Financial information generated from finance departments of any health care organisation are among the major source of data and information that an an organisation needs in order to undertake decision making. This information provides a basis for determining how an organisation is doing and curving out future endeavours and expansions based on this financial information (Fried & Hisrich, 1994). Therefore, the financial information must be at any cost reliable accurate and present true reflection of the situation in the organisation. Existence of accurate and quality information is imperative to effective and efficient decision making in health care organisations (Woolf et al, 2005). However in the consideration of the fact that the financial information is a function for decision making, interpretation, analysis and presentation of this information must be professional and accurate(Fried & Hisrich, 1994).
There is rapid growth of the health care facilities that provide medical services and health care. For this reason, it has substantially increased the importance and need for effective decision making. The decision makers in this case are the personnel involved directly with health care provision including doctors, physicians, nurses, therapists and the board members who must have adequate knowledge on financial matters in order to interpret the financial information and make informed decisions(Woolf et al, 2005). The financial information is crucial in a health care facility it shows expenditure, payments, income, creditors and debts by the organisation. Through financial information, the sustainability and progress of a health organisation can be determined, and decisions on the future prospects entirely depend on financial information (Zager & Zager, 2006).
Financial information is generated through a process referred to as financial accounting. This process yields information that is used as the decision making tool (Zager & Zager, 2006). Financial accounting is used to produce financial statements, which are then used to undertake analysis and decision making. The financial statements that should be considered for health care organisational decision making include:
Income (profit and loss account) statements.
Balance sheet
Cash Flow statements.
Statement of owner’s equity.
The balance sheet is the key financial statement of the organisation. It indicates the position of the organisation that is used to estimate the business security of the organisation. The elements of this statement include the assets, liabilities and owners’ equity, the structure of these elements and their interdependencies are crucial and equally valuable as they determine the ability of the health care facility and its growth (Zager & Zager, 2006). It also determines the organisational efficiency and quality and the ability to meet its goals and objectives which include provision of health care services (Zager & Zager, 2006). The importance of this statement in the organisational decision making mainly comes in a situation where the organisation needs an expansion. The capital element of the balance sheet indicates the organisations worth and the available assets and liabilities. It is also used to determine whether the decision for expansion is viable at that time. Therefore, this financial information is critical for the organisational decision making in the health care organisation (McNeil et al, 1975). A balance sheet can be used to make clinical decisions such as patient and provider satisfaction through the development of clinical guidelines. The process of making decisions concerning financial aspects becomes effective with the use of the balance sheet (McNeil et al, 1975).
Depending on the nature of the health care organisation, profitability is one of the major goals of an organisation it is necessary to track record of income and expenditure and the profit gained. This applies to profit making health care organisations. The balance sheet will always give the financial position of the organisation at a moment in time. On the other hand, the income statement indicates the performance of the organisation for a stipulated period of time, and it mainly includes expenses, revenues and profit or loss (Eichler,2004)
Its purpose clearly tells the decision maker the performance of organisation which will aide in determining the next step of action to ensure better performance in the future. This information helps in making informed decisions that will keep the organisation on track (Zager & Zager, 2006). From the income statement, the health care organisation determines where to cut costs to minimize losses, and if there are consistent profits, then it indicates proper handling of the expenses. The statement is also beneficial to investors in the organisation in order to evaluate the organisation. This applies in the case of both non-profit and for-profit making organisations. The funding for the non-profit health care organisations is from an outside source that is independent of the organisation. Therefore, a record of expenses is crucial for their decision making (McNeil et al, 1975).
Cash flow statements are also used to measure the organisations performance, the statement has information of the cash received and the expenditure (Pohlmeir & Ulrich, 1995). More than often the cash received are the payments made by clients for services rendered to them by the organisation including consultation charges, treatment and examination fees, payment for drugs and other medical services (Pohlmeir & Ulrich, 1995). The cash flow statement helps the decision makers to identify the productive sections of the organisation and the necessary improvements to increase potential income. Expenses in the health care organisation include purchase of equipments, drugs, day to day running of the organisation and also remuneration of employees. The cash flow statement thus serves to show the operation of the organisation and the potential of its expansion is based on the cash flow (Fried & Hirsch, 1994).
The statement of change in ownership and equity always show the transactions which relates to profit or loss. This eventually indicate the performance of the organisation which is crucial in making the decision on various issues such as how to reduce costs and expenditure, how to improve and increase sales and services, identifying the best sources of income and finances, purchase of new capital assets and increase of profitability (Zager & Zager, 2006)..
Most of the description above relates to the profit organisations. Most of the decisions in this case are made by individuals whose main role is to ensure the organisation is growing and making substantial profit margins (Charles &DeMaio, 1993). On the other hand, the non-profit making organisations use this financial information to determine their progress and the achievability of their goals (Charles &DeMaio, 1993). Additionally the financial providers for such organisations use statements such as the cash flow statement to determine the use of finances on expenditures and determine additional financing if need be (Eichler, 2004). However, the non-profit organisation will still use these statements for internal evaluation, decision making and management of the organisation.
Health care provision is a basic need of a society to ensure healthy and productive society. Therefore the stability, growth and reliability of the organisation are essential for the provision of health care services to the public (Eichler, 2004). This is the obligation of the health care organisation; this is done by ensuring sound and proper decision making process by the relevant authority and personnel based on financial information. The information aids in financial decisions such as expenditure, business expansion and acquisition of assets and general management and operation of the health care organisation. Improper decision making could lead to hampering of operations in the organisation and hinder the provision of the much needed health care services.
Reference
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McNeil, B. J., Keller, E., & Adelstein, S. J. (1975). Primer on certain elements of medical decision making. The New England journal of medicine, 293(5), 211.
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Zager, K., & Zager, L. (2006). THE ROLE OF FINANCIAL INFORMATION IN DECISION MAKING PROCESS.
