This is a discussion, I need up to date references

The Budgeting Process and Capital Investment Decisions" Please respond to the following:

• Use the Internet or Strayer databases to research information related to the budgeting processes within the various types of health care organizations. Next, determine the most-effective budgeting approach for a hospital, indicating how this approach can lead to effective financial management of the facility. Provide support for your rationale. 
• Assume that you are an administrator for a hospital, and you need to acquire a new technology system so that you may comply with regulatory requirements. Create an argument to be presented to the leadership team in which you justify the need for your facility to invest in this new technology. Then indicate the value to the organization and provide support for your argument.
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  HSA525 Week 7, Lecture 1 Script: Operating Budgets
  Slide #	Scene/Interaction	Narration
  Slide 1	Scene 1: Professor Quan greets class.  Begins lecturing in front of classroom using chalk board.	HSA525_7_1_1_ProfQuan-1:  Hello everyone….welcome to this week's lecture on operating budgets. Healthcare organizations use budgets in their efforts to plan for future goals and the financing of those goals. The operating budget uses underlying data, such as volume, reimbursements, and labor requirements to forecast revenues, expenses, and profits. The operating budget is generally prepared at various organizational levels and is typically prepared on a monthly, quarterly, and annually basis.   HSA525_7_1_1_Tyler-1:   What is the difference between the operating budget and the capital budget?    HSA525_7_1_1_ProfQuan-2:  The operating budget deals with day-to-day expenses. This can include wages, rent, or utilities. Whereas, the capital budgeting process is concerned with the provision of resources for the long-term running of the organization. Most capital purchases are depreciated, instead of being expensed in the current year.    HSA525_7_1_1_Lauren-1:   Would the capital budget have an effect on the operational budget?   HSA525_7_1_1_ProfQuan-3:  There is a definite relationship. An increase in capital expenditures can cause an increase in the operating budget. For instance, assets purchased from the capital budget may require maintenance or monthly payments, which affects the operational budget.   HSA525_7_1_1_Sophia-1:   Is there a particular baseline percentage that a company should adhere to when assessing its budget for capital needs and operating expenses?   HSA525_7_1_1_ProfQuan-4:  Many analysts believe that a company’s total percentage of all expenditures should be thirty three percent for capital assets and sixty seven percent for operating expenses. If the organization's income is being used up by operational expenses, it simply cannot grow.   HSA525_7_1_1_Lauren-2:   I think that another distinction to be made about the operating budget and the capital budget involves the time frame, such as the role that long or short term planning plays in the budget process. Is that correct?   HSA525_7_1_1_ProfQuan-5:  Absolutely, Lauren. Capital healthcare budgets present plans for the acquisition of assets that deliver benefits to the organization over the long term, typically two to five years. They are listed on the company's balance sheet and depreciated over its useful life. Items on the health care organization's operating budget deliver short term benefits, usually less than one year. These items are listed on the organization's income statement and classified as expenses.
  Slide 2	Scene 2: Professor Quan uses projector to cover key points.	HSA525_7_1_2_ProfQuan-1:  The operating budget  is prepared for an entire organizations - all departments, service lines, payers, and at any other level that enables for the effective control process by managers. Cost centers are organizational subunits that incur costs, but do not directly generate revenue.   HSA525_7_1_2_Sophia-1:   Can you provide an example of a cost center for a healthcare organization? HSA525_7_1_2_ProfQuan-2:  Yes, consider the finance department of a hospital. Another example would be the research and development unit of a pharmaceutical company.   HSA525_7_1_2_Tyler-1:   Professor, you stated that the cost center does not generate revenue. Wouldn't the activities completed by the research and development unit generate revenue?   HSA525_7_1_2_ProfQuan-3:  Remember, the cost center does not directly generate revenue, but it does contribute indirectly. For example, the research and development unit creates innovation, and that definitely has a positive effect on revenue. The key is…these units indirectly contribute to revenue. In the cost center, the manager is accountable only for the cost of running his or her department.   HSA525_7_1_2_Lauren-1:   What are revenue centers? Are they the opposite of cost centers?   HSA525_7_1_2_ProfQuan-4:  In this context, the revenue center is the opposite of the cost center, as the revenue center generates both costs and revenues. They are also referred to as profit centers. Examples would include emergency departments and outpatient clinics.
