Question

What role does capital budgeting play in within a healthcare organization? Pleas answer the question with an answer that is related to the question because lately I have not been getting the right answers,

Answer 1

Capital budgeting plays an extremely vital role in a healthcare organization. It helps an organization to choose the most profitable investment opportunity. Healthcare industry is always facing innovations and the organization that is prepared for such technological changes will be able to adapt better. Hence it is important to identify opportunities where funds should be spent. The process allows organizations to know how much to spend on a particular project. Capital budgeting process for a healthcare organization has four different stages namely identification, development, and selection and post completion audit. The best ideas for investment are identified and screened in the first stage. The costs and benefits of the projects are identified and the necessary data collected in the second stage.

Selection stage is the most important. Profitability of the projects is analyzed to identify the best investment. Techniques to choose the projects are determined. If multiple tools are required then the best one is to be chosen in case of a conflict. The discounting rate is determined.

Post completion audit compares the projected and actual performance. It helps the management to identify and revise practices if necessary.

Use of capital budgeting allows firms to be more efficient and thus increase the long term growth and profitability. It ensures quality performance and prevents wastage of funds in non profitable projects.