Understanding Budgeting Techniques

This assignment delves into the world of budgeting techniques, exploring different approaches such as zero-based, activity-based, incremental, and rolling budgeting. It examines the advantages, disadvantages, and applications of each method, highlighting their suitability for various organizational contexts. The assignment encourages a critical understanding of how different budgeting techniques can contribute to effective financial planning and control.

Financial Control and
Budgeting

INTRODUCTION
The term financial control refers to a system of tracing or assessing the resources directed to
an organization for carrying on the business operations and thus measuring, evaluating and
monitoring resources implemented to determine the progress of business organisation. Financial
control helps in checking report accuracy so as to eliminate fraud, error or misstatements of
information if any, with the purpose of protecting the physical as well as intangible resources of
the organization. Furthermore, report has cover challenges & recent developments faced by
NHS. It has also explained alternative funding options available with health and social care
service organisation. The agency theory, corporate Governance and accountability issues faced
by health and social care organisation has been explained. Budgeting is a process of making
future plans for assessing future expected revenue and expenses form business operations of an
organization. It estimates about future events by considering internal and external factors of the
organization. Budgeting function includes planning of business activities, developing business
strategies etc. By using various budgeting approaches, profits can be increased within given
business environment.
MAIN BODY
TASK 1
a. The recent developments with regards to the legal, financial and regulatory environment of
health and social care
The NHS is a national health service which is a largest health and social care in the UK
providing the care services. There are various problems faced by NHS during their 70th
anniversary. These problems consist of providing better care to more people with less money.
The reforms for solving these problems consist of the legal environment of health and social
care. There have been various development in health and social care has their have been
significant technologies which have been emerged such as artificial intelligence, genomic and
personalised medicine (Atanelishvili and et.al., 2017). Also, there are some apps and devices
which assist people to manage chronic illness themselves.
Moreover, there are various laws and legislation which are being made in order to protect
the people and provide them better care services. Such as Health and Social Care act, 2012 which

provide understanding about the health inequalities and include specified duties for the health
bodies (Rogulenko and et.al., 2016). This Act also brought changes for local authorities on
public health functions. NHS is funded through central government. With the recent
development the NHS is able to solve these problems which assist in providing better services to
the patients.
The health and social care require funding for their operations which is provided through
central taxation to the NHS. The health and social have to follow the regulations of the quality
and safety of care offered by health care provider. So there have been development in the legal
environment of NHS as there have been developed laws such as health and social care 2014. The
regulation followed properly are monitored by care quality commission and department of health
(Burtonshaw-Gunn, 2017). Also, the financial environment of the health and social care is
improving as there are may trust and other organisation investing in the NHS for improving the
quality of services provided by NHS.
b. Usefulness of alternatives funding options
The organisation can use alternative funding options for performing its key operations
and provide better services to the patients. The following are the alternative funding options :
 Private finance initiative : It is the way of financing the public sector project through
the private sector. The government authority make payment to the private company. It
reduces the burden of government to finance the public project. The government provide
the private company with the amount with interest. The NHS in order to get the funds
can use the private finance initiative which assist in building long term relationship with
the private company and getting the funds for their projects.
 Resources : It means using the resources for getting the funds which assist in providing
the funds for the operations through use of resources of organisation. These resources
which act as funding option for the health and social care does not involve interest rates
and thus it is the easy source of funding.
 Agency partnership : It is the firm that does not hold the decision making in the
company but holds and share or profit. NHS can use the funding from the agency partners
for performing their duties and operation and fulfilled the requirement of capital through
the agency partnership. It is useful source of alternative funding for the NHS because
these agencies are under their control can the NHS have control over their operations.

 Outsourcing : It is business practice in which the company hires another company for
performing tasks, operations, for providing services etc. Outsourcing assist in reducing
the cost for the firm. NHS through use of Outsourcing is able to provide better services to
the patients by hiring the individual for outsourcing which reduces the cost for the health
and social care and are able to reach to large number of people.
 Tendering : It means using the tenders for providing health and social care services and
agreeing to the details of contract. In health and social sectors tendering assist in inviting
the health and social care providers to provide their services to the people which assist in
reducing the cost for the health and social sector and assist in reaching to the large
number of people.
NHS can use the alternative financing options for funding its operations which assist in
reducing their cost and are able to provide better care services to the patients and satisfy them
through their better care services. This options are used as funding options because this options
assist in reducing the cost of the company and are able to provide better services to the patients.
c. The key stakeholders within the social sector and the way of communication with the
stakeholders
Stakeholders are those individuals which have their interest in the firm's operations.
Followings are the various stakeholders which are involved in Health and Social sector :
 Commissioners : The commissioner are those which provide funds in the health and
social sector for performing various operations.
 Patients : These are customers in the health and social care which are provided with the
care services.
 Collaborators : This are the companies and individuals in the health and social sector
with which the organisation collaborate in order to provide care services (Di Francesco
and Alford, 2016).
 Contributors : This are the organisation and individuals with which the health and social
care providers work to deliver their services.
 Channels or media : The media play a key role in promoting the services and capturing
the news regrading the improvement in the health and social sector. It assists in reaching
the market and customers.

