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ANSWERED!! Preparing and Managing a Capital Budget

Preparing and Managing a Capital Budget

Note: Complete the assessments in this course in the order in which they are presented.

In today’s health care environment, the focus on major purchases, as part of the capital budget, has emphasized the need for newer and better technology. Although the need to invest in capital equipment and technology has been ongoing, the nursing workforce must also have a safe and pleasant work environment.

This assessment provides an opportunity for you develop a capital budget for a major facility improvement that will benefit patients, nurses, and the organization.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

  • Competency 3: Develop a capital budget.
    • Describe a capital acquisition.
    • Prepare a capital budget.
    • Describe the process for calculating costs.
  • Competency 4: Determine the equipment and services needed to maintain seamless patient or client care.
    • Justify the need for a capital acquisition.
  • Competency 5: Apply financial principles to a strategic plan for achieving organizational goals and fiscal success.
    • Present a plan for budget management.
    • Explain how a capital acquisition will affect the financial health of the organization.
  • Competency 6: Communicate effectively with diverse audiences, in an appropriate form and style, consistent with applicable organizational, professional, and scholarly standards.
    • Present budget data and information clearly and accurately.
    • Integrate relevant and credible sources of evidence to support your budget data and information, correctly formatting citations and references using APA style.

Competency Map

Use this online tool to track your performance and progress through your course.

Context

Most nurse leaders work with operating budgets, but will also have input into capital budgets. A capital budget is typically developed separately from the operating budget and is usually developed to purchase items that are often referred to as big-ticket items that will enhance the capacity or services of an organization. For example, capital budgets may cover land purchase for the future site of a new outpatient surgical center, construction of a new building or build-out for renovation of an already existing building, or replacement of old equipment.

It is important to remember that health care is also a major business. While for health care providers, patient care and safety are priorities, health care institutions must operate from a business model in order to survive financially. As nurse leaders or executives, you often have a role to play in developing a capital budget to improve care at some level. In addition, a rapidly changing health care environment requires nurse leaders who have the financial management and budgeting skills to ensure that large capital expenditures further the mission and goals of the organization.

Questions to Consider

As you prepare to complete this assessment, you may want to think about other related issues to deepen your understanding or broaden your viewpoint. You are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of your professional community. Note that these questions are for your own development and exploration and do not need to be completed or submitted as part of your assessment.

  • How would you approach the process of designing a capital budget? For example:
    • What steps would you need to take?
    • What resources would you access?
    • Will you collaborate with other executives or staff?
    • How will you tie the vision for the capital expenditure to the organization’s mission and goals?
  • What challenges do you anticipate in justifying a capital budget to administrative leaders in an organization?
  • What criteria might a particular health care organization or service provider apply to evaluate the return on a capital investment?

Resources

Required Resources

MSN Program Journey

Please review this guide for your degree program. It can help you stay on track for your practicum experience, so you may wish to bookmark it for later reference.

The following resources are required to complete the assessment.

Suggested Resources

The resources provided here are optional. You may use other resources of your choice to prepare for this assessment; however, you will need to ensure that they are appropriate, credible, and valid. The MSN-FP6216 – Advanced Finance and Operations Management Library Guide can help direct your research, and the Supplemental Resources and Research Resources, both linked from the left navigation menu in your courseroom, provide additional resources to help support you.

Capital Budgeting

The following articles address capital budgeting and may help you with preparing your capital budget in this assessment.

Capital Budget Preparation

The following interactive exercise introduces you to the process of preparing a capital budget.

ANSWER

Preparing and Managing a Capital Budget

Budgeting is a fundamental process in any organization, including the healthcare sector. According to Rundio (2016), through budgets, managers can identify the projects or investments they can improve their organizations’ productivity. In the last assessment, an operating budget was created to determine the money required to run the organizational operations without hitches. Today’s assignment is about capital budget. As a manager of a 50 bed, step-down unit, I need to create an annual capital budget to show the organizations to show the management. My unit has suffered a turnover problem for the last three years. After reviewing existing patient surveys and interviews, I found that the turnover is asresults from morale, low nurse satisfaction, and unconducive working environment. Based on my research, renovating nurses’ lounge as a quality improvement project to curb the problem. The purpose of this assignment is to develop a capital budget for the investment project.

