Superior Health Systems (SHS) aims to provide high-quality health care for patients along with nursing and medical education for the residents of Corinth and two adjacent counties. It needs to analyze five strategic projects proposed to the board. Capital budgeting is an essential process for any company that assesses potential major investments (Zelman, McCue, Glick, & Thomas, 2020). The purpose of this paper is to rank the five strategic projects proposed and evaluate the finance committee’s recommendation based on the company’s financial position and organizational objectives.
Strategic Projects Ranked
The total operational budget of SHS equals $200,000,000 per year with a cash flow of $12,000,000. Given the company’s financial state and poor liquidity position, it should evaluate the projects on the basis of their economic feasibility (Finkler, Smith, & Calabrese, 2018). Furthermore, decision-making guidelines such as heuristics, bounded awareness, framing, fairness, and ethics, and biases should be considered (Scandur & Gower, 2019). The projects can be ranked as follows, based on their financial feasibility and compliance with SHS’s objectives:
- Partner with a major supplier who will guarantee price, delivery, and product quality. No investment is required, while the recovery will constitute $600,000 per year. The reserve of $2,000,000 will be available in storage savings.
- Develop a cost-reduction program. The investment of $1,000,000 is needed, and the contribution of $4,000,000 is expected in subsequent years.
- Spend $3,000,000 to expand primary care physician membership in Corinth Health Systems, SHS’s PHO. An investment of $3,000,000 is required, and up to 20 physicians will be supported.
- Purchase the Henry Street School. The $4,000,000 investment is needed, and $200,000 annual fixed costs will be added.
- Expand the ENT, Plastic, Gynecology, and Orthopedics surgical programs. The investment of $7,000,000 is required, while the recovery of $6,000,000 is expected in lost revenue.
The Evaluation of the Finance Committee’s Recommendation
Based on the limit of $6,000,000 set as part of the budget guidelines, a careful approach is needed to evaluate the finance committee’s recommendations. While performing the projects would improve the quality of health care, optimism bias and narrow framing should be avoided in the decision-making by focusing on data instead of narratives and projections. I would vote for items 1, 2, and 3 on the list presented in the above paragraph as they allow for significant contributions in subsequent years without exceeding the committee’s limit. Item 4 requires most of the capital budget, while item 5 exceeds it and is unlikely to be considered unless a strong ROI can be expected within 1-2 years.
Reasons for Supporting the Proposals
Item 1, partnering with a major supplier, is the most feasible choice since no initial investment is required, while the delivery, price, and product quality would improve significantly, which implies better patient outcomes. Item 2, developing a cost-reduction program, is another sensible option that can be implemented along with the first project. Its investment is lowest in comparison to other projects, and the savings seem promising. Moreover, patient-focused care and minimized involuntary terminations can benefit the company. Item 3, expanding primary care physician membership in Corinth Health Systems, would increase the number of physicians by 20 and allow for taking on more cases, resulting in higher revenue. At the same time, to avoid bounded awareness, heuristics, and bias, more supporting data on the effects of each project should be considered.
Summary for the Advocates of the Projects
Item 4, purchasing the Henry Street School, requires most of the capital budget. While it would allow for providing childcare for 250 preschoolers while involving small risks, unforeseen costs may be associated with owning this property. More precise details regarding cost are needed to reconsider this project. Item 5, expanding the ENT, Plastic, Gynecology, and Orthopedics surgical programs, exceeds the capital budget by $1 million and thus cannot be voted for. Nevertheless, I would recommend finding a possibility to reduce the investment or increase the allowed budget to prioritize this project as it has a high ROI.
Expanding the Finance Committee’s Expenditure Recommendations
To expand the finance committee’s expenditure recommendations, I would emphasize that if the budget can be increased by $1 million, a project on expanding the ENT, Plastic, Gynecology, and Orthopedics surgical programs should be prioritized. It implies high ROI and indicates that 300 complex cases will be brought that are currently referred to other cities. Alternatively, moving from item 1 to item 3 is a feasible decision.
Superior Health Systems faces about two dozen crucial programmatic decisions every year. As a trustee, I would like to go over this list since while the committee is entrusted with the decision-making process for SHS, having an outside opinion would be beneficial to the company. Furthermore, I would be able to see how the budget is allocated and how informed the decisions are within the organization.
To conclude, based on the limit of $6,000,000 set by the finance committee as part of the budget guidelines, three projects can be recommended for consideration. Items 1 to 3, including partnering with a major supplier, developing a cost-reduction program, and expanding primary care physician membership in Corinth Health Systems, should be prioritized as the most sensible. Alternatively, if the investment for the project on developing the ENT, Plastic, Gynecology, and Orthopedics surgical programs can be reduced by $1 million to meet the budget, it should be the primary option for Superior Health Systems.
Finkler, S. A., Smith, D. L., & Calabrese, T. D. (2018). Financial management for public, health, and not-for-profit organizations (6th ed.). Washington, DC: CQ Press.
Scandura, T. A., & Gower, K. (2019). Management Today: Best Practices for the Modern Workplace. Thousand Oaks, CA: SAGE Publications.
Zelman, W. N., McCue, M. J., Glick, N. D., & Thomas, M. S. (2020). Financial management of health care organizations: an introduction to fundamental tools, concepts, and applications (5th ed.). Hoboken, NJ: John Wiley & Sons.