 Staff : These are people working in the organisation and provide the services to the
patients and includes nurses , doctors etc.
 Competitors : These are the people working in the same areas and are providing the
same services to the patients.
These are the key stakeholders of the NHS which are required to be informed regarding
the various operations and performance of the organisation.
There are various ways which assist in communicating with the stakeholders that are as
follows :
 Face -to -Face commination : It is the way in which the health and social care providers
can communicate with the stakeholders such as patients, staff etc. this communication
method is adopted in NHS for communicating with patients regarding their health
treatment and other concerns. Whereas staff is also involved in face to face
communication in which it communicates regarding the health of their patients to the
doctors and change sin the treatment required for better heath of patients (Osadchy and
Akhmetshin, 2015).
 Electronic media : It consists of email, social media, telephone etc. Which are used by
the health and social care providers for communicating with the stakeholders. This
communication method is effective for communicating with those stakeholders which are
not located in the same area or country. It assists in providing details regarding the
various operations of the health and social care. NHS is using this method
communication in order to communicate with the investors, contributors etc. which are
not present in the same city or country. Paper- based communication or written communication : It assists in communicate
formally with the stakeholders regarding the services and other matters. This method is
used in order have physical evidence of communication. The health and social care
service providers can use this method in order to communicate with suppliers, customers,
staff etc.
1. Agency theory : It is the principle used to explain and resolve the issues in
relationship between principle and agents. There are various issues between the
principle and agent in this sector (Burns and Walker, 2015). The principle in this
sector is the patients which appoints an agent that is health providers to advise the

principle to make decision regarding their treatment. But the issues are there
because the providers chooses to maximise its profitability rather than advising
the patients with proper treatment.
2. Corporate governance issues : It is the system which assist the health care
bodies lead, direct and control their operations in order to achieve the
organisational objectives (Van der Stede, 2015). The governance issues includes
the conflict of interest, serious clinical incidents, quality problems etc.
3. Accountability issues : It is the responsibility taken for one's action in the
organisation. This issues are Due to lack of accountability such as lack of trust in
the individual in the organisation.
TASK 2
a. Determine the break even capacity usage rate for ABC care Home Ltd
Break even units = Fixed cost /sales per unit- variable cost per unit
= £45,000 per month/ (1500- 9) = 30 units
Break even capacity usage rate = 30/60*100 = 50%
b. Calculate the targeted profit if the care home achieves 90% and 95% capacity
At 90% capacity BEP = 30 / 50 * 90
= 54 units
At 95% capacity BEP = 30 / 50 * 95
= 57 units

c. Break even analysis could be used in short-term and long-term
decision-making.
A break-even analysis is a financial tool which determines that at what level company,
will earn profit. It helps in computing the number of products or services every business
organisation or company has to sell so as to cover its production and other business
operation costs, specially fixed costs (Papapetrou, M. and et.al., 2018).
Break even point arises when total cost is equal to total revenue.
Short-term decision-making - The total cost of a product or service comprises of both
fixed and the variable cost. By using break even analysis, the effect of changing unit
selling price, unit variable cost or unit fixed cost can be determined which helps in
making decision for short term period. It helps in making changes in production and
other business operations.
Long-term decision-making - It helps when company wants to introduce or launch new
products into production line, or wants to start new service range thereby reducing
uncertainty about the failure after introduction or launch of a new project and service of
the company. When company wants to invest in heavy machinery or plants, it is useful
as it helps in assessing or estimating increase
in production volume in relation to new production
capacities.

