Capital Allocation

Capital Allocation

CEO Belief on Whether Governance is the Lynchpin of a Capital Allocation

Introduction      

The capital allocation process is one of the most crucial activities in any organization. The success of the organization is highly dependent on how the resources are allocated and utilized. The management is therefore charged with the responsibility of ensuring that the priorities are identified, and receive the biggest share of the resources. The management should also ensure that wastage of resources is reduced, and cases of corruption are eliminated, through good governance (Couttolenc, 2012).

Capital allocation process

After interviewing the C.E.O at Houston Methodist Hospital, the role of governance in the budgeting process was clearer as discussed in the paper. The C.E.O noted that a proper budgeting process should engage all those who are involved in the implementation of the budget as well as people who ensure that the hospital meets the objectives of the organization. Senior staff and the financial committee’s participation should be built into the capital allocation process, and a timeline should be set that leaves adequate time for research, revision and feedback. As Couttolenc (2012) postulates, the financial allocation process, should also be well documented. The tasks and responsibilities for each of the team members should be clearly stated as well as the deadlines. It is also good governance that ensures the decisions related to financial allocation are driven by fiscal accountability and mission priorities. The organization’s annual operating income and the expenses should be well understood how the allocations are carried out.

The C.E.O also noted that good governance is crucial in ensuring that the allocation of finances follows certain criteria. The budget should be able to facilitate the shift of the resources to higher priority uses and that makes organization’s operations more effective. The fiscal plan established in the budget should be stable, sustainable in the short term as well as in the long term. According to Couttolenc (2012), the spending units should also be encouraged to operate efficiently by budget. The budget should also be accessible to different departments in the organization and respond to the needs of various interest groups.  In tandem with other financial management practices, the budget should ensure that accountability in the way the money is spent.

Transparency is key in the financial allocation process. Good governance ensures that the decision-making process is open, and everyone who has some valuable input can contribute to coming up with an effective budget. Different people in the organization should be able to understand the process and all the facts supporting the decisions should be clearly seen. Transparency ensures that there is no wastage or embezzlement of funds by individuals in top management. When the process is transparent more people are likely to support the management and no department feels shortchanged during the allocation. Transparency is what ensures that there is accountability as the process is open for scrutiny. Where there is accountability, development is more likely to occur at a high rate (Couttolenc, 2012).

In addition to transparency and accountability, good governance ensures that the process of allocating funds is effective, efficient and has a high sense of discipline. Discipline will measure the extent to which the organization can operate within expenditure stipulated by the budget without asking for more funding. Effectiveness, on the other hand, determines the extent to which the finances allocated helped the organization in achieving its objectives. Efficiency on the hard ensures that the inputs are maintained at a low level while the outputs are maximized (Couttolenc, 2012).

Conclusion

Conclusively good governance is crucial to any organization during the process of capital allocation. Organizations with good governance will perform better than their competitors who do not understand the importance of proper governance.

References

Couttolenc, B. (2012). Decentralization and governance in the Ghana health sector. Washington: World Bank Publications.

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