Financial Control and Budgeting

This report discusses the legal, financial, and regulatory environment of health and social care, funding options such as private finance initiatives and agency partnerships, and the concept of agency theory. It also explores the impact of financial constraints, cost, and budget on health and social care services, as well as the challenges of budgeting in public sector organizations.

Financial Control and
Budgeting

Table of Contents
INTRODUCTION ..........................................................................................................................3
Question 1 .......................................................................................................................................3
A Legal, financial and regulatory environment of health and social care ..................................3
B Use of funding options ............................................................................................................4
C Agency theory .........................................................................................................................5
Question 2........................................................................................................................................6
A Impact of financial constraints, cost and budget of health and social care services ..............6
B challenges of budgeting in public sector organisations............................................................7
C Advantages and disadvantage of incremental and Zero based budgeting ...............................9
Question 3......................................................................................................................................11
Break even point and margin of safety......................................................................................11
Assumptions for break even point.............................................................................................12
Conclusion ....................................................................................................................................13
REFERENC...................................................................................................................................14

INTRODUCTION
Budget is the financial plan which is being prepared by any organisation to know future
expenses and by making proper budget organisation may attain the pre- determined goal and
financial control is the procedure of making budget for a specified time duration and the
organisation can compare the actual performance with the standard performance (Drahos, 2017).
This report is based on National health services which is located in UK and It is publicly funded
health care. This report states about the legal, financial environment of the health and social
care. Also it speaks about the various funding options such as private finance initiatives, agency
partnership, competitive tendering. Agency theory is also mentioned in this report. Impact of
cash budgeting is elaborated in this report. Break even point is also mentioned in this report.
Question 1
A Legal, financial and regulatory environment of health and social care
The legal regulatory for health and social care is that they have to protect people at work
and also organisation have to be take care about work activities done by the employees. Legal
rules and regulatory involves the protection of health and safety of the people who are working
in the organisation (Stephan and et.al, 2018). The financial regulatory of health and social care
is concern with making proper plan and policies of the organisation so that they may purchase
the necessary tools and equipments. Health and social care uses heath financing so that they can
give better treatment to the patients by using technology. Apart from this, if the organisation
has properly maintain its machinery and equipments so that the employees also do not get harm
by using such machinery and equipments and also they may offer best services to the patients.
Health financing is useful for the protection of health of workers as per the lows and regulations,
organisation provides proper training and development to the employees so that they know how
to use tools and equipments properly. To manage the finance in heath and social care they need
fund from various sources of funds, through collecting funds from the government and also
from various different schemes and directly payment out of the pocket from the patients.

Another thing which is being used by the health care is that they collect fund from high net worth
individual and those people who are from lower middle income group. This can be the direct
income of the organisation which they get from such patients in the form of fees and charges
which they charge from their patients by giving them proper health care services. But the funds
and finance of the organisation depends on the country as well if the organisation is situated at
the developed country it may easy for them to gather funds from various sources and on the flip
side if the organisation is located in such country which is financially weak it may become
difficult for the organisation to collect fund thus they provide poor services to the patients as they
do not have money to buy machinery and necessary tools.
B Use of funding options
Private Finance Initiative
Private finance initiative as the name suggest, it is one of the way to finance public
sector organisation and projects through private sector (Kuluski and et.al, 2017). It is one of the
important and controversial method of collecting fund from the public in the form of tax so it is
an unnecessary burden on the general pubic. Because the PFI alleviate on the government and
public, to gain the fund, this public sector projects gather money from only those people who are
the regular payer of tax. In this method, any private company handles the cost instead of
government and private companies manage all the collected fund in the appropriate manner.
Agency partnership
Agency partnership is one of the most dynamic and effective way of collecting and
gathering the fund so that the government can allocate funds to the government so that they may
provide better services to the customer and patient (Regenstein and et.al, 2018). As the name
suggest, in the agency partnership, this government projects do partnership with big name and
famed agencies who collect the fund on the behalf of the government and manages the entire
business and aft6er collecting the fund these agencies distributes the funds in different
departments of the organisation. But the agency have to make sure that they do not distribute the
funds in a wrong manner so that no body can misuse such funds.
Competitive tendering
This is one of the popular method of collecting fund for the government project and
organisation. It is known to be the bidding system in which the investor and big organisation
bid for the higher they will purchase the government debt (Huggett, , 2020.). It is similar to the

