Assignment: Expense Forecasting and Benchmarking

Looking Ahead: Application Assignment: Expense Forecasting and Financial Analysis Cycle

You will begin this assignment in Week 9 and it will be due by Day 7 of Week 10.

Throughout this course, you’ve examined the importance of anticipating financial fluctuations that may impact your organization’s ability to provide services. While financial managers have no time machines or crystal balls, they do have expense forecasts. Expense forecasting is one of the preeminent tools that financial managers can use to prepare their organizations for future fiscal turbulence. In this Assignment, you will examine a scenario and generate a corresponding expense forecast in Excel.

Before pursuing an opportunity or making a major purchase, financial decision makers must first ascertain if the expenditures are justified. Determining whether a new process, system, or purchase will yield worthwhile returns is no easy task. However, managers have a variety of tools to help them decide whether the new expenditure is warranted. Analyzing a venture’s benefit/cost ratio, marginal profit and loss statement, and break-even points enable nurse managers to make educated decisions about how they choose to commit their funds.

Note: For those Assignments in this course that require you to perform calculations you must:Use the Excel spreadsheet template for the Week 3 assignment
Show all your calculations and formulas in the spreadsheet.
Answer any questions included with the problems (as text in the Excel spreadsheet).

A title and reference page are NOT needed in this assignment. Put your name and assignment at the top of the Excel spreadsheet.

For those not comfortable with the use of Microsoft Excel, this week’s Optional Resources suggest several tutorials.

To prepare:

Review the information in the Week 9 and 10 Learning Resources dealing with expense forecasting, profit and loss, break-even analysis, and benefit and cost ratio analysis. Focus on how they are calculated and how they can be used in decision making.
View the following tutorial videos, provided in this week’s Learning Resources.
Week 10 Application Assignment Tutorial: Benefit Cost Ratio
Week 10 Application Assignment Tutorial: Breakeven Analysis
Week 10 Application Assignment Tutorial: Expense Forecasting
Week 10 Application Assignment Tutorial: Profit and Loss Scenario

Use the Week 10 Application Assignment Template, provided in this week’s Learning Resources, to complete this assignment. Carefully examine the information in each of the scenarios and provide the necessary calculations. Using this information will help you answer the questions. Note: All the scenarios will be submitted as one document. Each scenario will be on a different tab in the spreadsheet.

Expense Forecasting

In this Application Assignment you calculate scenarios focusing on benefit/cost ratio analysis, marginal profit and loss statements, and break-even analysis. For these scenarios, you will utilize the provided figures to perform calculations and then make recommendations about the viability of the investment opportunities

Expense Forecasting Scenario

Your department has performed 20,000 procedures during the first six months (January–June) of 20X1. Spending during that period of time was $210,000 for fixed expense items and $1,200,000 for variable expense items. Of those amounts, $50,000 of fixed expense money was spent on preparing for a Joint Commission survey. Volume is anticipated to be 10% higher in the second half of the year. On November 1st, two new procedure technicians will begin work. The salary and fringe benefit costs for each are $96,000/year. Based on the information provided, prepare an expense forecast for 20X1.

Annualization for Fixed: (Adjusted Total for Year to Date Expense/6) * 12 =Total Annualized Amounts

Annualization for Variable (Adjusted Total for Year to Date Expense/ 20,000) * 40,000 =Total Annualized Amounts.

Financial Analysis Cycle
Marginal Profit and Loss Statement Scenario

You are examining a proposal for a new business opportunity – a new procedure for which demand is expected to be 1,400 units the first year, growing by 600 units a year thereafter. The price charged per procedure is $1,000. The collection rate is anticipated to be 80%. Each procedure consumes $300 of supplies. Salary cost is estimated to cost $540,000 each year, fringe benefits are 25% of salaries, rent for the facility is $55,000/yr and operating cost are $120,000/yr.

Questions:

Develop a marginal profit and loss statement for this business opportunity.Based on that analysis, should this opportunity be pursued?

Break-Even Analysis Scenario

You can charge $1,075 for a new service. Demand is anticipated to be 8,000 units a year. Your business is able to handle up to 16,500 units annually, so capacity should not be a problem. The average collection rate is 80%. The new service has annual fixed costs of $4,700,000. Variable cost per unit of service is $420.

Question: Use break-even analysis to determine if this new service is financially viable. If the business is not financially viable, what steps could you take to make a case to proceed with implementation? Explain your decision.
Benefit/Cost Ratio Analysis Scenario

You are considering the acquisition of a new piece of equipment with a useful life of five years. This new technology will make your clinical operation more efficient and allow for a reduction of 10 FTEs. The equipment purchase price is $4,500,000 plus 10% installation fee. The purchase price includes service for the first year, an item that has an annual cost of $10,000. There is a potential for additional volume of 150,000 units in the first year, growing by 30,000 each year thereafter. The price charged per unit is $15.00 with a 50% collection rate. The staff being eliminated are paid $12.50 per hour. The fringe benefits rate is 20%. The hurdle rate is 7.5%.

Questions: After reviewing Dr. Ward’s Video and the calculations below, please answer the following questions:

What is meant by benefit/cost ratio, average payback period and ROI and why are the all important to understand when purchasing new equipment?
Based on this information, would you pursue this opportunity?
Explain your decision in 250-500 words in the text box below.

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Identify three uses for a frequency distribution. Please provide realistic health related examples.
Briefly identify the differences between a normal, positive and negative skew. How does this skew or distribution curve relate to standard error? What does the standard error mean for the results? Feel free to use and example to explain your answer.

250 words

At your hospital, the Committee on Medical Ethics is a medical staff committee. It answers to the Medical Executive Committee and the medical staff president, and its members are jointly appointed by the president of the Medical Staff and committee chair.

Although it is a Medical Staff Committee, its membership is multidisciplinary, including physicians, nurses, social workers, lawyers, and members of the lay public (for community representation).

Most members of the committee have received training in clinical ethics consultation, and were chosen because of their interest in resolution of ethical issues and their interpersonal qualities with patients and staff.

The hospital administration has engaged a consulting firm to “modernize” its structure. The consultants have advised converting the “old” social worker approach to the contemporary position of case manager. The consultants note that three social workers sit on the Ethics Committee.

The social worker members of the Ethics Committee were advised that they will no longer serve on said committee, and that their place will be taken by the manager of case management, who has no experience in ethics consultation, nor does she know anything about the history of Ethics Committee activities at your hospital.

The chair of the Ethics Committee is informed that three of his committee members are “out.” The chair is livid, and there is also an immediate reaction from all the rest of the committee members, most especially the medical staff members of the committee— something about separation of powers is mentioned.

You have been assigned by the hospital administrator to “handle this mess.” How would you go about doing so? If you had been told to handle the proposed committee reconfiguration from the very beginning, what would you have done differently from what was done? What change management practices would you have implemented to have these adjustments be handled better?

Discuss the meaning of ‘full partners’

Explain initiatives implemented and/or are recommended to advance this key message

Discuss how the Affordable Care Act (ACA) supported the Future of Nursing initiatives

Discuss 2 initiatives that may be affected if the American Health Care Act is voted into law