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Financial Management in the Healthcare Industry

1-Which financial management practices are most effective in creating and monitoring an operating budget?
This should include: variance reporting, benchmarking, environmental scanning, model development, forecasting, types of budgets, types of monitoring methods, frequency of monitoring, self-audit

2-Which financial management practices are least effective in creating and monitoring an operating budget?
This should include: top down/bottom up budgets, lack of control, poor inventorying, lack of staff investment, over control.

Cite a minimum of five current (References should not be older than 2007 unless you are providing a historical overview of the subject) peer reviewed sources.

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Healthcare continues to be a root of debate in this nation's society. As the baby boomers enter their elder years, the affordance of long-term health care services becomes one of paramount importance. An organization's ability to meet these changing needs, while remaining profitable, has become a strategic battleground. The introduction of new companies, along with ongoing governmental regulations adds to the quandary.

One method of assessing this need is the use of variance reporting. Variance reporting can address two issues; the variance in cost of supplies and the cost of labor expenses (Yoder-Wise, 2011). Negative variances in supply costs are due to paying a higher price for supplies or the misuse of these supplies (Yoder-Wise, 2011). Positive variances in labor are due to improved efficiency (Yoder-Wise, 2011). The author does point out however that these variances could be misleading. For instance, if a tire wholesaler only tightened half of the lug nuts on each car, the decrease in safety cannot be afforded for an improved efficiency. Another example for labor costs would be allowing unskilled workers to complete skilled workers' projects. Although this would show a positive variance, the quality that would be sacrificed would not be acceptable. On the other side, if skilled workers performed the work of unskilled workers, a negative variance would be observed due to the increase in labor costs (Yoder-Wise, 2011).

Benchmarking is identified by the Joint Commission as the "continuous and comparative measurement of a process, product, or service against those of your toughest competitor(s)... in order to find ways to improve" ("Tools for Performance", 2008, p. 38). These authors identify internal and external benchmarks. Internal benchmarks consist of the comparison of operations and functions within one organization ("Tools for Performance", 2008). In comparison, external benchmarks involve an evaluation as to how these operations and functions match or exceed that of the competitor ("Tools for Performance", 2008). This author identified one difficulty of using the benchmarking process as being that both organizations must use the same measurement tools ("Tools for Performance", 2008). Additionally, not all local competitors are willing to share such information. In this case, the Joint Commission suggested the use of a national measurement system such as the one provided by the Institute for Healthcare Improvement ("Tools for Performance", 2008).

Model Development
Wolf, Hanson and Moir (2011) identify 5 key components to the health care model; scientific, economic, professional, political, and cultural. Kidd & Richter (2006) discuss that rather than attempting to identify one unique model, a combination of models would be most effective in the global environment. The economic portion of this model is very difficult to assess, "however according to the Congressional Budget Office, Americans spent 16% of gross domestic ...

Solution Summary

The solution discusses financial management in the healthcare industry.