  Slide 3	Check Your Understanding: An example of a cost center is: a.         A help desk b.         An urgent care department c.         A cancer treatment center   Feedback: a          Correct!  The help desk does not directly generate revenue. b          Incorrect….the urgent care center generates both revenue and costs. c          Incorrect…the cancer treatment center generates both revenue and costs.
  Slide 4	Scene 3: Professor Quan uses projector to go over key points.	HSA525_7_1_3_ProfQuan-1:  Let's look at the concept of costs.  A cost is generally understood to be that sacrifice incurred in an economic activity to achieve a specific objective, such as to consume, exchange, or produce. HSA525_7_1_3_ProfQuan-2:  Two important cost behaviors are fixed and variable costs. Costs can be classified by behavior in relation to the volume of products or services. Fixed costs remain constant in relation to changes in volume  while variable costs will vary directly and proportionately to a change in volume. Can anyone think of a variable specific cost that a healthcare organization incurs?   HSA525_7_1_3_Lauren-1:   I would say that an example of a variable cost would be supply costs. The costs associated with supplies will be affected by the volume of supplies needed to perform a service.   HSA525_7_1_3_ProfQuan-3:  Yes, Lauren…that is a good example. Can you provide an example of a fixed cost?   HSA525_7_1_3_Lauren-2:  Yes, I would say the cost of heating and cooling a facility, such as a healthcare center a…at least the base cost.   HSA525_7_1_3_ProfQuan-4:  Absolutely….as we discussed, the cost center manager is responsible for the cost of operating his or her department. One of the primary purposes of gathering cost information is to aid in the management control process.   HSA525_7_1_3_Tyler-1:   Professor, if the manager is accountable for the costs of his or her department, are we not assuming that all costs are controllable? Is it even possible that all costs are controllable?    HSA525_7_1_3_ProfQuan-5:  That is a very good point, Tyler. Costs can be controllable….but some costs are uncontrollable. An example of a controllable cost is the cost of labor. Uncontrollable costs cannot be influenced by the healthcare manager. Uncontrollable costs are costs associated with utilities.
  Slide 5	Check Your Understanding Which of the following statements are NOT true about costs? A. Labor related costs are controllable. B. Fixed costs tend to change in response to volume. C. Fixed costs are a function of the passage of time, not output.   A Incorrect…Labor is considered controllable. B Correct! Fixed costs remain constant irrespective of volume. C Incorrect…Fixed costs, because they are constant, are a function of the passage of time…not based on output (volume).
  Slide 6	Scene 4: Professor Quan uses projector to go over key points.	HSA525_7_1_4_ProfQuan-1:  When constructing an operating budget, there are specific steps that should be followed. Budget information sources include a review of the operating expenditures plan and the preliminary operating budget.   HSA525_7_1_4_Tyler-1: What information might the manager be able to get from the operating expenditure plan?   HSA525_7_1_4_ProfQuan-2: Operating revenue forecasts and staffing forecasts are two examples of information contained within the operating expenditure plan.   HSA525_7_1_4_ProfQuan-3: Another important part of the budgeting process involves the variance analysis. A variance analysis involves comparing what was expected to occur to what actually occurred. A budget yields no value if it is not used as a benchmark for financial performance. If budget benchmarks are not met, the financial manager must identify the shortcomings, and more importantly, must take corrective action.   HSA525_7_1_4_Lauren-1:  Using the example of the cost center manager, he or she has to be competent in analyzing the information and taking steps to make the necessary adjustments. This sounds like a very complex process. I would assume that this is one of the most important budget functions, as it can facilitate better management of the organization's finances.   HSA525_7_1_4_ProfQuan-4:  You are correct…variance analysis is perhaps the most commonly used method of evaluating budget performance.   HSA525_7_1_4_Sophia-1:   What options does the financial manager have if he or she determines that a significant variance is found in an area that is beyond his or her control?     HSA525_7_1_4_ProfQuan-5:  The variance analysis is intended to uncover the cause of operational problems so that they can be mitigated in the future. Even if the variance is beyond managerial control, its identification is important to the overall well-being of the organization.   HSA525_7_1_4_Sophia-2:  I certainly see where the information may be beneficial even if the manager is not able to control the factors that may have contributed to the variance.
