Optimal capital budget may be determined through the comparison of the projected project returns with the firm’s marginal cost of capital structure. Decisions about capital investment are amongst the most vital decisions which companies make (Malenko, 2018). They define the company’s ability for offering amenities and dedicate the company’s money for a long time. Chief financial officers in the top healthcare facilities divulge capital investment approaches which usually follow the approvals of contemporary finance concept. However, there exists significance disparity in techniques of capital budgeting, risk adjustment methods, and the significance of qualitative considerations when making decision on investment. Also, there is difference in investment decision-making delegation to operating methods and units of performance evaluation (Reiter, Smith, Wheeler and Rivenson, 2010). Health care facilities encounter similar problems as other companies in creating and implanting capital investment policies which use reliable evaluation approaches of projects which have varying objectives and results.
Based on the Los Reyes Hospital case study, 3M Company, one of the leading medical equipment manufacturers performs in accordance to an optimal capital budget. When formulating its capital budget, the company starts by identifying and evaluating potential opportunities. The company first starts by exploring existing opportunities, then estimates operational and implementation costs. Such involves the estimating the costs of any new venture. Further, the company the benefits and cash flows from the investment. More importantly, the company does assess risks before implementing the project.
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In order to assess the budget, the tool which would be useful is a Microsoft excel software. It would be used to assess variances between budgeted and actual figures in the budget plan. Besides, it would be important to identify and prioritize the business needs and goals for the future budget plan. Both the projected incomes and the operating costs need to be compared and consolidated to ensure that the company is able to meet its budget and to guarantee high returns from the investments.
References
Malenko, A. (2018). Optimal dynamic capital budgeting. Available at SSRN 1710884 .
Reiter, K. L., Smith, D. G., Wheeler, J. R., & Rivenson, H. L. (2010). Capital investment strategies in health care systems. Journal of Health Care Finance , 26 (4), 31-41.