auction process. The main motive of this tendering system is to fulfil the cost of the government
and the main motive of governments is to collect more and more fund so that they can buy all
the machineries and equipments which is necessary for the success of the organisation and
project.
C Agency theory
The efficiency of health and social care has been a political issue in many countries and
now the government of UK has categorised the health care in to agency network, which means
that government has given the contract of one or group of persons who is known ton agent to
perform all the activities and services in the NHS on the behalf of the government (Buchanan,
2020). But government plays the role of principal and other person plays a role of agent. The
main reason behind using agency theory in the NHS is that government is not able to keep an eye
on he activities so they hire agent who will work for the welfare and development of the health
care and give preference to the needs of the patient and patients and they get the best treatment
which they are looking for.
Importance of agency theory
This theory has become a need for NHS, as in the absence of proper communication with
the stakeholders and also government is not able to check the status of NHS so this theory has
been come into action. As the agent is always there in the organisation to sort out the problem
faced by the employees and also it may give solution to the problems and queries of patients if
they do not get the treatment as per their preference.
Ways of communication with stakeholders
Stakeholders are the one who have keen interest in the organisation , they can be –
employees, investors, and customers (Sussex and et.al, 2019). It is very necessary for the
organisation that they communicate with the stakeholders.
Sent out a news letter
NHS should send a news letter to the stakeholders so that they know what extra this
organisation is doing and what new NHS is going to launch, so this new have to be sent to
stakeholders on quarterly and annually basis.
Schedule a meeting
It is the another way to communicate with the stakeholders by conducting a meeting with
them so that the stakeholder may know that what are the future goals of the NHS and what extra

they have to give to the stakeholder so that they do not have to face any kind of issues within in
the company (Jordev, 2020).
Question 2
A Impact of financial constraints, cost and budget of health and social care services
Financial constraints refers to the factors which put restriction on the quality of investment
options which is available for the investor (Watkins and et.al, 2017). These factors could be
internal and external which is being consider of internal constraints like lack of knowledge and
poor cash flows. In the area of health care, if they face financial constraints it directly impacts
the services given by the health care to its patient. The key role of finance in the health care
system is to plan, acquire and use the resources to increase the efficiency of the organisation.
The major role of financial constraints is to specify activities like planning and budgeting when
the organisation make proper planning and budgeting about the cost and expenses then only they
can provide proper health care services to its patients. Cost and budget are fully different term,
as budget refers the money available with the organisation which they are going to spend over
a time period, specially on a specific time period. Cost is majorly concern with the expenses
which is going to occur and bear by the organisation. So budget is a tool which is being used
by the organisation for planning and controlling the financial resources of the organisation.
Budget is being made only by knowing the priorities of the organisation, they may make budgets
and although as per the budget they think to provide services to their patients apart from this,
NHS is a publicly funded organisation and they have to make sure that they must provide good
and better services to its customer so they may get best services which is not possible for them to
get it from other health care. But this can only possible when they prepare financial budget as
per the needs. The major financial constraints which put the NHS in limelight and controversies
is that they were not having proper budget and cost planning thus it is not possible for them to
pay salary on time to their employees in result this organisation is facing employee turnover and
organisation cant provide proper treatment in the situations of emergency specially in the
pandemic (Blecher and et.al, 2017). This organisation was running short of employees and staff.
In result all patience were not getting proper treatment at time although organisation was not

having proper machinery and tools so that they can provide proper treatment to the patient.
Situation like this arise just because the health care were not properly make budget for the
expenses and how they will buy necessary equipments and tools. Budget make sure about the
current performance of the business and is consistency with the goal and plans of the
organisation. So the impact of budget and cost in health care organisation is must as w with the
help of budget, health care organisation may know how much funds they have to spent on
projects and different tools and section and how much fund have to be allocated on different
equipments so that they may provide best treatment to the patients (Cookson and et.al, 2017). To
make budget, this organisation is dependent on the fund which is being given by the government
and in the form of the donation from public and other high net worth individual. But NHS have
to ensure that budget must be prepare as per time. It can be long term , short term and medium
term in nature. Another thing which is necessary to ensure that budget can be classified in two
sections first is fixed budget and flexible budget. The another thing which can be ensure while
creating a budget is that they have to be analysed first , and make proper planning about the
budget then the organisation should implement such budget then only the health care will get
benefit from the budget and cost. On the other hand, the financial constraints must be implied in
the health care and it has to be properly managed then only it can provide benefits the
organisation.
B challenges of budgeting in public sector organisations
Budget refers to be the estimation of revenue and expenditure for a specified future
period of time and usually it is concern on the periodic budget (Malbon and et.al, 2019). But
now this budgeting has become a challenge specially for the public sector organisation as they
do not have proper availability of the fund because they relied on the government and public for
funds and money. There are some big health care organisations which are facing budget issues
and challenges such as NHS and department of health and social care.
Inaccuracy
The common challenge and issues faced by the organisation is inaccuracy as the
budgeting take place on the assumptions only, which can give some disadvantage to the
organisation if the environment of the organisation changes frequently, the budgeting can get
failed in such situation and organisation may face loss. Apart from this it can be possible that the
revenue structure of the company may change very often this can impact the entire budget of the