Capital Acquisition

A capital acquisition can be defined as a business transaction where an organization acquires control over a part or all other firm’s assets and properties to increase its long-term objectives. In other words, the capital acquisition is the legal process of buying part or a whole organization to gain control of the firm’s assets and operations for a period exceeding 12 months. The capital acquisition is different from a takeover or merger. Backman and Wallin (2018) argue that the process often occurs when the company being bought has agreed to sell the firm. The process is also done to benefit both parties. For instance, a firm can buy another organization to improve its operations and, at the same time, solve the seller’s financial issues. However, takeovers are always ruthless and inhospitable. This type of transaction often happens when the firm’s owners have not agreed to the terms (Slotkin et al., 2016).Therefore, to gain control during takeovers, the firm buying shares must purchase the other 51% of the organization’s shares. On the other hand, a merger is a transaction that creates a new entity (Wallin et al., 2018). In other words, a merger is a business transaction that allows two companies to come together and form one legal firm. For instance, during a merger, St. Anthony Medical Center will come together with another firm to form a new organization.

Justification of Capital Acquisition

The capital acquisition is often made due to the following reasons. According to Wallin et al. (2018), the 2capital acquisition is often made to increase the organization’s market acquiring the assets and properties. For instance, St. Anthony Medical Center may acquire a healthcare organization’s assets in different locations to increase its market in that region. Another reason for buying a portion or all organizational assessment is to reduce production or operation costs. For instance, St. Anthony Medical Center may acquire another hospital’s assets to reduce the cost of starting up a branch from scratch. The capital acquisition is also a growth strategy. A company might face several business challenges. Hence, to grow and win the challenges, the organization might decide to acquire a firm (Slotkin et al., 2016). The capital acquisition is often made to reduce the rate of competition in the market. A big company might decide to reduce competition by buying shares of its competitors, hence making its partner. A healthcare organization might opt for capital acquisition to decrease excess capacity. For instance, St. Anthony Medical Center may opt to acquire another healthcare firm to reduce overcrowding instead of building extra wards. Other reasons why an organization might decide to opt for capital acquisition include to enter a foreign market and to gain access to new technology.

Preparation of a Capital Budget

The preparation of a capital budget often follows five steps. The first step is identifying and evaluating potential opportunities. A budget creator should identify the opportunities and assess whether they will help achieve the organization’s overall objectives. Researches show that the nurses’ lounge renovation can reduce the rate of nursing turnover in the organization. The second phase is estimating implementation and operating costs (Rundio, 2016). After one has identified an opportunity worth investing in, the manager should then estimate the costs incurred during the implementation phase. Cost estimation can be achieved through interprofessional collaboration. Third, the manager should conduct a cost-benefit analysis. Here, the project manager should estimate the project’s benefit and compare it with the cost of implementing it. It is estimated that renovating nurses’ lounge will reduce nurse turnover, reducing recruitment costs, and improving patient care and outcomes. The manager will also assess the risk of initiating the project and how the risks can be mitigated in this step. The fourth step is the implementation of the budget (Maxwell et al., 2016). After the management has given a go-ahead, the manager will proceed with implementation. The last step is evaluation. Here, the project manager is required to evaluate the budget and determine if it was used accordingly. The table below is a capital budget for the renovation of nurses’ lounge.

