Grady Health Capstone Project


Strategic Planning Financial Plan Explanation

Grady's budgeting is done on an incremental basis. What this means is that the budget for next year will be based on the budget for last year, with adjustments for inflation, for changes in the payer mix, for strategic changes relating to the service offering mix, and for new facilities in the system, as well as new capital expenses.

Grady uses a cost-benefit analysis, which takes the form of net present value, as part of its decision-making criteria for capital expenditures. Grady is in the midst of a capacity expansion. Karkaria (2013) notes that Grady has a $74 million expansion plan for downtown Atlanta which will enhance its system capacity with respect emergency care, in anticipation of a spike in demand relating to the ACA, and to meet existing demand in the market that is yet unfulfilled.

Grady has sought financing for this project, including donations that can help to allow Grady to manage this expansion without adding significant debt. For example, Grady has acquired a $30 million award from the Marcus Foundation to put towards this expansion (Grady, 2014). By seeking out and receiving such generous awards, Grady is able to commit to these types of projects. Grady management certainly needed to have a contingency plan in case such a major award was not forthcoming, either in finding monies from other, smaller donors, or in borrowing the funds for the expansion.


The capital budget is the area where Grady needs to do the most planning. When it budgets for existing operations, Grady expects to utilize existing revenue streams, both donors and payers, in order to help finance ongoing operations. Grady seeks to have at least a profit-neutral operation, wherein the operations would at the very least pay for themselves. This is often not the case, however. Government, at different levels, remains a major payer for Grady. In its latest annual report, Grady cautions that both the State of Georgia and Fulton County are threatening to reduce their levels of funding for Grady and for patients, in response to their ongoing budget issues. This is a significant concern for Grady, because these governments have significant bargaining power over Grady and can impose upon Grady payment levels. As a price taker, Grady is faced with a situation where its operating budget may be compromised.

Applying basic managerial economics, a large portion of Grady's costs are fixed, so it must accept any patient that results in payment higher than variable costs, as a means of earning contribution to fixed costs. Thus, Grady will still take patients from these governments, but will earn lower contribution levels from said patients, straining the organization's financial situation in the long run. While Grady was able to avoid the worst of the proposed cuts in this budget year, the threat of budget cuts in the future remains, and Grady remains a price taker. Future budgets will need to consider either the payer mix, or changes in operations in order to build better margins into everyday operations.

The capital budget is where Grady needs to raise funds, either through donations or borrowing, in order to finance capital costs. While there is the possibility that some funding can be acquired through different levels of government, it is uncertain how reliable that funding will be. For the most part, Grady has a very good community profile and that allows it to gain funding. The $30 million award will be a springboard for the rest of the financing -- once a major donation like that comes on board, the vote of confidence is recognized by other donors. At a certain point, Grady can find financing for any shortfalls on its capital projects, because of its ongoing revenue streams and its clear ability to gain win major donations. But capital budgeting is critical for Grady, because of its status as a not-for-profit entity, it will not be available to tap equity markets for financing.

4/5. The current business model for Grady is that the organization is a not-for-profit entity. It competes with premium positioning, meaning that Grady seeks to be the innovation leader in the Atlanta area, in its field of expertise. To do this, Grady has adopted a policy of making a high level of investments in new equipment and facilities. Simultaneously, Grady has a position where in it has a mandate to provide emergency services for the poor in the two counties, both of which provide funding for this work, along with the State of Georgia. These two mandates are seemingly mutually exclusive, because emergency...


Where Grady is a premium provider, the margins are undoubtedly better but the volumes might still be high. Nevertheless where innovation is a key demand driver, Grady must have a high level of capital expenditure in order to maintain its competitive advantage.
The way that Grady has planned its finances in the past has been to work with the payers in government to ensure stable funding levels, and then to work with benefactors for capital funding. This is probably the way it will need to be in the future, but with one slight change. With governments threatening to reduce transfers to Grady in the future, the organization may need more private financing -- either through donations or through third-party payers -- in order to maintain service levels. So the ongoing budget is more in danger of crisis than the capital budget, because Grady has more control over the capital budget. It is directly engaged in the process of acquiring donations, and Grady also controls the demand side conditions.


Grady's internal resources tend to be reinvested back into the business. Where profits exist, they do towards equipment upgrades, and making up shortfalls that can occur with some procedures, for example when there is default or when the government transfer does not cover the variable costs of a given procedure. It is believed that Grady's current financial plan is sufficient until changes to the payer mix actually occur. Thus, while Grady does not need to make changes immediately, it will need to have a contingency plan with some of its major donors that will help it to manage temporary shortfalls in the event that government funding levels decline.

Part IV. Implementation Plan


There are many stakeholders, so it is anticipated that there will also be many barriers. The most important barrier at this point is with the government.. Governments are under pressure to deliver a high level of service while eliminating waste and delivering balanced budgets for taxpayers. Public budget cycles are roughly aligned with corporate budget cycles, which should give Grady some opportunity to understand where government funding levels are going to be. However, the risk remains that a sudden change in funding levels will compromise Grady. Grady needs to overcome this barrier with stronger relationships with the different levels of government that finance it.

Another potential barrier lies with the donor community. While Grady is popular with the donor community in Atlanta, the size of this community is limited. In other cities, there are other hospitals that receive donations, which limits the fundraising scope of Grady largely to groups in the Atlanta area. This will place a constraint especially if Grady needs to tap these groups for financing of operations, not just capital projects. Other interests, like internal staff groups, may also oppose changes that create difficulty for them. Grady needs to make strategy while taking into account that there are needs for many different stakeholder groups.


The communication of a strategy plan is one of the most important elements. It is recommended that Grady communicate its plan to different stakeholder groups in different ways. Internal stakeholders need to find out about the plan from internal sources, not by reading about it in the newspaper. Thus, an announcement should be made via multiple staff channels about Grady's strategy going forward. Such groups should be included in the strategic decision-making process, as this will engage them in the process and hopefully will reduce resistance to strategic implementation Foreman and Argenti (2005) argue that how a new strategy is communicated will affect the implementation of the strategy, implying that communication throughout the process is essential so that employees not only know the change is coming, but that they understand what the change is, why it is needed and how it will affect them. Where there exists an information vacuum is the most likely situation where employees will actively resist a new strategy.

The external communication strategy should focus on building enthusiasm in the community. For example, the community will enjoy significant benefit from the emergency upgrades and the new stroke center. These benefits need to be communicated, along with a reminder of the good work that Grady has done in the past. By associating the new strategy with the past successes, Grady can position the new assets as a continuation of past service to the community. Grady should also minimize the costs by pointing out that 40% of the new center has already been paid…

Sources Used in Documents:


Foreman, J. & Argenti, P. (2005). How corporate communications influences strategy implementation, reputation and the corporate brand: An exploratory qualitative study. Corporate Reputation Review. Vol. 8 (3) 246-264.

Grady 2013 Annual Report. Retrieved December 3, 2014 from

Grady. (2014). The Marcus Foundation awards Grady Health System $30 million for Emergency Department and Stroke Center expansion. PR Newswire. Retrieved December 3, 2014 from

Karkaria, U. (2013). Grady's $74m expansion includes upgrading ER. Atlanta Business Chronicle. Retrieved December 3, 2014 from

Cite this Document:

"Grady Health" (2014, December 03) Retrieved June 13, 2024, from

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"Grady Health", 03 December 2014, Accessed.13 June. 2024,

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