organisation. So inaccuracy has become a big challenge in front of the organisation. Another
thing which can impact the budget is economic downturn, the biggest example of economic
downturn which every organisation faces during the proliferation of Covid 19, in this pandemic
the entire budget of the the public healthcare organisation get failed, as they were not having
proper equipments and tools through which they may provide bets treatment to the patients, as
the budget of these organisations got failed in result they were not having proper funds , these
organisations were not able to pay salary to its staff which was a biggest example of budget
failure.
Requirement of time
Time is a very important constraints for making a budget and on the same time it is one
of the challenge which is being faced by the organisations (Ibrahim and et.al, 2017). It
becomes one of the lengthy process when the environment of the organisation is poorly
organised, it takes lot of time when the organisation is weak in making budget. But some good
organisations uses budgeting software which provides them better result in less time. But this
organisations are public health care and do not uses any kind of software in result the budget
making process becomes time consuming for them. So this are one of the big challenge which is
being faced by the organisations.
Allocation of expenses
The main objective behind making budget is that organisation wants to allocate and
distribute the fund to different resources and department so the organisation may face the
challenges of the organisation. As NHS and Department of health and social care are one of the
big organisations and they have to allocate funds to each and every department and which is only
possible when the organisation properly manage the budget for every department.
Right budgeting tool
Many of the challenges which takes place due to inappropriate tools have been selected
by the organisations (Ouassini, 2018). To make good budget organisation must be sure about the
tools which can give them proper and correct result which helps the organisation and also the
organisation have to be make sure that the budgeting tool must be useful for other departments
and tools as well. To avoid this challenge, organisations must use technology which will help
the organisation to get faster result and also the organisation will save extra money and time,
and the chances of miscommunication will decrease and also the organisation can provide better

treatment to the patients. So by selecting the right budgeting tool, employees can also help the
employees so that they may know the invoicing and payroll opportunity, this will assist the
organisation to sort out any kind of issue.
Goal setting
The another challenge which is being faced by the organisation while making budgetary
is that they do not involve entire team in it. As it is a public organisations so they do not give
much importance to the their team, thus they do not involve the entire team in result organisation
make wrong budget hence the organisation do not get proper result which they expecting.
C Advantages and disadvantage of incremental and Zero based budgeting
Incremental budgeting
Incremental budgeting is refers to traditional budgeting method in which the budget is
made on the basis of current period budget and actual performance which is being taken as the
base which is needed in making new budget (Kang and et.al, 2020). Basically incremental
budget uses the budget of previous years or on the basis of actual performance and the
incremental amount added to the new budget.
Advantage of Incremental budgeting
Simplicity
Increment budgeting is one of the simplest and easiest approach that's why it is used for
the forecasting of future expenses and future projects. This approach do not require any kind of
complex calculations and only needs few assumptions in which the entire budget get prepared.
Funding
Incremental budgeting ensure that funding must remain n stable over the passage of time
this is most suitable for those organisations who haven projects for long run and they require
funding for long term.
Disadvantages of Incremental budgeting
Promote extra spendings
Incremental budgeting promotes unnecessary spending for the company the main reason
which has been found is that whenever any organisation allocate fund to other departments they
try to use all the funds which has been allocated to them.
Lack of innovation