Task 3
a. Advantages and disadvantages of various budgeting approaches.
Budgeting is a practice of making future estimation or projection about future expenses. It
emphasises on preparation of budgets, business plans, business strategies for meeting future cash
and other resource requirements of business operations (Mauro, S.G. and et.al., 2017). The
various budgeting approaches are as follows:
1. Incremental budgeting - In this budgeting approach, budget is prepared by using as a basis
the actual performance or by considering budget of previous time period for making new budget
for the period with adding some incremental amount (de Campos, C.M.P. and Rodrigues, L.L.,
2016).
ADVANTAGE - It is simple & easy to prepare as current period financial results is taken as
basis for preparing incremental budget & can perform on continuity of funds in the future. It
reduces conflict among departments related to fund allocation.
DISADVANTAGE - It maintains same resource & fund allocation in present period to
department who previously required more funds, even though that department id not in need of
such funds. It doesn't emphasise on innovation and creativity as it rely on previous period
budget.
2. Zero based budgeting - A budgeting approach in which, budget is prepared by setting it to
zero or starting from scratch by re-evaluating business activities. It helps the organisation in
minimizing and mitigating unnecessary expenditure (Nnoli, U.F. and et.al., 2016).
ADVANTAGE - It ensures proper & efficient resource allocation thereby minimizing resource
wastage and identifying out dated business operations. It emphasises on detecting inflated budget
as well and helps management in ensuring effective fund expenditure to core business activities.
DISADVANTAGE - This approach is most time consuming process as heavy and necessary
expenditure requires proper discussion and knowledge for its successful implementation (Nnoli,
U.F. and et.al., 2016).
3. Activity based budgeting - It is a system in which business activities are taken into
consideration for recording, analysing and assessing the cost associated with such business
activities. After that expenditure forecasted for future is complied on the basis of expected level
of activity (Mahal, I. and Hossain, A., 2015).

ADVANTAGE - It helps the organisation in assessing cost associated with each business activity
& operations and the amount of funds required to be allocated to every business activity for
achieving organisation goals. It helps organisation in assessing the value added to each business
activity and determining cost of each unit of business operations as performed by the
organisation. It ascertains unnecessary activities of business and eliminates it thereby leading to
cost saving and maximizing profits.
DISADVANTAGE - It is traditional technique of budgeting which requires a lot of time and
information for successful attainment of business goals and objectives. It also requires more
resource allocation and insight maintenance from the management for development of such
budget (Mahal, I. and Hossain, A., 2015).
4. Rolling budgeting - It is a budgeting approach in which existing budget is incrementally
extended for upto the period of one year in the future. In this budget, a new budget period is
continually added on completion of existing budget period (Sarancha, S.Y. and et.al., 2016).
ADVANTAGE - It ensures reassessment of existing budget on regular basis thereby producing
new and update budget timely for future. It reduces uncertainty level associated with budgeting
by concentrating on short term period for more effective development of successful budgeting
approach.
DISADVANTAGE - It might demotivate employees of organisation when budgeting targets are
changing continuously. Rolling budgets are considered as costly ans timer consuming process as
it focuses on extension of existing budget for future (Sarancha, S.Y. and et.al., 2016).
b. Difficulties encountered when budgeting in public sector organisations.
While budgeting in public sector organisation, following difficulties are faced:
1. Limited Resources - Resource is one of the most important asset for every business
organisation useful in performing business operations. Proper, effective and timely allocation of
resources helps in gaining competitive advantage but at the same time scarcity or limited
resource availability leads to downfall in the profit & performance level of the organisation.
Time and money are special scarce resources which has to utilize in efficient and effective
manner. Thus, budgeting helps in planning, controlling & sustainable use of resources (Jauch, S.
and Watzka, S., 2016).

2. Communication - It helps the organization in planning, formulating and developing strategies,
procedures and concepts. Proper & effective communication helps in conducting budget
meetings, discussions & implementation of budget plans. Communication is considered as a key
to success, it fails when other people unable to understand intention of performing such activity.
3. Changing Culture - Organisation culture comprises collective values, behaviours, assumptions
and principles which contributes to social, psychological and external environment of a business
organisations. Changing culture of organisation on regular basis made it difficult for successful
implementation of effective budgeting approach. For successful implementation of budget plans,
it is very necessary to have a uniform, stable & flexible working culture in the organisation
(Mauro, S.G. and et.al., 2017).
4. Infrastructure - Organizational infrastructure is defined as collection of the business strategies,
methods, concepts, procedures, actions and policies adopted in a business organisation
emphasizing on the said define rules, responsibilities and duties of its employees. A good
infrastructure fosters profit levels. When organisation invest in some projects, it should ensures
that such investment is growing and giving return at the rate higher than cost expenses of
business. Lack of adequate infrastructure facility leads to improper budget planning and its
successful implementation.
5. Visions - Every organisation should have a clear and definite vision and mission statements
for their business, to be achieved in near future. Vision should be made by keeping in mind the
goals and resource available. Unclear or undefined vision of organisation affects the budgeting
process to be made for meeting future goals. Budget programme, plans formulated should be in
line with the organisation vision (Mauro, S.G. and et.al., 2017).
c. Prepare a cash budget for a health and social care organisation.
January February March April May June
Cash inflows
Opening cash balance 18000 34400 49760 65708 82273.4 99487.1
Sales 32000 33600 35280 37044 38896 40841
Other income 10000 10000 10000 10000 10000 10000

