Importance of Financial Control and Budgeting in Health and Social Care

This report discusses the importance of financial control and budgeting in health and social care. It covers topics such as legal, financial and regulatory environment, alternative funding options, agency theory, impact of financial constraints, costs and budgets on health and social care service managers, their clients and other stakeholders, challenges of budgeting in public sector organisations and more.

Portfolio of Tasks

Table of Contents
Table of Contents.................................................................................................................................
INTRODUCTION................................................................................................................................
MAIN BODY.......................................................................................................................................
Task 1...................................................................................................................................................
Legal, financial and regulatory environment of health and social care.......................................
Private Finance Initiatives (PFI), agency partnerships, competitive tendering and
outsourcing in the health and social care sector..........................................................................
Agency theory and explanation of importance of and ways of communicating with
stakeholders in the context of budgeting.....................................................................................
Task 2...................................................................................................................................................
Impact of financial constraints, costs and budgets on health and social care service
managers, their clients and other stakeholders............................................................................
Challenges of budgeting in public sector organisations..............................................................
Advantages and disadvantages of incremental and zero-based budgeting..................................
Task 3.................................................................................................................................................
Compute the breakeven point and margin of safety for the year 2018 and 2019......................
CONCLUSION..................................................................................................................................
REFERENCES...................................................................................................................................
Books and Journals:...................................................................................................................

INTRODUCTION
In the organization, it is identified that budgetary control is playing an important role
as it helps to manage expenditure and income (Bogoslavtseva and et.al., 2019). It is
comparing actual income or expenditure that they are required corrective action or not. This
report aims to understand the importance of financial control and budgeting and health and
social care. It will discuss the analysis of the legal, financial and regulatory environment of
the health and social care sector, evaluation of different alternative funding options in the
health and social care sector, and agency theory in the context of NHS. In addition to this, it
will also discuss the impact of financial constraints on health and social care services. In this
report, there will be a discussion of particular challenges of budgeting and the advantages and
disadvantages of zero-based budgeting.
MAIN BODY
Task 1
Legal, financial and regulatory environment of health and social care
The Health and Social Care Act 2012 introduce the legal duties of health inequalities.
This act says reducing the health inequalities among the people. This Act also changes local
authorities on a public health function (Yusuf, 2021). The Equality Act 2010 says that
establishing equalities in all public sector which aim to integrate with all the business bodies.
The legalisation may be seen as complimentary for the public sector to take action to reduce
inequality at a local and national level.
The primary aim is the act is to ensure public safety. The UK government is
responsible for 32 regulating. In health care, professional regulation is the much broader term
for ensuring the patient is service care unit. But the UK framework is inconsistent, poorly
understood. There is a wide range of inconsistencies with different regulators' different
power. But the major drawback is the expensiveness of the current system Because of this
change regulatory bodies must be developed scrutinised and secured by the government.
Health care gives the power to the regulator for making their own rules. Make a new barring
scheme for prevention professionals who did crimes in their profession. Greater use of
meditation for fitness in their profession. The regulator should consult the public and work to
collaborate less than government interference. The regulator should make a very clear
framework that is needed to protect the public.

Local authorities are the main source of funding in health and social care. In recent
years, this increased share also come from NHS. Its half of service care is spent on services
for older people and 52% spend on working-age people mainly support for mental health
conditions or learning disabilities (Aung and Mon, 2020). This service is tested and funded
by local taxation and Government grant. Some user gives a relatively large number of funders
in this section. Funding is recovered in recent years but the population is increasing day by
day. That means pressure on the government.
Because of the pressure, needy people do not access formal care and service. It seems
that the increasing population reduced the funding according to data funding in 2018/19
subsequently is lower than 2010/11. So that the government will increase funding in 2019-20.
Five priorities for the government to take initiative for social care is that stabilise the current
social care system and include boosting staff pay or much sure about to improve access to
services. This improvement increases people's health and their access to services. More
reform in funding care unit is shown as fair and provide government protection against social
care cost. Requiring any option genuine government system that is an investment in the
Health care system include the long term funding settlement for capital driven by the need of
patient and staff. The government need to stabilise and improve the current system because it
is in collapse boosting staff pay to alleviate the problem of recruitment and retention.
Government need to improve public care funding.
Private Finance Initiatives (PFI), agency partnerships, competitive tendering and outsourcing
in the health and social care sector
The private firm is collaborating to complete the public project. It starts in 1992 with
the UK printer. PFI is part of privatisation or financial and presents the accountability of
public spending. The Private Finance Initiative is a method that is used for privatisation.
Which is an investment in the private sector to deliver to the public sector. Infrastructure or
specification according to the public sector (Shuaib and Olanrewaju, 2020). It is broader
procurement for public and private partnerships main using of project finance to deliver
public service. PFI involves contracting the design building and operation to public sector
private sector companies and long term contracts. It increases competition between private
providers. PFI is used for the investment needed to build assets for ongoing service
requirements. PFI was used to build prisons, hospitals, schools, roads. NHS and PFI will
increase the hospital they are coordinate with each other and give good results in making a
hospital.

