Essay on Problems in Making Capital Management Decisions

Published: 2021-08-10
1321 words
5 pages
12 min to read
Wesleyan University
Type of paper: 
Case study
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This is a case study where the administrator has to make a decision and approve one of the two department request to purchase a radiology machines. Both machines are vital to the radiology department, but the administrator is limited to buy one machine costing $800,000 due to the limited fiscal capital finance of $1 million. The administrator faces the challenges of uncertainty; he is not able to determine the future benefits of each request. Measuring the future benefits of a capital investment is difficult since difficulty arises in knowing what to consider first. The second problem that the administrator faces is a measurement of issues, as a manager, you cannot determine the technical problems that may arise in a capital investment. Managers are bound to make decisions that are good and beneficial to the corporation, in this case, the administrator must approve the capital request that is less likely to bring patient problems for the hospital in future. He also has the challenge of determining what the financial implications of each application if approved are. While making the decision, the administrator ought to consider the temporal spread, in determining the charges of services to bring benefits to the hospital.

In making decisions on what capital request to approve, the administrator is going to consider the level of patient satisfaction with each request. He is also going to discuss the financial return of the request. All these factors lead to value addition method in the decision making of capital budgeting. This is where the administrator is going to consider what value each of the capital requests it adds to the organization. Since all these projects are long term, the best request to approve is the one that brings returns more first and does not threaten the cash flow of the medical facility. Both applications require $800, and every department needs their requests approved. However, the capital budget for the fiscal year is limited since it cannot cater for both applications at the same time. This, therefore, requires the administrator to analyze the returns of each request and the period each project takes to bring returns to the organization. Based on the previous performance of the departments, the administrator will be able to determine the returns and performance of each department. The administrator is also required to consider cutting down the resources of the organization, and this is by delivering good services at the least cost possible to cut down expenditure (Maclean, 2003).

Addition Information Required For Decision Making

As the administrator in the radiology department, there is need to be availed with more information from each department to make an informed decision on the capital investment. The authorities should provide their financial statements for the previous fiscal year. They also should give the administrator with the number of patients that are estimated to be treated by the machines they intend to buy annually. This will enable the administrator to measure the customer satisfaction each machine will lender to the patients. He would also want to be informed of the alternative methods each department can take to cut down the cost of the radiology services. He ought to consider all the financial implications of the decisions he decides to grant requests for capital budgeting for the hospital (Sachdeva; Gilman, 1981). The administrator will need to balance the assets and liabilities of the company. As a point of making sure the finances of the organization are protected more information on the charges to patients in case each machine is purchased should be availed to the administrator by the requesting departments. This will ensure profitability and great revenues returns are guaranteed for the hospital. The authorities should also give the implications of a case scenario in which the machines are not purchased what would be the implications on the performance and patient satisfaction on each department.

Challenges Once a Decision Has Been Made

Once a decision has been made on which machine to acquire where the MRI or the mammography machine, the administrator has the role of implementation of the resolution. They face the challenge of explaining which criteria they used in coming up with the decision. The administrator also carries the burden of ensuring each department offers services that are satisfactory to the customers despite the decision he took on the capital budgeting process. Department directors should be involved in the decision process since they are directly in charge of service delivery. They need to be made aware why the decision did not favor their department requests. The administrator will have to look for other ways to motivate the department that was not supported so as not to feel left out. They can even propose alternatives for service delivery to patients to ensure satisfaction. However the most significant challenge the administrator faces is to account for the finances for the machine to be acquired, he has the role in providing the device that is obtained is an asset to the organization and not a liability. Departmental challenges may arise, but the administrator should be able to share the fiscal plan with the department directors and give them reasons for his decision. This will reduce department tension and create harmony in service delivery as required by the hospital.

Leadership and Motivation Skills To Apply

In the case study, the administrator has to show a high level of leadership skills in the healthcare department to make the capital budgeting decision. From the leadership skills, the administrator can put in place a task force that addresses the technical issues of the proposed machine purchase and the merits of each request to the hospital. Usually, as the head of the radiology department, the administrator is the head of the task force that reviews the departmental applications (Institute of Medicine, 2001). In this case scenario, there is no definitive solution to the problem. Therefore there are considerations that need to be discussed by both departments to come up with an amicable solution (Shanks & Buchbinder, 2012). However, the decision lies with the administrator since they have to take up the leadership role in the management of the department affairs. In any decision that is taken in the case scenario, there is no department that should feel shortchanged regarding service delivery; they should all motivated towards customer satisfaction (Nowicki, 2004). In the case study, it is evident that Mammogram department has won awards for their excellent service which has motivated them to work more to satisfy the patients' services. The radiology administrator in this case study has the responsibility of ensuring each department works amicably to ensure service satisfaction through motivation and teamwork among all the two departments; Mammogram and MRI departments.


In the case study that presents a dilemma in consideration of service delivery, the administrator is faced with the challenge of deciding on which machine to acquire. However, considering that the Mammography department has won awards through their services, it is an indication that they have been offering patients services with the current machine. On the other hand, the MRI department states the elimination of fear from patients who enter the MRI tube as one of the ways to increase patient service satisfaction. In this case scenario, as the administrator, I would invest the capital in the MRI machine which will improve services delivered to patients. The Mammography department seems to be doing well with the current machine which shows that their service delivery is better than those of MRI department. To harmonize service delivery in the radiology department, it is in the best interest that I decide to approve the MRI department request


McLean, R. (2002). Financial management in healthcare organizations. Cengage Learning.

Sachdeva, K. S., & Gitman, L. J. (1981). Accounts receivable decisions in a capital budgeting framework. Financial Management, 45-49.

Thompson, J. M., Buchbinder, S. B., & Shanks, N. H. (2012). An overview of healthcare management. SB Buchbinder, & NH Shanks, Introduction to Health Care Management, 1-16.

Nowicki, M. (2004). The financial management of hospitals and healthcare organizations. Health Administration Press.

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