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Allocation of Finite Resources

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Allocation of Finite Resources within the Typical Not-for-Profit Health Care Organization The general philosophy, structure, and approach of the not-for-profit health care organization, as well as its future aspirations are contained in the values, mission, and vision statements of the organization. Once the typical not-for-profit health care organization has defined its mission, vision, culture, stakeholders, services, structure, and goals, it must then develop organizational objectives to help achieve its stated goals. While organizational goals are qualitative in nature, organizational objectives are primarily quantitative financial performance goals, and specify such things as target market share, target return on equity (ROE), and target economic value added (EVA) (Gapenski, 2012).

These elements drive financial results, and dictate how finite resources are allocated within the not-for-profit health care organization. In this paper we will explore the processes involved in allocating financial and human resources in the not-for-profit health care organization. We will look at operational planning in general, and specifically at the financial planning process, including the ethical considerations that must be addressed. In allocating human resources we will detail the roles recruitment and retention play in the process, and how senior leadership can partner with the human resources arm of the organization to identify and retain the best and brightest talents in the industry. Financial Resources

The finance department of the organization has the responsibility for all functional areas related to the financial management of the not-for-profit health care organization. These areas include long range planning, accounting and financial reporting, capital finance, cost control, and financial performance (Kreidler, 2008). The strategic plan builds on the values, mission, and vision statements of the organization and sets the direction for the organization. It defines the broad framework within which multiple specific, measurable, goals are established. At the very least, the strategic plan should include the organization’s vision, a summary of the goals, objectives, and activities for the organization, a financial assessment of current resources, and a strategic analysis. According to Gapenski (2012), “Organizational goals are specific aims that management strives to attain” (p. 255).

Cothan and Clouser (2009) go on to say that the strategic planning process is important in providing the vision, direction and accountability for the organization. Internal and external stakeholders then have an opportunity to work together toward achieving the shared goals and vision they helped to define. While the strategic plan provides the general direction for the organization, the operating plan provides the specifics of how to achieve the organizational objectives. It is more like the roadmap for executing the strategic plan. The normal time frame for an operating plan is five years, and this is most often the name of the main tool in the operational planning process. In the operational or five-year plan, the first year provides the most details while subsequent years are less specific. Capital Funds

The first section of the financial plan provides a review of the organization’s investments, financing, and basic financial situation. This is the beginning point of the financial plan. The second section addresses future capital investments such as land, buildings, and equipment and the capital budget. According to Gapenski (2012), “regardless of size, all health services organizations must have capital funds to acquire the facilities, equipment, inventories, and other assets needed to conduct their businesses” (p. 367). The information for future capital investments is incorporated into the forecasted financial statements and costs projected over the next five years. Lastly, all future capital needs and financing options are listed.

Maintaining state of the art technological equipment requires significant capital investment. Information technology has moved beyond supporting only the administrative and financial functions of the health care organization to being decision support systems in the clinical care operations. These decision support systems “are being developed to aid physicians in diagnosis and the selection of treatment alternatives” (Kreidler, 2008, p. 3). The IT department is now a critical component of the health care organization and plays a key role in both increasing the quality of care and improving cost controls. Operating Funds

The second section of the financial plan begins with a review of the organization’s current assets and liabilities. Also known as working capital management, this process “provides short-term operating benchmarks for all levels of management” (Gapenski, 2012, p. 258). The main focus of short-term financial management or working capital management is to enable the organization to operate at the lowest possible cost.

Cash management is a key component of operating funds. Businesses need cash if they are to function efficiently. This includes cash on hand as well as in banks. Cash management determines the amount of cash that needs to be liquid funds necessary to meet its cash obligations by maintaining a cash budget. Marketable securities are interest-earning substitutes for cash and are held to satisfy short-term financial obligations. Inventory management covers all medical supplies on hand. The dollars recorded on the financial statements are the costs of these supplies.

Revenue cycle management is one of the most important aspects of accounts receivable. Because of the unique nature of the revenue cycle within health care there are typically four phases where activity occurs, the first being activity that occurs before service is rendered, activity that occurs in conjunction with the rendering of service, activity that occurs after service is rendered, and those activities that occur on a continuous basis. The health care providers who are vigilant in managing this component of operating funds are usually the ones who realize the best financial performance amongst their competitors (Gapenski, 2012).

The final area of operating funds deals with short-term financing. Short-term debt has significant advantages over long-term debt, and as a result, the average health care provider usually “uses no more than 5 percent short-term debt in their total financing mix” (Gapenski, 2012, p. 591). These funds are available for use on an emergency basis, and are usually not as restrictive as long-term loan agreements. Human Resources

Historically the term personnel administration has been used to describe the staffing activities, programs, and policies that involved identifying and retaining employees. This process is now known as human resources management, and involves managers at every level of the organization. The human resources department actively recruits, screens, and selects potential new employees, supports the continuous learning efforts of existing staff, and allocates the human resources as the needs demand (Longest & Darr, 2008). The process begins with planning activities where the human resources department communicates with hiring managers within the health care organization to forecast staffing needs.

