AHIC Review Course 1: Business Planning and Budgeting - Module 4: Financial Planning and Management

A set of Q&A flashcards covering key concepts from the lecture on business planning and budgeting, including planning phases, budgeting, capital vs operating budgeting, financial metrics (NPV, ROI, IRR, payback), qualitative considerations, and creating a business case.

What is business planning?

The set of corporate activities that determine an organization’s direction, objectives, policies, procedures, and anticipated revenues and expenses, including strategic, operational, budgeting, and capital budgeting.

What else can a business plan refer to besides corporate planning?

A document presenting the case for a new investment or product offering, describing the project goal, how it will be achieved, and projected financials.

What are the four phases of corporate business planning?

Strategic planning, operational planning, budgeting, and capital budgeting.

What horizon does strategic planning typically cover?

3 to 10 years, and it may be revisited annually.

Name two steps of strategic planning.

Affirm or update the mission; assess external and internal environments (and related factors such as critical success factors).

What is the horizon for operational planning?

1 year.

How are strategic planning and budgeting connected?

The strategic plan serves as the starting point for operational planning and budgeting.

What are the steps in the budgeting phase for operating budgeting?

Project volume of services/products; estimate revenues based on volume; estimate expenses based on volume; refine revenues and expenses as needed.

What is capital budgeting?

Identify and prioritize funding requests, project cash flows, analyze financial and nonfinancial benefits, and decide which requests to fund.

What is the typical horizon for capital budgeting?

1–3 years.

What is the asset threshold for HIT capital budgeting mentioned in the notes?

Assets with a useful life >1 year, cost at least $5,000, and are depreciable.

What is operating budgeting?

Converts the operating plan into a financial plan with projected revenues and expenses for the year.

What is cash flow?

The difference between cash receipts/inflows and cash disbursements/outflows during a period.

What is the time value of money?

Money today is worth more than money in the future due to growth and inflation reducing future purchasing power.

What is the opportunity cost of capital?

The return that could be earned by investing the capital elsewhere.

What is a discount rate?

The rate used to discount future cash flows to present value, based on how funds are sourced and the required return.

What is payback analysis?

Calculates the number of years needed to recoup the initial investment; = initial cost / annual net cash inflows.

What is Net Present Value (NPV)?

The expected monetary gain or loss from discounted future cash flows; NPV > 0 means the project adds value; NPV = 0 is break-even; NPV < 0 is not preferable.

What is ROI (Return on Investment)?

The ratio of net benefits to the cost of the investment; can be calculated for a single year or multiple years.

What is IRR (Internal Rate of Return)?

The discount rate that yields an NPV of zero; higher IRR is generally better, but IRR may be less precise than NPV for decision making.

Why might financial metrics be difficult to quantify in health IT projects?

Benefits may be nonmonetary or hard to attribute due to the interconnected nature of healthcare processes.

What are qualitative considerations in project evaluation?

Alignment with mission, capacity, leadership support, risks, and nonmonetary benefits; often assessed with weighted or benefit scoring.

What is a business case?

A document to help decision makers understand the value of a new investment, including people, product/service, market opportunities, barriers, regulatory issues, risks, and planned responses.

What is a pro forma?

Projected financial statements used in business planning; may include revenues, costs, cash flow, payback analysis, NPV, ROI, IRR; not always GAAP.

What is the purpose of a proof of concept in project planning?

To reduce uncertainty, illustrate scalability, and provide learning opportunities if the project proceeds.

How are qualitative and quantitative assessments used together in project prioritization?

Organizations may use weighted scoring or similar methods to balance financial metrics with qualitative factors.