  Slide 7	Scene 5: Summary	HSA525_7_1_5_ProfQuan-1:  Today’s lecture provided insights into the budgeting process, particularly, the operations budget. It is very important to remember that budgeting is a process. The manager must take information that he or she knows to be factual, then make reasonable assumptions about the future, and forecast what will be coming into the organization as inflows or revenues and what will be flowing out of the organization by way of expenses or outflows. The key point here is that the projections are estimates, not guestimates.   HSA525_7_1_5_ProfQuan-2:  Well, this ends our lecture for today….are there any questions?   HSA525_7_1_5_Lauren-1:   Yes professor, I think that budgeting is critical to any organization…but, what are your thoughts on the possibility that budgeting can encourage bad fiscal behavior or overspending because the manager is aware that there is such a budget? HSA525_7_1_5_ProfQuan-3:  That is a definite drawback to a budget. The tendency to spend to the budget is a real concern for organizational leaders. There are going to be pros and cons, but in terms of budgeting, the pros far outweigh the cons. So, your point is very well taken, but…we have to consider the consequences of not having a budget. I would suggest that not having a budget is more fiscally irresponsible. Great question…are there any other questions? HSA525_7_1_5_Tyler-1:   None…..thanks   HSA525_7_1_5_Sophia-1:  ..I have no questions….   HSA525_7_1_5_ProfQuan-4:  Well, that concludes today’s lecture…..I will see you all next time….

   

   

  HSA525 Week 7, Lecture 2 Script: Capital Expenditure Budgets
  Slide #	Scene/Interaction	Narration
  Slide 1	Scene 1: Prof. Quan uses projector	HSA525_7_2_1_ProfQuan-1:  Greetings everyone…..Today we will continue our lecture on budgeting. As you will recall, our last lecture focused on operating budget. Today, we will shift our focus to the capital budget. This lecture will cover capital budgeting - determining which investments a firm should undertake.   HSA525_7_2_1_ProfQuan-2:  The capital budgeting process has become an increasingly important aspect of operations for the healthcare industry in recent years. Increased competition and significant changes in third-party payer reimbursement policies have augmented the need for healthcare organizations to place more emphasis on long-term financial stability.   HSA525_7_2_1_ProfQuan-3:  Since hospitals must continually expand services to keep up with changing technology and demand, this stability is accomplished primarily through the purchase of new equipment, renovations of old equipment, or the development of new service programs. Such asset acquisition yields future cash inflows, so it represents a substantial form of investment for hospitals. Thus, effective budgeting for capital expansion has a substantial effect on the long-term financial status of healthcare organizations.   HSA525_7_2_1_Tyler-1:  So, given the process involved with capital budgeting, how would you say the budgeting process for capital expenditures is inter-related or interdependent on the operations budgeting process?   HSA525_7_2_1_ProfQuan-4:   Capital budgeting is not a stand-alone process. To effectively make investment decisions, capital budgeting must be integrated with operational budgeting and testing of strategic plans and operating tactics. In this way, the capital budget can be improved and drive the annual planning process. Another way of looking at it is…the capital budgeting process is used to convert the operating plan into budgets for capital expenditures.   The capital budget process consists primarily of two parts. The first part represents spending for capital assets that have already been acquired and are in place. The second part represents spending for the acquisition of new assets.   HSA525_7_2_1_Sophia-1:   So, the capital budget may include items such as expanded services?   HSA525_7_2_1_ProfQuan-5:  Exactly…expanded services would be included in the budget for new capital expenditure. An example of a replacement capital expenditure might be the scheduled replacement at the end of the useful life of equipment.
