Explain how management control is used in conjunction with the financial plan

In any aspect of life, many times things go much more smoothly if there is a plan in place. This couldn’t be any less true when dealing with finances regarding healthcare. Throughout this course, the text has emphasized having a financial plan to help healthcare organizations succeed. Now, having a financial plan is necessary, but having a strategy to carry out that plan is equally as important, if not more. Management control must be integrated into the financial plan so that it can be monitored and adjusted as needed. Management control is important for organizations because failures in management control can lead to large financial losses, reputation damage, and possibly even to organizational failure. According to the text, “The development of a financial plan is useless unless that plan is integrated into the management control process” (Cleverly, Cleverly, and Song, 2011, pg. 305). The financial plan and management control process must have structure in order to integrate. This structure is provided by financial ratios. A hospital’s return on equity are determined by 4 major ratios which are: operating margin, total asset turnover, nonoperating revenue, and equity financing. Though management control is needed, sometimes there is not much it can do to help. If a company’s operating margins tank due to lower prices as a result of more competition, sometimes the only option is to revamp the financial plan entirely. Management control should assess the financial plan annually in order to make any changes needed. At any cost, sustainable growth must be considered. Company’s must remember that they cannot generate a growth rate in assets that is more that its growth rate in equity over a period (Cleverly, Cleverly, and Song).

Cleverley, W. O., Song, P. H., & Cleverley, J. O. (2011). Essentials of healthcare finance (7th
ed.). Sudbury, MA: Jones and Bartlett Learning.

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