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Shanequa Joiner
HCM640-1602A
May 4, 2016
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STRATEGIC FINANCIAL PLANNING
Strategic Financial Planning
policies related to financial targets. The targetsinclude goal-setting, budgeting, and risk
management.
Setting of goals
The board of directors is supposed to set the projected accomplishments that the
proposed cancer center will achieve. They have the mandate to set goals that are SMART In
that they are specific, measurable, attainable, relevant and timely. Since the proposed cancer
center project is aiming at maximizing profit, the goals set should be oriented on how to
Budgeting
The policies formulated by the board of governors should incorporate the control over
the flow of money within the project. This would help them to manage the money that the
project will use as well as track the project`s income and expenses. During budgeting, the
board of governors is supposed to consider emergency funds which take care of unexpected
Risk management
The board of directors should come up with policies to identify and manage the
potential financial risks the cancer center project is likely to face. One of the major risks is
debt repayment and in this aspect, the primary considerations are the amount of money to be
borrowed, the length of time to repay the loan and the interest rates associated with the loan.
They may consider opting for insurance as a way of mitigating the impact of the potential
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risks. Such insurances would cover aspects such as health, property, liability (Kavanagh &
How the New For-profit Status Align with the Financial and Strategic Planning of ABC
The hospital is currently run, privately, by the XYZ health care system with the aim of
making aprofit. Thus, the financial and strategic planning of the new for-profit system will
involveincurrence of expenses while establishing the cancer center which aims at helping the
community. In as much as the project aims at making aprofit, it will be of benefit to the
community since they will not have to cover long distances to look for cancer treatment. The
profits they will make for the next few years will help to cover the debt used to complete the
project. The financial and strategic planning for the community hospital, on the other hand,
mainly aimed at ensuring the revenue raised covers for all the expenses incurred while
serving the community. They thus don`t have the motive of making profits, and this tends to
inhibit development within the hospital.Therefore, the financial and strategic planning for
both the XYZ healthcare system and the community hospital align in that both they will
Managers play a vital role in financial control since they are the ones held accountable
for the key financial targets of a cooperation.These key financial targets are the ones that
contribute to the overall profitability of the enterprises. It is thus very essential to incorporate
The managers within the company will help to ensure the expenses within the project
on cancer centerstays within the budget.Budgeting is done during financial planning to help
ensure the resources available within the hospital are assigned activities. After the assignment
if the resources, it is important to ensure that the resourcesallocatedare used accordingly and
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that they are used responsibly. The managers place constraints on the expenses of the project.
They ensure that if spending is increased, justification is provided and in this case,
Managerial control also entails the control of regulation which stems out from
operation procedures and the policies that stand. During financial planning, regulations are a
primary concern since they lead to expenses within the company which should be
incorporatedinto the budget development (Anthony &Herzlinger, 1975). Medical laws and
regulation govern the financial and strategic planning of the community hospital.
Finally, quality controls are the major component of managerial control and entail the
variation in the acceptability of the services that will be offered by the center (Anthony
&Herzlinger, 1975). If the community finds the services offered at the hospital satisfying,
they are likely to turn up in large numbers which will consequently lead to increase in
revenue. Revenue is part of the financial planning since the budget within the financial
There is, therefore, a need to consult the executives in the XYZ healthcare system
since they are the one in charge of the management control. They should be involved in the
financial, regulation and the quality control of the project hence be incorporated in the
financial and strategic planning of the hospital. The financial planning of the community
One of the assumptions in budgeting is the enterprise going concept which assumes
that the business in question will operate and remain in existence for a specified period which
is foreseeable by the company (Kerzner, 2001). It is important for the management of the
ABC community hospital and the XYZ healthcare system should assess the ability of the
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hospital to continue being in the market even after the establishment of the cancer center. In
this case, they should evaluate how they have been performing in the past and the resources
availability. Since the center will require both equity and debt financing, they should be able
to know whether the source of capital is reliable and then they can make assumptions about
The other category of assumption is the conservative concept which requires the
managers to consider the smallest possible amounts as well as the highest possible of assets
and revenues that are available (Kerzner, 2001). More so, they should also consider the costs
Assumptions may be based on the sales that the enterprise will make after sometime
(Mathisen, Pellechio, International Monetary Fund & International Monetary Fund, 2006).
This is based on how the company is faring at the particular time of balance sheet
preparation. In the case of the ABC community hospital and the XYZ healthcare system, they
should make assumptions based on what the cancer treatment center is likely to increase the
number of patients opting for this hospital. They could also make assumptions on the
Capital investment decision entails capital budgeting. Capital budgeting helps the
managers to select the projects which increase the capital of the enterprise and to analyze
projects whose span involves some years. They do this by considering the revenue and the
costs incurred by the project over along period and the time value of money since it is
important to know how much money is worth in thefuture. The process of capital budgeting
involves six stages which at the end, helps the manager to make adecision (Agar, 2005).
