Introduction

A financial plan entails conducting a comprehensive evaluation of the current and future financial state of an investor to predict the value of assets, cash flows and withdrawal plans (Stovall & Maurer, 2011). A good financial plan is significant because it provides investors with alerts on various changes hence ensuring a smooth transition through the financial phases. Moreover, the organization, illustration, and presentation of a financial plan have a significant impact on the propensity of the client to understand, accept and act upon the recommendations of the planner (Stovall & Maurer, 2011). Massachusetts General Hospital is ranked as the top hospital in the U.S. based on quality care, reputation and patient safety. The paper will examine Massachusetts General Hospital’s financial plan and assumptions used to develop its projected budget. Similarly, the paper will explain in details the budget planning process.

Assumption Used in Developing the Budget

The assumptions for the projected budget included the following. First, regarding the revenue forecasting, the assumption was increased in revenue per year by 11%. Projecting the sales revenue is one of the critical parts in a budget process. Second, with expense estimates, the assumptions were increased in salaries per year by 5%, increase in supply expense per year by 4% and travel as a percentage of revenue was 0.6%. Moreover, maintenance as a percentage of revenue was 2%, contract as a percentage of revenue was 1%, marketing a percentage of revenue was 0.6% and miscellaneous as a percentage of revenue was 1.5%. The strategies to increase the volume of sales include purchasing and installing new Research Freeze Dryers, hiring and training additional staff to operate the new Research Freeze Dryers and increasing the marketing strategies.

Elements of the Projected Budget

For a projected budget to be complete, it should have certain elements that will have a positive influence in the organization’s financial decision-making process (Anandarajah, Aseervatham & Reid, 2009). The following are the elements included in the projected budget.

Salaries and wages

The budget included the annual payments of all employees. The payments were based on the current wage scale of the organization.

Supplies and Expenses

The budget included allowable expenses such as chemicals, consumable materials, office supplies, lab supplies, electronics, glassware, and stationaries. The projected budget estimated the total cost of each type.

Travel Costs

The travel expense in the projected budget included costs on the purpose and destination of each trip, the number of people traveling, the mode and cost of transportation and expenditure on the days spent during the trip.

Maintenance Expense

The projected budget included total expenditure on the installation of new equipment and the conversion of interior space to install equipment.

Contractual Cost

The budget indicated information about the subcontracts. The subcontracts show information on direct and F&A costs (Nolop, 2012). Moreover, it included the fee paid to individuals and organizations for specific services they did.

Miscellaneous Costs

The miscellaneous costs in the projected budget included expenses for items such as communication, copying and duplication, courier and postage, and internet usage.

Marketing Costs

The organization incurs costs on the marketing of the product. Therefore, the projected budget included marketing expenses.

Capital Expenditure Planning and Contingency Plans

Capital expenditure plan encompasses people and procedures an organization relies on to assess and evaluate the long-term needs. When an organization compares its needs to long-term plans and growth objectives, then it can be able to prioritize and plan for the purchase of capital assets (Nolop, 2012). In the case of Massachusetts General Hospital, the capital expenditure plan included purchasing and installing new Research Freeze Dryers. A contingency plan indicates the actions the organization can or should implement to help it respond to significant future situations that may or may not occur (Nolop, 2012). Besides, with a contingency plan, the organization can use it as an alternative for action if the anticipated outcomes fail to materialize. The contingency plan for Massachusetts General Hospital entailed non-availability of on-line Enterprise Resource Planning Suite because of non-availability of power and ERP system failure.

Budget Planning Process

Organization’s Current Business Model

The current business model that Massachusetts General Hospital uses is the blockbuster business model.  The Blockbuster business model refers to a model that involves spending significant capital on research and development in the hope of finding projects that that might turn to be a successful blockbuster and generate huge returns (Foss & Saebi, 2015). Precisely, the economic activities involved are project based. When using the model, the revenue realized is usually greater than the cost of the project. The model is ideal for this company because it involves research and development whereby the organization spends a considerable amount of capital on finding blockbuster drugs. For instance, in the pharmaceutical industry, companies expect an average drug to generate a 5% return on investment, but successful blockbuster drugs yield approximately 10-20 times the amount generated by average drugs (Foss & Saebi, 2015). Therefore, the Massachusetts General Hospital will use this model because the costs, risks, and rewards are high.

Impact of Internal Resources and Financial Capabilities on the Business Model Implementation

The internal resources and financial capabilities of the company play a significant role in the implementation of the blockbuster business model. Regarding the internal resources, they are tangible assets, intangible assets and the capabilities of the organization (Watts & Ormsby, 2015). The human resource policies of the organization govern the recruitment, promotion, training and rotation of employees; therefore, with these policies, the organization produces employees with talents and capabilities to implement the business model. The skills and experience of employees help the organization to conduct research and development in finding blockbuster drugs. Moreover, the availability of high-quality production facilities and raw materials helps the organization to generate enough revenue to implement the business model.

In addition, with financial capabilities, the organization has huge capital outlay that helps in the financing of the research and development of the model. The financing decisions of the organization are limited to the optimal capital structure thus helping the company to minimize the cost of capital. The free cash flow of the organization shows its financial soundness and how the resources are used to generate additional cash for the implementation of the business model.

The Effect of Organization’s Internal Resources and Financial Capabilities on the Financial Plan

The organization’s internal resources such as the assets, competency, skills and process play a role in determining the current and future financial state of an investor to predict the value of assets, cash flows and withdrawal plans. Similarly, the financial capability of the organization entails its ability to exploit the resources used in the implementation of the financial plan (Watts & Ormsby, 2015). The internal resources and financial capabilities of the organization positively influence the financial plan since they form the internal sources of finance that help to fund the plan. Moreover, the organization may convert other internal resources to finance and boost the financial plan. Regarding the implementation of the financial plan, the rigidity of the organization’s internal resources may cause a delay in the implementation of the financial plan.

Conclusion

A good financial plan is significant to the organization because it ensures a smooth transition through the financial phases. The paper included assumptions and projected elements of the budget such as salaries and wages, supplies expenses, travel costs, maintenance costs, contractual, marketing and miscellaneous costs. The organization’s capital expenditure plan included purchasing and installing new Research Freeze Dryers. Similarly, the contingency plan included non-availability of on-line Enterprise Resource Planning Suite because of non-availability of power and ERP system failure. Massachusetts General Hospital uses blockbuster business model. The internal resources and financial capabilities of the company have a positive influence on the implementation of the business model and the financial plan.

References

Foss, N. J., & Saebi, T. (2015). Business Model Innovation: The Organizational Dimension. Oxford, United Kingdom: Oxford University Press.

Nolop, B. P. (2012). The Essential CFO: A Corporate Finance Playbook (Vol. 620). Hoboken, N.J.: John Wiley & Sons.

Stovall, J., & Maurer, T. (2011). The ultimate financial plan: Balancing your money and life. Hoboken, N.J: Wiley.

Watts, L. R., & Ormsby, J. G. (2015). The effect of operational and strategic planning on small firm performance. Journal of Small Business Strategy, 1(2), 27-35.

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