The human resources department is tasked with developing and maintaining job descriptions for all positions. It usually is in the best interest of the not-for-profit organization to staff up at levels that require minimum qualifications and the lowest cost. Monitoring this activity requires the human resources department to dedicate resources to work force planning, recruitment, selection, performance appraisal, and compensation administration. Health care organizations differ from other not-for-profit organizations in that credentialed and licensed employees are a major component of the work force. Human resources management is required to keep abreast of state specific requirements for continuing education and professional training requirements for potential and current employees. Recruitment

New employees can be recruited only if their training, skill levels, and experience are known. This information is usually gleaned from various job analyses the human resources department conducts. By using questionnaires and interviews of actual employees, the specific job duties are recorded, the conditions surrounding performance of the job, and how the job may be related to other jobs. These observations then become the basis for the job description (Longest & Darr, 2008).

Job descriptions that are updated on a regular basis help to streamline communication between hiring managers, employees, applicants, and the human resources department. Updated job descriptions are also required if a legal dispute develops. As vacancies arise, the hiring manager notifies human resources and thus begins the recruitment process.

Recruiting is a matter of attracting either internal or external applicants. The potential pool of new hires is strictly a function of the labor market. If the open position does not require any special training, skills, or certifications, supply pool may be pretty large. On the other hand, if the open position is highly specialized, potential hires may be in short supply. Even after being thorough in recruiting the best fit for the position, complex hiring laws, pre-employment testing, and other external factors may still derail the entire process. You then find yourself back at square one, still recruiting to fill the critical vacancy.

Maintaining and retaining the employee begins immediately after placing the new hire. Several tools are used in the retention process, including the performance appraisal process, internal movement through promotion, lateral transfer, or demotion, the employee assistance program, benefits and compensation, health and safety, and career counseling.

Employee training has proved to be an effective tool in retaining employees. Making training accessible to the employees says that the organization values them and is vested in the established organizational culture. According to Longest and Darr (2008), “developing and enhancing employees’ skills or cross-training them to do more than one job are investments in the organization” (p. 451). An effective compensation and benefits program is vital in maintaining and retaining valuable employees. Key to this program is equity. Internal equity defines how the pay scale is set for various jobs. Determining internal equity for various jobs involves identifying and evaluating the complexity of one job compared to another. External equity involves benchmarking your wage scales against those of your competitors. Staff shortages in key functional areas can cause wage wars if wage scales are not properly aligned.

Longest and Darr (2008) posit, “Fringe benefits are an increasing part of total employee compensation and are typically one fourth to one third of payroll costs” (p. 452). Some of the standard fringe benefits are health insurance that include dental and vision benefits, pension plans, life insurance, holidays, and paid vacation. Employers continue to seek new and innovative ways of attracting and retaining employees by varying the fringe benefits they offer.

The CEO of the not-for-profit health care organization is responsible for supporting any recommendations made by the board of trustees, and can choose different approaches when allocating resources. These four approaches range from low involvement or a laissez faire approach, where the CEO chooses to involve stakeholders in contract negotiations and avoid long debates on investment decisions, to high involvement or a universal approach, where the CEO observes processes and people for signs of stress, and proactively proceeds to diffuse negativity by creating forums and empowering the employees. Other approaches are the interventionist approach, or promoting value-based competition, and the command and control practice, where standards in clinical practice are enforced (Abraham, 2011).

Aligning people within the organization is the ultimate step in allocating human resources. While creating the strategic vision sets the direction for the organization, planning and budgeting details the steps for achieving the vision and allocating the resources needed to accomplish the tasks (Wren, 1995).


Abraham, S. (2011, January/March). Acquisition and allocation of human, financial, and physical resources in the health care system.. The Health Care Manager, Volume 30(Issue 1), 38-44. doi: 10.1097/HCM.0b013e3182078b1d

Cothran, H., & Clouser, R. (2009, May). Strategic planning for communities, nonprofit organiations, and public agencies. Food and Resource Economics, 5(), 1-7.
Gapenski, L.C. (2012). Healthcare finance: an introduction to accounting and
financial management (5th ed.). Chicago, IL: Health Administration Press.
Kreidler, M.L. (2008). Health care management. EBSCO Research Starters, (), 1-6. Retrieved from http://Retrieved May 24, 2012, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/ login.aspx?direct=true&db=bth&AN=28082798&site=bsi-live

Longest, B. B., Jr., & Darr, K. (2008). Managing health services organizations and
systems (5th ed.): The healthcare setting. Baltimore, MD: Health Professions Press. Wren, J. T. (1995). The leader’s companion: Insights on leadership through the ages. New York, NY: The Free Press.

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