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The first stage is the identification stage where the managers are supposed to identify
the types of capital expenditure projects which aim at the accomplishment of the objectives of
the organization (Agar, 2005). The non-profit ABC community hospital, the project
identification does not involve the search for a project that generates profit. They should
identify a project that enhance the health of the community. XYZ healthcare system, on the
other hand, generated the cancer treatment center with the aim of making profit. Thus, during
the project identification stage, they were to look at the likely projected revenue and the cost
of the project before embarking on it. The major consideration is the maximization of the
The next stage is the search stage which involves the exploration of the alternatives to
the capital investments which will achieve the objectives of the organization. Here, the
organization looks for alternative models which suit the project identified (Agar, 2005). In
the cancer center project, the search stage for the non-profit status, they would look for
investment alternatives which are low since they do not have a way of repaying borrowed
funds. They would rely on equity financing which may not be adequate. For the profit based
XYZ system, the search stage involves alternatives which may be alow or high investment
because they are at liberty to borrow. The cancer center project requires funds and the source
of money is hiring. This is because, under the XYZ system, the money will be repaid by the
After the search stage, the next stage is the information acquisition stage. This
involves looking for information on the capital investment alternative selected. This
information obtained should consider the expected costs and the benefits of the investment
alternative (Agar, 2005). It will then be used to carry out adetailed investigation of the
project alternatives. The cancer project will have benefits and costs to the community and the
hospital as well. The non-profit community hospital should expect profits such as the ability
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of the residents neighboring the hospital to access cancer treatment without traveling long
distances and the reduction in the health costs since the services will be offered at lower
prices as compared to other hospitals.The expected costs will be the purchase of equipment,
labor, and drugs. As for the XYZ healthcare system, the anticipated benefits will be the
increase in a number ofpatients which will translate to the expected revenue.This is because
they focus more on financial benefits.They also concentrate on the non-financial quantitative
and qualitative benefits as well. Such benefits will include new machines that treat customers
at a closer distance as compared to when they have to travel to longer distance. The facility
will also ensure that many patients are treated within the shortest time possible.The expected
costs will include the cost of machines for treating cancer, labor, and drugs amongst others.
The next stage after the acquisition of information is the project selection stage which
involves choosing the project that fits the specifications and the preference. After the
evaluations carried out at the capital investment alternatives, the project which has many
benefits with fewer costs is considered and selected. They also consider if the project will be
necessary to be implemented from the analysis carried out. If they do not find a project that
suits their need, they may choose not to complete the project (Agar, 2005).
Next is the financing stage which entails seeking the sources of finance for the project
(Agar, 2005). The XYZ system, they would consider both debt financing and equity funding
for them to complete the project. The debt finance will be repaid with interest over a period
of time. The ABC community hospital, on the other hand, will consider equity financing
more than debt financing since they do not have a source of revenue enough to repay the debt
with interest.
Finally, the last stage is the project implementation and control (Agar, 2005). Once the
source of fund is identified and the fundswere given, the project is implemented, and its
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performance is monitored. This will help to ensure the project complies with its expected
performance. However, this stage may be followed by post audit stage which is not always
included. Post auditentails all the measures taken after the audit are complete to correct any
faults.
carry out the process. The evaluation process is done using various approaches which include
the payback period, internal rate of return and the net present value (Greenwood, 2002).
Payback period is done by determining the time it takes for the initial investment tobe
recouped into the project. The investment is recouped in theform of expected future expected
cash flows. Under this approach, the information required is the cost of equipment purchased
and the estimated useful life of the resource (Greenwood, 2002). The cancer center project
will include the purchase of equipment for treating cancer and thus they will need to keep the
records of cost to help in the evaluation of the capital investment using this approach.
Net present value, on the other hand, is used in the computation of the monetary
benefits expected from the project and discounting them into the current value in time. This
entails the use of rate of return and in most cases the minimum is the required. This minimum
is also known as the discount rate or the cost of capital. This is important in the case where
debt financing is the source of money.This method requires the initial net investment and the
The internal rate of return is a model which is under the discounted cash flows. It is used to
determine the internal rate of return or the discounting rate where the expected cash inflow`s
present value is the same as the expected cash outflow`s present value. This method requires
one to have the expected annual cash of the project and the present value annuity factor.
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In the center cancerproject,information on the opportunities created by the project
changes that occur in the hospital once the treatment cancer equipment is bought. The
employees become more productive when they have better equipment as compared to when
Internal Stakeholders
Project manager
Procurement Officer
Board of Directors
External Stakeholders
The community
External auditors
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References
Agar, C. (2005). Capital investment & financing: A practical guide to financial evaluation.
Amsterdam: London.
England: Gower.
Mathisen, J., Pellechio, A. J., International Monetary Fund.,& International Monetary Fund.
(2006). Using the balance sheet approach in surveillance: Framework, data sources,