Question
Write the article review. Follow https://blog.
Kleinmuntz, C.E. (1999, April). A Strategic Approach to Allocating Capital in Healthcare Organizations. HFM (Healthcare Financial Management); Vol. 53 Issue 4, p. 52 (In Library)
Make sure to provide an answer to the following (in the conclusion)
-Is this article relevant to the current healthcare strategic financial management approaches? In what way? What has/has not changed and why?
Answer
Main Article: Kleinmuntz, C.E. (1999, April). A Strategic Approach to Allocating Capital in
Healthcare Organizations. HFM (Healthcare Financial Management); Vol. 53 Issue 4, p. 52 (In
Library).
Article Summary
The article is relevant and applicable in healthcare planning and financial management. In the article, Kleinman suggests a practical model emphasizing informed analysis as the foundation to financial allocation. For instance, a cost-benefit analysis is important and applicable in financial management in healthcare institutions. Healthcare organizations are facing challenges in allocating the limited resources using a traditional model. The article provides that it is prudent for the facilities to shift the approach to the contemporary capital budgeting approach and adopt strategic capital budgeting as the new methodology to the allocation of finances with effectiveness.
The author evaluates the traditional approach in financial budgeting and points out some disadvantages. The conventional approaches focus on the projected returns on investment, hence discouraging plan investment in some other projects with immeasurable long-term benefits. Furthermore, making investments does not guarantee benefits. Even the highly experienced managers may have challenges with the traditional approach as it is dependent on their judgement of complex systems. The strategic capital budgeting proposed has eight stages for the application.
Article review on Evaluation
The strategic capital budgeting approach is applicable sin avoiding contentious biases during the financial allocation. The article provides eight stages; establishing evaluation dynamics, proposal division into distinct areas, ensuring clarity and precision to understand, proposal cost considerations, criteria score for specific dynamics, setting priorities in weight parameters, measurement of the value of weighted scores on every proposal, and grading the proposals according to the benefit-cost ratios. The article is easy and excellent to understand and infer, as many organizations lack an efficient, well-developed capital budgeting plan, which
hinders applicability. Therefore, the evidence-based approach suggestions enhance the applicability in the healthcare institutions, known to be facing challenges in financial allocation. The article is, therefore, a crucial reference for healthcare organizations for their efficient budget allocation.
Suggested Ways
Furthermore, the article suggests an alternative approach to the existing traditional methods and provides detailed steps for effective strategic investment decisions. The method proposed will, further as explained, help to effectively and efficiently distribute financial resources. To justify the claims, the author cites other sources and applies statistical data, which makes the suggestion credible for evaluation and application. Effective and efficient use of financial resources enhances the sustainability of an organization, enhancing a favorable position in the sector and running based on the cost-benefit returns. Financial planning remains
at the core of all operations of an organization and can guarantee success or failure in the industry. Setting financial priorities and allocating based on the best option available enhances the inexpensive running of an organization while sustaining internal needs. The finances saved after the replacement of traditional models with the suggested capital-budgeting model in financial allocation, healthcare institutions will have more funds to diversify care and services, such as establishing new specialized care units.
Article Review on Methods used
The methods suggested in the article seek to rectify the shortcomings of the existing traditional approaches of financial allocation and capital budgeting. The method suggested is more flexible and applicable, especially in an institution with limited monetary resources. The method proposed has been supported by Bull (1993), stating that strategic budget planning and financial allocation are critical for the long-term stability of an institution, especially in improving its competitive ranking in the market industry. Thus, with the suggested model applied and the suggested eight steps correctly followed, the institution can identify the weak
areas, set priorities and use the best approach for the situation. The model, therefore, enhances
efficient and effective financial allocations, enhancing long-term stability and competitive
advantage in the industry.
Financial Planning
Financial planning remains a critical process for the smooth operations of an organization. The suggested method provides an elaborate and detailed approach to capital budgeting with regard to expenditure, especially with limited resources. The needs attached to the scarce resources are high, and therefore the shift to a practical method is fundamental. The model by Kleinmuntz seeks to balance the inequality through allocation based on priorities, urgency and importance. Therefore, in capital allocation, healthcare institutions should have a strategic approach as a guideline and based on the expenditure, as proposed in the article, and
backed by Sussman (2017). Furthermore, the proposed strategic capital budgeting approach will
enhance accountability and transparency, hence effective utilization of the resources, reducing
misappropriation.
The article has faced criticism, as the author has failed to explain the data source for the user statistics, which is one weakness of the article. Kleinmuntz also fails to mention the essential factors which may affect the decisions in the capital budget process. External factors may affect decisions in finance allocation methods, such as reimbursement rates paid by third parties, the control rate by agencies that regulate the charge rates, subsequently affecting the approval or disapproval of projects (Cleverly et al., 2011). The model has not been fully applied and implemented due to the widespread public belief that healthcare institutions should not be
profit-driven, hence the minimal need for financial and budget planning. However, the author cements that strategic capital budgeting and financial planning help allocate resources in healthcare organizations with effectiveness in the requests for capital expenditure.
Way Forward
The approach suggested will aid in the selection of realistic proposals that adhere to the organizational financial limits. The costs should not be too high against the possible returns, while the overstated proposals should be foregone as they lead to huge losses that cripple the operations of the healthcare institution. Low-cost proposals may also slow down or cause poor operations in the institution, hence the need for evaluation using the provided steps. The weight assessment of the criteria is also important to establish the best alternative to apply. Therefore, the proposal with the most favorable cost-benefit ratio will rank better and likely to be implemented, unlike the proposals with unrealistic cost-benefit ratio.
Conclusion
In summary, Kleinmuntz suggests a model that is essential and applicable in healthcare organizations for financial management and allocation. The emphasis is on the capital allocation per the cost-benefit ratio evaluation to make informed and evidence-based decisions. Rodgers (1993) made a similar conclusion that proposed applying budgeting techniques in the healthcare organizations’ budgeting. Kleinmuntz affirms what Rodgers constituted as the main idea, that allocation of financial resources in healthcare institutions should be on the basis of the economic viability of the proposals. Suppose the healthcare institutions would apply the proposed model in capital allocation. In that case, the resources will be effectively utilized, as the institutions invest in areas of high returns rate, hence avoiding losses through sustainable profits.
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