  Slide 2	Scene 2: Prof. uses projector                                         (Prof. Quan writes out formula as Payback Period = Original Investment / Annual Cash Flows)                                           (Prof. Quan enters the formula as Accounting Profit / Average Investment = ARR on the whiteboard).	HSA525_7_2_2_ProfQuan-1:  The best use for capital budgeting is seen when a company is deciding between two or more options which appear to offer similarly favorable outcomes. Decisions on investments, which take time to mature, have to be based on the returns which that investment will make.  Traditional appraisal methods include Payback Period and Accounting Rate of Return. Whereas, the discounted appraisal method includes Net Present Value and Internal Rate of Return.   HSA525_7_2_2_Lauren-1:   Is the capital budgeting process uniform for most healthcare organizations?   HSA525_7_2_2_ProfQuan-2:  While each company may elect to create their own process, there are certain basic steps that must be undertaken during the process. For instance, the first step in the process for any organization should be to form a capital budget that outlines where the company hopes to go long-term. The budget committee should identify and prioritize all capital requests. From there, slight variations from one organization to another in terms of the process may occur….however, the overall structure of the process is similar for all organizations, including healthcare organizations.   HSA525_7_2_2_Sophia-1:  What affect does the capital budgeting process have on independent versus mutually exclusive projects?   HSA525_7_2_2_ProfQuan-3:  In capital budgeting, decisions to either reject or accept an independent project do not affect decisions about another project…on the other hand; acceptance of a mutually exclusive project precludes other projects. You may remember that the payback period is the time required for an organization to recover its original investment, or to break even.   HSA525_7_2_2_ProfQuan-4:  To determine the payback period, the following formula is used….Payback period equals the original investment divided by annual cash flows For instance, if the initial investment was one hundred thousand dollars…and the annual cash flows equal fifty thousand dollars…then it would take the organization two years to break even…that is the payback period.   HSA525_7_2_2_Lauren-2:   Professor, what are the most important benefits to using the payback period as an appraisal technique?   HSA525_7_2_2_ProfQuan-5:   One important benefit is that the payback period measures risks…another is that the payback period avoids obsolescence. The underlying premise of the payback period is that the more quickly the cost of an investment can be recovered, the more desirable the investment is.   HSA525_7_2_2_ProfQuan-6:  Of course, there are some criticisms of the payback method when considering investment decisions. The most important challenge to the payback method is the fact that it does not consider the time value of money. Cash inflows from the project that are scheduled to be received in five years are weighted the same as cash flow expected to be received in year one. This is a pretty risky assessment….wouldn’t you agree?   HSA525_7_2_2_Tyler-1:   I would certainly agree…so, what are some of the positives to using the payback method in capital budgeting?   HSA525_7_2_2_ProfQuan-7:  The Payback method is simple and can be done pretty quickly…it is often used for rough estimates…   HSA525_7_2_2_Sophia-2:   How would you describe the Accounting Rate of Return in the Capital Budgeting Process?   HSA525_7_2_2_ProfQuan-8:  The Accounting Rate of Return, or ARR, uses expected net operating income to be generated by the investment proposal rather than focusing on cash flows to evaluate the proposal. The ARR is determined by dividing the Average Accounting Profit by the Average Investment. The strengths of the accrual accounting rate of return method are that it is simple, easy to understand, and considers profitability. Its weaknesses are that it ignores the time value of money and does not consider the cash flows for a project.
  Slide 3	Scene 3: Prof. Quan uses chalkboard.	HSA525_7_2_3_ProfQuan-1:  Now let’s look at the discounted appraisal methods used in the capital budgeting process. The time value of money forms the basis of the net present value method for evaluating capital investments. The Net Present Value, or NPV, of a capital budgeting project indicates the expected impact of the project on the value of the organization. Projects with a positive NPV are expected to increase the value of the organization. Generally, all independent projects with a positive NPV should be accepted.   HSA525_7_2_3_Tyler-1:   You mentioned the rule of thumb for accepting independent projects. But, sometimes organizations have to consider mutually exclusive projects. So, what is the general rule for the mutually exclusive projects?   HSA525_7_2_3_ProfQuan-2:  When choosing among mutually exclusive projects, the project with the largest positive NPV should be selected. Remember, when comparing mutually exclusive projects, only one project will be accepted, and that should coincide with the project yielding the largest positive NPV.  HSA525_7_2_3_Sophia-1:   What might be a disadvantage to using the NPV method?   HSA525_7_2_3_ProfQuan-3:  One of the challenges to the NPV method is that it relies on assumptions, including the need to estimate interest rates for the duration of the project. Inaccurate assumptions lead to inaccurate calculations of the NPV of the project. In addition, the NPV is thought to be inherently complex.   HSA525_7_2_3_ProfQuan-4:  The Internal Rate of Return, or IRR,…is essentially the rate of growth a project is expected to generate. The IRR is thought to be the most commonly used method for evaluating capital budgeting proposals.  This is probably because the IRR is very straightforward and easy to understand.  The IRR can be compared easily to the expected return on other types of investments, such as savings accounts, bonds, and so on. If the internal rate of return is greater than the project's minimum rate of return, managers tend to accept the project.
