Decision-Making and Forecasting

Decision Support Tools How do managers make decisions? How are budgets evaluated? What determines whether equipment is purchased or not? ? ? ? ? ? ? ? ?

Financial Ratios Used to measure an organization’s performance. Some global measure of financial success in an organization. Which ratio to use? Need comparative data What is most important??

Most important ratios ROA: Return on Assets ROE: Return on Equity ROI: Return on Investment

Variance Analysis Difference between actual and planned (budgeted) Part of the cycle of management Analysis and reporting Anecdotal analysis

The Breakeven Point Determines the level of volume needed to reach financial break-even. The point at which net revenues equals cost. At this point, there is no PROFIT or no LOSS. Expressed in units of volume. Depends on payer source.

Forecasting Statistical Forecasting Multiple Regression (OLS, MLE) Spending is a function of different variables. Budget for FY’11 = 0 + 1 (salaries) + 2 (overtime) + 3 (medical supplies) + 4 (equipment)

Forecasting A prediction of the future Sources of information historical data, current operating facts and other information Sources of information Upwardly directed Accuracy is key Communications tool List assumptions