Total cash inflows 60000 78000 95040 112752 131170 150328
Cash outflows
Material 11200 11760 12348 12965 13614 14294
Labour 6400 6400 6400 6400 6400 6400
other expenses 8000 10080 10584 11113 11669 12252
Sum of cash outflows 25600 28240 29332 30479 31683 32947
Cash surplus / closing cash balance 34400 49760 65708 82273 99487 117381
d. The impact of financial constraints, costs and budgets on health and social care service
managers, their clients and other stakeholders.
Financial Constraints means shortage of funds or lack of money resources, as a result of which
unable to perform any task. Impact of Financial constraints on:
1. Managers - Due to lack of funds or money with the business organisations, managers have to
face a problem of limited availability of banking financial assistance required for acquiring new
and innovative health care instruments. Also, access to bank finance is limited upto an extent due
to little savings. Such organisation thus have a lower chance of survival and growth in the future.
2. Clients - As organisation is having a problem of financial constraints, it is unable to purchase
new, innovative and updated health care instruments and tools useful in field of health and social
care service for better treatments of patients. It affects the quality of treatment and health care
services rendered thereby impacting the health of patients (Atanelishvili, T. and et.al., 2017).
3. Stakeholders - As company is facing a situation of financial constraints, it will affect the
financial, economical and organisational performance of the organisation as well. When there is
no profit, its stakeholders will not be allotted any profit share which will affect their wealth and
investment proportions.
Cost means a monetary value for consumption of any resource, material, product or any service
used (Mauro, S.G. and et.al., 2017). Impact of Cost on:

1. Managers - As the cost of carrying on any health care and social services & its related
business operations increases, the level of profit will either decrease or remain constant without
going up. This will lead to decline in the profit margins of managers.
2. Clients - With increase in cost of the health care products and services, many clients will not
be able to consume or afford it for their treatments. This will affect the health of patients as they
are unable to seek such costly health care services on time and it will lead to increase in number
of ill patients.
3. Stakeholders - With high cost, organisation will only earn from patients who can afford such
costly treatment. This will give low return and profitability of company will also decrease as a
result of which stakeholders profit share will get affected (Mauro, S.G. and et.al., 2017).
Budget means preparing an outline for meeting future business operation expenses to eliminate
or mitigate any financial risk or other business related risk associated with the organisation. It
also compares actual results with estimated budget prepared, to ascertain the actual variances, if
any thereby maximizing the profitability (Heupel, T. and Schmitz, S., 2015).
1. Managers - It helps manager on emphasizing how much number of health care instruments,
units are required to be purchased or acquired for a definite period of time for effective treatment
of patients. It also helps in considering expenses related to health care services to be render in
future. Budget prepare helps manager in creating and outlining a clear and definite vision for
betterment of organisation success and for effective working of team towards attainment of
organisational as well as individual goals (Mauro, S.G. and et.al., 2017).
2. Clients - Budget brings plans, strategies for meeting future event expenses. It ensures proper
and effective financial as well as non financial planning for organisation to mitigate and
eliminate the risk associated with business. As budget confines the amount to be utilised, it limits
the company from purchasing good and updated health care instruments which affects patients
treatments (Heupel, T. and Schmitz, S., 2015).
3. Stakeholders - When company is having a projected budget amount, it will growth within that
respective budget amount. The quality of performance will not improve & leads to low profit
margins. Because of this low profits margin, company will not be able to fulfill its stakeholders
needs of profit distribution.

CONCLUSION
From the above report its can be concluded that, Financial control is a system of tracing
the resources directed for carrying on the organisation business operations. It keeps a check on
accuracy of report to eliminate fraud, error so as to protect physical & intangible resources of the
organization. Furthermore, report has cover challenges & recent developments of NHS. It has
also explained the various funding options available with health and social care service
organisation. Detailed explanation about the agency theory, corporate
governance and accountability issues faced by health and social care organisation has been
given. At last it has explain the concept of budgeting that, Budgeting is a process of preparing
budget, business plans, business strategies for meeting future cash and other resource
requirements of business operations. There are number of budgeting approaches which a
organisation can use for improving its performance quality and profit margins.

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