Financial management

 

          Finance is a area of any business which is concerned with earning or spending, saving or investing owing or borrowing funds.  Financial management has a vital importance at all levels of administration.  Financial management is one of the type of management.

DEFINITION:

          Financial management is defined as a set of administrative activities concerned with arrangement of cash and credit for the organization for enabling it to function as effectively as possible.

 

IMPORTANCE

          Health care orgnaisations need money and an efficient financial system for carrying out client centered activities.

          The importance are

·        Building and maintaining the infrastructure.

·        Procuring drugs, supplies and equipment.

·        Under taking – medical, laboratory services, radiographic services, diagnostic investigative services with use of sophisticated equipment and invasive procedures, blood banking services, dietary services, pharmacy services, laundary services, centralized sterile supply services and so on.

 

FINANCIAL PLANNING

Financial planning should begin with an analysis of trend both the external analysis covering actual and potential opportunities, and internal organizational analysis covering the hospitals limitations, strengths, utilization and financial performance.

CAPITAL

          Capital formation is the process of securing long term capital in the form of debt or as equity.

FINANCIAL FEASIBILITY

          Financial feasibility means structuring a financial package so that an institution can secure full financing for a proposed project and can then, over the useful life of the project, repay and debt incurred in constructing the project while, at the same time, meeting full operating costs.

GLOSSARY OF FINANCIAL TERMS

ASSETS

          What the hospital owns in the form of buildings, land properties, goods, machinery, equipment, vehicles, cash, investments and materials.

ACCOUNT PAYABLE

          When supplies, materials or services are brought on credit by the hospital, the amount becomes payable at a later date.

AVERAGE COST

          The cost per unit of output (total costs divided by total number of units of output).  Also known as unit costs.

BALANCE SHEET

          Balance sheet is a document which gives a picture of the assets and liabilities and represents the financial position of an institution on a particular date.

BOOK KEEPING

          Book keeping is a systematic method of recording financial transactions in the “books of accounts”.

BUDGET

          Hospital budgeting is the process of estimating proposed expenditures and the means of financing these expenditures.

BUDGETARY CONTROL

          Budgetary control is establishing checks and balances to ensure that the institution is not living beyond its means.

CHART OF ACCOUNTS

          Chart of accounts is a listing of account titles with numerical symbols used for compilation of data, concerning assets, liabilities, revenues and expenses.

CHARGE OF SLIPS

          Charge of slips are sort of bills for items or sources.

DEPRECIATION

          A notional loss suffered by a fixed asset on account of wear and tear and ageing.

INCOME AND EXPENDITURE STATEMENT

          Income and expenditure statement reflects the state of hospital finances for a stated period.

Marginal cost

          The change is total cost at a given scale of output when a little more or a little less output is produced.

OPERATING COST

          Operating cost is also called recurrent costs.  The cost of operating an enterprise or service, i.e., those costs of providing a service that vary with the level of output in contrast to those which are fixed over a given time period, usually a year.

STANDARD COST

          Standard cost is an estimated cost, predetermined in advance of production or supply of an item or service.

REVENUE CENTERS AND COST CENTRES

          Establishment of revenue centres forms the starting point of hospital accounting system.  Revenue  centres becomes the basis for establishing pricing structures and preparing patient charges.  Identification of appropriate revenue centre is essential to good financial management.

COST CENTRES

          A cost centre is a centre of activity to which significant costs can be identified, and it is desired to collect the cost specially and separately.  Cost centres generally corresponds to revenue centre, i.e., for each revenue centre, there will at least be one related cost centre.

          A cost centre may primarily exist for

1.   Budgeting purposes

2.   Pricing purpose

 

STANDARD COSTING

          Standard costing is an estimated cost predetermined in advance of production or supply.  Standard costing is the preparation of standard costs and their use is to clarify the financial results, by measurements of variations of actual costs from standard costs and the analysis of the causes of variations for the purpose of maintaining, maximum efficiency.  The principal purpose of standard costing  is the control of costs, and not budgetary control.

 

COST FINDING

          Costing or cost finding is determining the cost of a procedure or services, for example, cost of nursing care per patient day in general ward and in ICU, diet cost per day, cost of particular surgical operation etc.

DEPRECIATION

          Depreciation is the notional loss suffered by fixed assets due to wear and tear and ageing.  The value of the assets is reduced to the extent of depreciation charged and this value is reflected in the balance sheet.

          There are basically two ways of calculating deprecation.

·        Straight line method

·        Accelerated rate

 

BUDGET

          The basic reason for preparing a budget is to enable the hospital to effectively meet its financial requirements.  An effective budget is a summary of the carefully conceived financial plans of all departments.

          The budgeting plan results from the accounting plan and includes,

i.             The operating budget

ii.           The capital budget

iii.          The cash budget

 

 

FINANCIAL CONTROL

          Financial control is the means of ensuring the adequacy of financial management of the institution, and covers control of cash, accounting, receipts disbursements, assets, payroll, billing and other elements, if any, that have an impact on hospital finances.

FINANCIAL REPORTS AND INFORMATION SYSTEM

          It is the duty of the finance officer to provide reports on financial performance and explain the situation on regular basis to the administrator.  Purposeful statistical data collection and reporting are essential for effective financial managerial control.  Data processing services generate reports allowing monitoring of revenue and expenses, manpower control andservices utilization.

ROLE OF NURSE IN FINANCIAL MANAGEMENT

          Nurses need to play their role in financial management in the institution adequately.  The hospital administrators have become conscious about Nurse’s role in improving the cost effectiveness of patient care.

          Nurses also need to have a basic knowledge about budget and budgetary process so that, they can participate in reducing costs in the hospitals and also justify their budgetary allocations in the interest of patient care services and improved work environment.

CONCLUSION

 

          Financial management is much more than the routine accounting or maintenance of books of accounts.  Financial management has a vital importance at all levels of administration.  The primary responsibility of financial management rests with the financial officers.

BIBLIOGRAPHY

 

1.                   Colonel.B.M.Sakharkar, Principles of Hospital Administration and Planning, page.No.152-167.

2.                   B.T.Basavanthappa, Nursing Administration, Jaypee Publications Page.No.277-278.

3.                   TNAI, Nursing Administration and Management, Page.No.129-130.