Gloria Panhorst
HC 491
Week 7 Assignment
Professor Mathur
July 15, 2015
Chapter 13
1. Describe the relationship between profit and capital budget expenses.
Capital budgeting is a step by step process that is used to determine the merits of investment opportunities. Deciding whether or not to accept an investment opportunity involves determining the investment rate of return that such a project will generate. (Gad 2012). New opportunities are evaluated in terms of does it contribute to the mission of the HCO. Within a HCO the finance department is who will prepare the capital budget. It will show what the expected expenses will be during each accounting period and it will track the funds that the HCO has available. The finance department will also manage the sources of capital funds, provide data for long-range financial planning and the board’s annual goal for investments, and prevents distortion of costs or benefits in proposals (White & Griffith 2010, p. 432). Evaluating a potential new opportunity should always include the operating units involved and internal consulting. A budget of capital expenses and new programs is developed separately and approval or denial for each has to be obtained. The objective of any HCO is to make a profit each year. Profit can be defined as the difference between the amount earned and the amount spent on expenses used to provide goods and services.
2.
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You are the hospital CEO. Doctors on the capital budget committee can’t agree on which equipment to recommend for purchase and for how much. The total list of requests is way over the board’s guideline. Explain what you say to them. (“Doctors and the Capital Budget” in Health Services Management: Readings, Cases, Readings, and Commentary, 9th ed., A. R. Kovner, A. S. McAlearney, D. Neuhauser, Chicago: AUPHA/HAP 2009, p.