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Strategic Plan

Strategic planning involves or includes the projected budget that begins with entries of the
current status that defines the path that estimates the future financial needs. Strategic planning
takes into account the objective of the projected budget and the desired end result ant can
actually work backwards and retrace its path back to the current state. (Anderson and Minarik,
There are two basic models of budgeting. Short term planning refers to the current method of
planning that’s reactive and where the decisions are made mostly in response to the state
appropriation and it takes a maximum of one year to implement. The long term planning models
relates to the future, where the company is heading to. It’s proactive and it addresses the impact
of funding to the programs. It’s a long-term planning process that’s collaborative.
The current financial budgeting model is long term and it targets the growth in revenues and
costs in the year 2014 and 2015. The Costs to be incurred for the period projected to end in

Strategic Plan Part II

December 2015 are mostly related to the revenue increases. As the revenues increase the cost of
salaries also increase at much lower rate of 4% per year. The higher the revenues the higher the
related costs. Supply expenses are also expected by 5% while travelling is projected to increase
at the rate of 0.5% while maintenance, marketing, contracts, and miscellaneous expenses are
projected to increase by 1%, 2%, 0.5% and 1% respectively.
The CT scan is expected to generate revenues close to 46% more in year 5 than in year 1. The
same case applies to with the MRIs, General diagnostic and interventional services.
The returns on the investments have been included on the 10% growth of revenues each year. To
include some provisions will result in extra and expensive provisions which are not prudent.
Contingencies have been created to provide a provision or temporary financial assistance in case
of some unexpected emergencies or events. Instances of such emergencies may include unlikely
events of unnatural disasters like floods, earthquakes or even political upheavals and riots.
To make the projections, the following assumptions have been made; a) The increments are all
linear and can be accurately estimated from the historical records. That also there no major
changes to the management system as well as the general nature of the conditions and
environmental external factors. These external factors include the natural environment, existing
demographic trends, political stability and the general consumer market.
The increment percentages have been assumed to include all the projected income together with
the income of the new machine that required a large capital outlay also its acquisition costs.
The introduction of the contingency fund affects the organizations finances as the profits will
definitely reduce when it’s been created. The creation of the fund has been created largely due to

Strategic Plan Part II

the uncertainty in the market and the need of a safety device in case of emergency. (OECD,
The company’s financial resources are strained to the limit. After making the provision for
contingency fund, the company will remain with less than one million dollars to fund its
operations in the first year. These will force the company to enter into some long term debt
facility in order to remain afloat. During expansion period, the company may be compelled to
carry out some feasibility studies in capital budgeting to determine the need of the new machine
and if it has any economic value for the company. (Crippin, 2003)
Capital Budgeting a process used to determine whether a company actually requires investing in
machine or equipment and if it’s economically viable. The following are the methods used to do
the calculations; a) Net present value. This method uses the incremental cash flow expected from
the project in this case purchase of an offset printing press, to calculate a weighted average cost
and subsequent riskiness of the undertaking. It’s also known as the hurdle rate because it depends
greatly on the choice of discount rate which has to be carefully chosen. b) Internal rate of return.
This method is used to measure how efficient a project is. It gives a zero Net present value. It
starts with a negative cash flow and later positive. All projects with higher internal rate of return
than the hurdle rate should be accepted. c) Profitability index. When deciding to invest, several
options should be exploited. The option of either buying or not buying the machine. Different
types of machine with different costs should also be considered and their profitability index
calculated and ranked. The one with the highest index should be selected. d) Payback period.
This is the time required for equipment to repay the cost incurred to acquire it. The period
required should be reasonable and not very long as it will be uneconomical in the long run.

Strategic Plan Part II

As large sums of money are required when making long term investment it’s imperative to
calculate carefully the profits expected from such projects before embarking on them as once the
money has been invested it’s not easy to get it back if the project fails. (Ulla, 2006)
The introduction of the contingency firm will affect the implementation of the company’s
objective as more funding will be required to enable the company meet its entire obligation and
also it will incur some expenses such as interest payable on loans that have to be incurred by the

Anderson, B. and. Minarik, J. J (2006), “Design Choices for Fiscal Policy Rules”, OECD
Journal on Budgeting, Vol. 5, No. 4, OECD, Paris, pp. 159-208.
Crippin, D. (2003), “Countering Uncertainty in Budget Forecasts”, OECD Journal on Budgeting,
Vol. 3, No. 2, OECD, Paris, pp. 139-151.
Ulla, P. (2006), “Assessing Fiscal Risks through Long-term Budget Projections”, OECD Journal
on Budgeting, Vol. 6, No. 1, OECD, Paris, pp. 127-187.
OECD (2002), “OECD Best Practices for Budget Transparency”, OECD Journal on Budgeting,
Vol. 1, No. 3, pp. 7-14.

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