only one alternative will or must be chosen, then the anticipated product margin of both alternatives should be compared. The alternative with the higher anticipated product margin should be chosen" (p. 406). In this case, the current margin is $7500 while the projected margin would be $8900.

Therefore, she should increase her charges for each exam to $125 even though this would result in a loss of 10 percent of the exams. This is because it will result in a higher profit margin as compared to the current option. Additional business indicator An additional critical business indicator is the break-even point. The Break-even point is defined by Zelman, McCue, and Glick (2009) as the point where the achieved sales are viewed to have covered all the fixed costs and all the expenses incurred.

Identification of the break-even point can help nurse managers make out or discover areas that are contributing to unnecessary and unwarranted fixed costs and hence implement strategies to address them. Too much-fixed costs can contribute to budget deviations and therefore identification of the break-even point can help lower the fixed costs. For example, if the cost of electricity is too high hence increasing fixed costs, then areas causing wastages can be identified and necessary action plans implemented to reduce wastage. Potential ramifications for not employing business indicators Kaufman and Grube (2009) point out that uncertainties in the global economy have forced healthcare leaders and managers to implement strategies geared towards improving their financial health.

This is because any decline in the financial capacity of a healthcare organization will affect other activities that depend on the amount of cash available (Kauffman and Grube, 2009). There are a number of factors such as increased fixed costs and expenses that can only be identified through analyzing the critical business indicators. If these indicators are not used, then these problem areas cannot be identified and addressed and this can translate to decreased revenue.

In a situation where the break-even point is higher than the expected revenues, a pronouncement needs to be made on areas that can be adjusted in order to generate a more favorable break-even point (Zelman, McCue and Glick, 2009). For instance, a decision can be made to increase the cost of certain services or even to cut down on the number of employees in certain departments. In a nutshell, using business indicators such as identification of the break-even point and product margins can help in the identification of areas that ought to be adjusted in order to increase revenue.      

References

Kaufman, K., &Grube, M. (2009). Making the right decisions in a consolidating market. Healthcare Financial Management, 63(7), 44–52.

Zelman, W., McCue, M., & Glick, N. (2009). Financial management of health care organizations: An introduction to fundamental tools, concepts, and applications (3rd ed.). Hoboken, NJ: Jossey-Bass.

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