Question

Discuss the importance for management to comprehend capital budgets and formulation in testing the sensitivity of the forecasts regarding alternative scenarios, such as slowdowns in collections and declines in revenues.

Answer 1

Budgeting is an important issue for any organisation and also management have the comprehension of the formulation and data to make the critical decision.

Capital budgeting is used to describe how managers plan significant investment projects that have long term implications such as the purchaser of new equipment or the introduction of new products.

Manager need to deal with along with the capital budgeting are--

1) Equipment decision

2)Lease versus by decision

3)Cost reduction decision

4) Expansion decision

Development for capital budgeting are

1)Internal rate of return

2)Net present value

3) Payback approach

4) Accounting rate of return

5) Profitability index

6) Economics value added criterion

Important point for management

Management only undertake proposal that will add a positive value to the facility and its staff and patients

Cost control is another key issues for management .They must know the formulation of efficiency cost as well as understanding issue and problem as they occur and resolve them

Efficiency cost is T*R*P

T--total time elements that the problem remains uncorrected

R--the cost or loss per time element

P--the likelihood that the issue incident is correctable

Conclusion

There are many points of knowledge and information data for manager of any organisation let alone with health care for anyone who is interested in management and administration end of health care must have the knowledge and comprehension of the legal jargon and numbers .