Health Care Business Analysis

Health Care Business Analysis


Health Care Business Analysis

In order for businesses to prepare for changes and projected costs, it is important for them to conduct analysis on the previous years’ costs and revenues in order to anticipate and prepare for what is to be expected in the following years to come. The primary role of the Chief Finance Officer is to oversee the financial executions of an organization. As finance and budget control go hand in hand, they are very comprehensive elements that set the groundwork for what contributes to the success of the organization. Just as in the decision-making process for Patton-Fuller Community Hospital (PFCH), it is important to review previous activity of the company, and analyze what financial impact certain changes will have on the company. When analyzing the monetary activity of the organization, there are key elements to consider such as analysis tools and proper managerial and financial management that will set the path for the organization.

Budget Decision-Making Process

Conducting proper financial planning and budgeting for the future is an important step for forecasting a company’s focus and expectations for the upcoming years. The budget is what an organization relies on to depict in dollars activities that utilize resources (Gapenski, 2012). Budgeting is a key element for the success of businesses to excel. The process involves constructing specific plans that explain the resources needed to maintain the financial operations of the organization. Budgets are extremely important in order to make future decisions for the future. Budget and allocation is important for the company to prepare for the financially activity to come.

Variance Analysis in Maintaining an Operating Budget

A helpful tool that is useful to identify areas of opportunity in budgets is variance analysis. Variance analysis is used to analyze the current financial performance of an organization, and target the opportunities that needed improvement (Gapenski, 2012). This tool allows organizations to manage and control their financial operations by comparing actual results with the expected performance results. The areas of opportunity are targeted in order to make improvements to achieve the expected goals of the organization. Monthly variance analysis can prove to be a helpful tool for Patton-Fuller Community Hospital to review and manage their overall annual financial performance.

Managerial Accounting and Financial Management

There are important elements following creating budgets and conducting variance analysis in health care finances. Managerial accounting and financial management are vital tools that use accounting to manage operational functions of an organization. Financial accounting is a function of reporting the performance of an organization to stakeholders, publicly traded companies and outside investors in order to highlight the financial stability of the organization and must follow the Generally Accepted Accounting Principles (GAAP) (Francis, 2016). Managerial accounting is a way for organizations to internally focus on the financial needs of the organization in order for management to collectively determine decisions for the company.

Generally Accepted Accounting Principles

There are guidelines that businesses must adhere to my means of publicly providing financial performance. Generally Accepted Accounting Principles (GAAP) are standards implemented in The United States in order to mandate financial reporting of companies to ensure creditability of the organization and provide a forum for financial reassurance from outside sources (Richards, 2016). GAAP is a source of displaying an organization’s credit worthiness by report financial performance, and some that have not yet been collected, which displays the performance appeal to external investment companies that can contribute to the financial gain and advancement of the health care organization.

Labor Alternatives in PFCH and Recommendation

There are discussions that must occur in order to make the decisions that directly affect the nursing labor issues. Health care organizations depend on the front-line staff to evaluate the roles that they obtain, in addition to communicating to leaders opportunities that will better the financial and quality needs of the organization. The cost evaluation of increasing the wages of nursing for PFCH in comparison to adding nursing roles that would reduce the nursing to patient ratio from 5:1 to 4:1 shows that the most costly opportunity for the organization would be to increase the wages of the current staff. This decision would produce a cost of $631,000 and a produced net income of $8,484,000. Otherwise, the alternative of adding additional nursing roles would produce a cost of $4,730,000 and a net income of $4,384,000. These configurations would make the decision reasonable to increase salaries rather than exuding costly functions associated with salary increases. It is reasonable for PFCH to implement an increase in the current nursing salary based on the increased net income that would be produced as opposed to creating new roles that would require additional salaries, pensions, and benefit requirements.

Analysis of Labor Decision and Budget Projection

There are many benefits for PFCH to choose to increase nursing salaries as opposed to bringing in additional nurses. The opportunity cost associated with this decision is directly in relation to the increased productivity that would come with increasing the wages of the nursing environment at PFCH. The recommendation to increase the wages of the nurses will serve as compensation for being overworked and underpaid. The raise for the nurses will serve as validation for the hard work that they do. The employee satisfaction level will be positive as they will have individual reinforcement that they are truly supported by the leaders of PFCH. In result, the expectation is that due to the increased nursing compensation and satisfaction will improve the quality of care that is rendered on the patients. When the quality of care improves, the response from patients is positive, improving patient satisfaction. The morale of nursing and patients at PFCH is anticipated to improve the productivity and overall operations of the organization.


Health care organizations are unique businesses that require in depth financial analysis and financial management and accounting mechanisms. It is known that health care organizations are complex businesses that require robust operational budgets in addition to extensive planning and forecasting that are aimed at creating an effective and sustainable budget. Variance analysis contributes to the identification of opportunities for the organization. Managerial accounting handles the internal finances of the organization while financial accounting displays an organization’s achievements and financial status to its stakeholders and external audience. The organization must adhere to the GAAP standards for financial accounting. Following budget analysis, it shows that the net revenue would be most beneficial to PFCH by increasing the wages of the nursing department in order to improve morale, quality of patient care, and the projected financial structure of the health care organization.


Finkler, S. A., Ward, D. M., & Calabrese, T. D. (2013). Accounting Fundamentals for Health Care Management (2nd ed.). Burlington, MA: Jones & Bartlett Learning.

Francis, K. A. (2016). The Differences Between Financial Accounting & Management Accounting. Retrieved from

Gapenski, L. C. (2012). HEALTHCARE FINANCE An Introduction to Accounting and Financial Management (5th ed.). Chicago, IL: Health Administration Press.

Richards, J. (2016). How Does a GAAP Aid in Health Care? Retrieved from