2020 Financial Year Capital Budget for Renovation of Nurses’ Lounge  

FY 2020
Fixed Equipment-building service $550,000
Furniture and fittings $50,000
Fixed equipment-other $1,200,000
Equipment $480,000
Renovation $15,000
Less accumulated depression $10,000
Total $2,285,000

The Process for Calculating Costs

Costs can be calculated following this four-stem-process. The first step is collecting direct spending. For one to collect costs, one should collect information about all direct spending. The spending represents funds spent on various activities, including labor, energy, and depreciation. The second step is the allocation of indirect spending. The manager should then focus on spending outside the project (Maxwell et al., 2016). The third step is the calculation of the cost of the center rates. After identification of direct and indirect spending, one should express the costs in dollars per element. The last step is properly assigning the rates to products. After calculating the center rates, the manager should assign each product cost using the calculated rates in the third step.

A Plan Budget Management

Budget management is the process of monitoring and tracking a budget. The first step to budget management in budget preparation. Budget preparation can be effective only when the project manager (nurse manager) includes other people in its establishment. Including construction experts in budget creation will be helpful in the renovation project. The second step is conducting a financial analysis (Stroudt, 2013). Nurse managers should have the skill to analyze the financial health of their units. A good budget manager should review the financial statements and other records to clearly view the budget. The fourth step is conducting forecasting. Financial forecasting is the procedure for determining the future financial performance of an organization. This skill will help the nurse manager determine whether the project benefits the unit and the organization as a whole. The last step is the evaluation (Jasuta, 2016). In this step, the project manager will compare the planned and actual spending, assess the revenue and expenses, review the project goals, and modify the budget to meet the project requirements.

Effect of Capital Acquisition of Financial Health of an Organization

The capital acquisition may affect the financial health of an organization in various ways. First, Slotkin et al. (2016) note that acquisition may increase an organization’s income. The company being acquired can gain from the transaction because its income and revenue can increase. Second, the transaction can eliminate redundant costs for bong organizations included in the process. One of the ways of improving the financial health of organizations is reducing the incidents of redundant costs. Third, the process can increase the organizations’ income by ensuring that the firms have reached new markets and improve their market share. The transaction can also save organizations marketing or advertising costs by eliminating competition (Backman & Wallin, 2018). Lastly, new resources taken over by the organization acquiring another firm will improve its assets and properties.

Conclusion

Capital acquisition is a transaction that can greatly impact the financial health of an organization. The capital acquisition allows companies to expand, increase their financial liquidation, and increase their market share. It can only succeed through the development of a capital budget. Capital costs can be calculated by collecting direct and indirect spending and assigning product costs. The budget can be managed by preparing the document, conducting financial analysis, performing financial forecast, and evaluation.

References

Backman, M., & Wallin, T. (2018). Access to banks and external capital acquisition: perceived innovation obstacles. The Annals of Regional Science, 61(1), 161-187. https://link.springer.com/article/10.1007/s00168-018-0863-8

Jasuta, L. (2016). Rolling capital managing investments in a value-based care worldHealthcare Financial Management, 70(6), 82–89.

Maxwell, J. M., Cho, T., Rudkin, S., Wong, A., Almassi, N., & Barton, Erik. (2016). Mobile COWs (Computer on Wheels): Hamburger or VEAL? Western Journal of Emergency Medicine, 17(5), 527–530. doi: 10.5811/westjem.2016.6.30118

Mukherjee, T., Al Rahahleh, N., Lane, W., & Dunn, J. (2016). The capital budgeting process of healthcare organizations: A review of surveysJournal of Healthcare Management, 61(1), 58–77. https://search.proquest.com/openview/ee6bc2e4104071453896ea1810a3fecf/1?pq-origsite=gscholar&cbl=32030

Rundio, A. (2016). Budget development for nurse managersReflections on Nursing Leadership, 42(3), 1–8.

Slotkin, M. H., Vamosi, A. R., Perez, E. M., Durie, C. J., & Eisenberg, J. R. (2016). Study tours and the diversification of cultural capital acquisition. Journal of International Education in Business. https://doi.org/10.1108/JIEB-11-2015-0026

Stroudt, R. L. (2013). 12 strategies for managing capital projects. Healthcare Financial Management, 67(5), 68–71.

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