This type of budgeting process do not promote innovation and also do not consider new
ideas and growth in the company. As the new budget is also based on the old budget thus this
process discourages the usage and implementation of new ideas in the organisational
environment.
Lack of incentives
When the company uses incremental budget it does not give and provide any kind of
incentive to the company and its management, there for the management of the organisation also
review this budget (Prabowo and et.al, 2017). The lack of review system makes the budget
waste and inadequate assumptions and lead to mistakes as well.
Zero based budget
This is a tool and approach which makes a budget from scratches. This budget do not
uses previous and past budgets. As the name suggest this budget begin from zero. When any
organisation go for zero based budgeting, they need to make justification for every expenses
before they mention this in to the official budget. The major goal behind preparing this budget
is to cut out the extra cost wherever company can cut. In the preparation of this budget
organisation sometimes includes employees as well so that they will make accurate budget for
the organisation.
Advantages of Zero based budgeting
Cost – benefit analysis
This is one of the biggest advantage of zero based budgeting as the every item and
equipments get justified when the organisation prepares budget. So with the help of analysis
zeros based budgeting provides cost saving benefits to the organisation. It leads the organisation
on the way of cost saving.
Promote optimisation
This budgeting focuses only on those items which directly benefits the business
and provide more value, greater efficiency and cost reduction as well. With the help of this
budgeting tool organisation get the continuous improvement in the orgabnsiation.
Disadvantage of Zero based budgeting
Complex procedure
It is not same like traditional budgeting, zero based budgeting is quite expensive and
costly and along with this, it is time consuming as well (Ab and et.al, 2018). It needs extra

training which include new software and workflows then only this budget can be prepared. So
expenses and time consumption are the drawback of this method.
Disruptive process
It is a disruptive process, because whenever orgabnsiation wants to make changes in this
budget it takes a lot of time and entire management have to face extra cost. In the area of
disruption can impact then brand value and reputation of the organisation, and also it put
negative impact on the customer experience as well.
Question 3
Break even point and margin of safety
Particular 2018 2019
Sales 49500000 (220000 *
225)
61875000 (220000 *
{225 * 125%})
Less: Variable cost
Direct material 27500000 (220000 *
125)
27500000 (220000 *
125)
Direct labour 3300000 (220000 *
45/3)
3300000 (220000 * 45/3)
Variable manufacturing overhead 4400000 (220000 *
20)
4400000 (220000 * 20)
Variable selling expense 3300000 (220000 *
15)
3300000 (220000 * 15)
Variable administrative expense 2200000 (220000 *
10)
2200000 (220000 * 10)
Contribution 8800000 21175000
Less: Fixed cost
Fixed manufacturing cost 1100000 1100000
Fixed selling and distribution cost 1450000 1450000

Fixed administrative 675000 675000
Additional fixed cost 1450000
Profit 5575000 16500000
Break even point (BEP In Units):
Fixed cost / contribution per unit
2018
= 3225000 (1100000 + 1450000 + 675000) / 40 (8800000 / 220000)
= 80625 Units
BEP (in amount): 80625 * 225
= 18140625
2019
= 4675000 (1100000 + 1450000 + 675000 + 1450000) / 96.25 (21175000 / 220000)
= 48571 Units
BEP (In amount):
48571 * 281.25 (225 * 125%)
= 13660594
Margin of safety sale: Current sale - Break even point sale
2018 = 49500000 – 18140625
= 31359375
2019 = 61875000 – 13660594
= 48214406
It can demonstrate that the result stated above denote that company could address better
break even point as compare to the previous financial year. The modification also denote the
increase in sales price that also favoured the business entity in its sales that further increased the
break even point for the respective entity (Verhougstraete and et.al., 2019). Margin safety of sale
in the year 2019 is also increased due to the increased sale price of company in the respective
financial year. This all denotes that company could entertain better performance under the
respective financial year.

Assumptions for break even point
Break even point is denoted as the no profit no loss kind of situation for the business
entity. This is the point that denote that organisation will not address any losses against the
business operations functioned. Assumptions like all factors related to the business environment
are impacting in the same manner over the business functions of company as they were
influencing earlier to the organisation. Also the market also catering the same level of
competition as they are catering in the previous financial year. This evaluation al;so assume that
total; fixed cost remain the same at all level of output in the organisation (Raharja and Udin,
2017). All cost is either considered as the fixed cost or variable cost in against to deliver the
business functions. Starlight line cost is entertained in the company and also the behaviour is the
same at all level of operations in the organisation. Te major assumptions company take into
consideration is that output level is same in the organisation and also the sale price per unit is
constant. All these are the key assumptions company take into consideration whole undertaking
break even point method to evaluate the performance of organisation.
Conclusion
From the above report it is concluded that it states about financial budgeting and
describes financial and legal regulatory about the organisation. Different sources of fund is
mentioned in this report. It describes the agency theory and ways of communication with the
stakeholders. It shows the impact of financial constraints and how organisation can manage
them. This describes various challenge of budgeting faced by public sector organisations.

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