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In a multihospital system, financial management is tasked with balancing various service goals and needs with funding and profits. Because the list of projects far outweighs the ability to fund all of these projects, discretion and consistency are required to navigate strategic planning. It is important to consider when pursuing certain projects, that not all projects will result in immediate monetary gain for the institution. Some projects may even have minimal direct monetary gain, but create residual benefits long-term therefore, leading an organization to move ahead with said project.

There are three types of project risk, stand-alone, corporate, and market. Stand-alone risk looks at the project disconnected from potential impact to the organization's portfolio. Corporate risk views the project as its impact to the organization's project portfolio. Market risk considers the impact a project will have within certain market conditions that may enhance stock portfolio diversification or detract from it. Scenario analysis is a risk assessment tool to explore stand-alone risks of a project. Scenario analysis looks at the interactions between variables that would influence project success, how that impacts net present value, and the range of values to be expected. The goals of scenario analysis are to explore a range of outcomes related to the project such as worst-case scenario, most likely scenario, and best-case scenario. With these outcomes identified, the net present value of each is determined and aligned in a bell-curve probability distribution table. The percentage of likelihood is then assigned to each outcome to total 100%. This information is then used to calculate the expected NPV and standard deviation.

An advantage of scenario analysis is that it can give a glance at degree of risk related to the average risk of projects commonly pursued. It also can be used to compare more than three possible outcomes at once. A disadvantage of scenario analysis is not capturing the truly infinite possibilities of scenarios to evaluate project impact potential. Another disadvantage would be producing false profitability extremes that are not consistent with true outcomes when isolated to compounded best or worst possible outcome factors.

As previously mentioned, not all projects are pursued related to their direct monetary outcome for an organization. Examples include projects that relate to philanthropy mission of the organization like hosting a park cleanup day or providing toys for pediatric patients or children of adult patients in a hospital, etc. Another example, as mentioned by our text, could be the value of certain diagnostic services that do not result in significant reimbursement related to service fees but can be the difference between detecting deleterious conditions for a patient to have improved health interventions to address it. However, capital budgeting is essential to an organization managing day to day operations. Whether an organization is for-profit or nonprofit, financial management plays a key role in navigating strategic planning. Therefore, financial analysis tools are necessary in evaluating capital budgeting decisions.

References

Gapenski, L. & Reiter, K. (2015). Healthcare finance: an introduction to accounting and financial management (6^th ed.). Health Administration Press. https://digitalbookshelf.southuniversity.edu/books/9781567937428

Goel, S. (2015). Capital budgeting (First edition.). Business Expert Press. https://resolver-ebscohost-com.su.idm.oclc.org/openurl?genre=book&atitle=&title=Capital+budgeting+%2f+Sandeep+Goel.&issn=23310057&isbn=9781606499870&volume=&issue=&date=20150101&au=Goel%2c+Sandeep&spage=&pages=&sid=EBSCO%3aSouth+University+Catalog%3asou.943706&site=ftf-live