  Slide 4	Check Your Understanding: Horizon Home Care is planning to purchase equipment costing $100,000. Projected cash flow is $22,000 per year during the equipment’s 5 years of useful life. Calculate the payback period. A. 4.55 years B. 5.25 years C. 7 years Feedback: A Correct!  The payback period equals initial investment / cash inflow per period. B Incorrect,  the payback period equals initial investment / cash inflow per period C Incorrect, the payback period equals initial investment / cash inflow per period
  Slide 5	Scene 4: Prof. Quan uses projector	HSA525_7_2_4_ProfQuan-1:  Now, let’s review what we have discussed by comparing the investment appraisal methods used in the capital budgeting process. First, let’s look at the Payback Period. The basis of measurement for the payback period is cash flows. Its measure is expressed as the number of years. One strength of the payback period is its ease in terms of understanding. It also allows for comparisons across projects. In terms of its limitations, the payback period does not consider the time value of money. It also does not consider cash flows after the payback period.   Do we have any questions on the payback period?   HSA525_7_2_4_Sophia-1:   Why is it important to consider cash flows after the payback period?   HSA525_7_2_4_ProfQuan-2:  This is how you would determine profitability…the payback method does not measure profitability because it does not consider cash flows after the payback period.   Are there any further questions on the payback period?   HSA525_7_2_4_Sophia-2:   Not at this time.   HSA525_7_2_4_Lauren-1:   No questions.   HSA525_7_2_4_Tyler-1:   No   HSA525_7_2_4_ProfQuan-3:  Okay, now we will review Accounting Rate of Return. Its basis of measurement is accrual income. Its measurement is expressed as a percent. It is considered easy to understand and allows for comparisons across projects. The major drawback, as with the payback period, is that it also does not consider the time value of money. In addition, the accounting rate of return does not give annual rates over the life of a project. It uses operating profit rather than cash flows.   HSA525_7_2_4_Tyler-2:   Can you reiterate the challenge with ignoring the time value of money?   HSA525_7_2_4_ProfQuan-4:  Certainly….By ignoring the time value of money, the capital investment under consideration may appear to have a higher level of return that it actually does. The capital investment may appear to be more lucrative than the alternatives, when it is less lucrative…this can definitely lead to bad investment decisions. Remember, the value of a dollar received today is worth more than a dollar received a year from now.   HSA525_7_2_4_ProfQuan-5:  The NPV method uses cash flows and profitability as a basis of measurement. It is expressed in dollar amounts. Its strengths include the consideration of the time value of money, and it accommodates different risk levels over a project’s life. The drawbacks to the NPV are that it is difficult to compare dissimilar projects using this method.   Any questions?   HSA525_7_2_4_Tyler-2:   No, I think I get it… HSA525_7_2_4_Lauren-2:   No questions…. HSA525_7_2_4_Sophia-3:  No questions…   HSA525_7_2_4_ProfQuan-6:  Finally, we will take a look at IRR….its basis of measurement is cash flows and profitability. It is expressed as a percent. It considers the time value of money and allows for comparison of dissimilar projects. It also has limitations, including the fact that it does not reflect varying risk levels over the project’s life.
  Slide 6	Scene 5: Prof. Quan uses projector	HSA525_7_2_5_ProfQuan-1:  We have concluded our lecture for today. Organizations generate cash flows by using their assets. Without assets, there would be no sales, profits, or cash flows. As you might imagine, not all potential asset acquisitions are created equally. Therefore, the healthcare manager must make well-informed decisions regarding which acquisitions are best for the organization.   HSA525_7_2_5_ProfQuan-2:  Capital budgeting is the technical name given to the asset investment decision making process. The capital budgeting process requires coordination between several departments within the organization. Most capital projects require significant initial investments and have an ongoing need for funding to cover operating costs throughout their useful lives. Employing the most effective appraisal method or methods is critical to ensuring the best possible decisions.   Are there any questions?   HSA525_7_2_5_Tyler-1:   I do have a question…is one method more “appropriate” than other methods of appraisal? I know that we discussed pros and cons, but I wonder - is one method better?   HSA525_7_2_5_ProfQuan-3:  Most often, managers use more than one method, as using different methods will yield different insights. Each method has benefits to facilitate the decision making process. Informed capital budgeting decisions should be the product of sound managerial judgment using a variety of financial tools.   Are there any other questions today?   HSA525_7_2_5_Tyler-2:  No, I think we covered everything….   HSA525_7_2_5_Sophia-1:   No questions…thanks   HSA525_7_2_5_Lauren-1:   No questions, thank you….   HSA525_7_2_5_ProfQuan-4:  Well, since there are no other questions we will adjourn….thanks everyone…