It means two separate entities work together for the completion of a goal. Separate
organise to come together to share the resource and pooled expertise, power-sharing. It means
to increase efficiency quality of service. All parties come together for some interest and they
achieve some common goal. The parties have some common ethos and belief and they work
for some reasonable time or it will increase mutual understating and trust. Partnership
working in social care increase the knowledge and understanding of the new technology
together. A partnership can be formed between several individuals, organisations, agencies. It
is made for long term and short term aspects (Gamayuni, 2020). Partnerships need to clear
effective leadership. Each of the partners must understand each other in the partnership. Time
and allocation of resources are must on the time shown the partnership is very effective the
partner understand responsibility. Open communication reduce conflict in the partnership.
The partner suggests ideas in front of anyone this is open communication with no fear of
anyone. It increases the number of benefits for the patient. A one-stop shop is a place the
patient doesn’t go anywhere it is a shop that have all item that the patient needed this is an
effective partnership.
The use of outsourcing by the public sector is dramatically increased. The public
sector is defined as an act of a public organism transferring internal services. While the
immediate impetus for reform in the outsourcing sector is the need to reduce government
spending. It increases the greater efficiency comes in Covid 19 increase outsourcing some
countries take ventilator form to outsource. Public health care services increasing to view
outsourcing as critically successful (Kisaata, 2019). Outsourcing increases efficiency also
because they give new technology comes from different countries by way of outsourcing. All
social health people will use this technology and take care of all patients. This is proven by
covid 19 every country outsource. Among the different non-clinical activities logistics and is
great importance they represent a large portion of health care organism and are essential for
their operational performance.
Agency theory and explanation of importance of and ways of communicating with
stakeholders in the context of budgeting
It is necessary to understand for an organisation that agency theories play a crucial
road in order to enhance of performance of the company. NHS is the National Health Service
which is a publicly funded healthcare system in England. It is found to be one of the four
National Health Service systems in the UK (Gray, Jenkins and Segsworth, 2020). Agency
theory refers to an economic theory that focuses on the firm which set contracts among self-

interested individuals. It is very helpful to understand the relationship between principals and
agents for a particular business transaction. Agency theory is found to be clearly articulate the
need to monitor and control management activity. It is identified that the UK reflects an
agency model India public sector organisation which includes the NHS board. Is identified
that there are some difficulties which are identified in agency theory as it becomes difficult
for the public and non-profit sectors. It is found that agency theory dimensions the purpose of
the board related to the set of values and vision of the company. Agency theories found a
contract which formed between one or more persons by engaging other people so that they
can perform some important services on their behalf. It invoice delegation of some important
decision making authority to the agent so that they can able to deal with the patient. It is used
for explaining and resolving issues between principals and agents.
Communication is found to be very important with stakeholders when the company is
making a budget. Budgeting is found to be a process in which a company is creating a plan in
order to spend their money and it is necessary to communicate with each and every person so
that they can act accordingly (Volosovych and Baraniuk, 2019). If it is found any lack of
communication with the stakeholders then it is not possible to achieve the objectives. It is
also identified that communication with the stakeholders in the budgeting process becomes
more important as they are responsible for financial control and if they do not have any
information about the budget then they will not able to achieve the goals and objectives. So
that's why they need to use different ways of effective communication with the stakeholders.
Some important ways are mentioned below:
 For the purpose of discussing any information related to budgeting, it is necessary to
schedule a meeting with the stakeholders so that they can save time in conveying the
message to a large number of people.
 In addition to this, they can also use the screen to screen meetings which are really
very less time consuming as compared to face to face meetings.
Task 2
Impact of financial constraints, costs and budgets on health and social care service managers,
their clients and other stakeholders
It is experienced by England that there are some constraints on public expenditure in
the healthcare and social care sector. A financial constraint has restricted a course of
economic activity. It is a real issue that is necessary to understand by an individual as they

should not be confused with emotional or subjective excuses (Butyugina and Gorbunova,
2021). These are the obstacles that restrict the number of investment options. For example,
poor cash flow and lack of knowledge are found to be the internal constraint faced by every
individual in their life. It is also necessary for every individual that it provides a negative
impact on health and social care service managers, clients and other stakeholders. The
negative impact can be understood with the help of the below points:
 It is identified that financial constraints are including inadequate access to venture
capital. It also includes the rising interest rate and inflation rates. Health and social
care sector is found to be one of the important sectors which require excess financial
arrangements so that they can able to maximize the treatment of people. But due to
financial constraints, they are unable to provide maximum benefits. It is identified that
managers of the health and social care sector face the difficulty that how they will
manage their limited financial resources to provide maximum benefits to the
customers. It is found to be the negative impact of financial constraint as it limits the
scope of the health and social care sector.
 It is also found that the customers also face many problems due to financial
constraints as they do have not enough money to get all the facilities provided by the
health and social care sector (Bialowolski, Weziak-Bialowolska and McNeely, 2021).
This is analysed more with the help of the current pandemic situation in which people
are feeling very helpless due to financial constraints as they are not able to take the
facility of ventilators due to high cost.
 It is identified that the other stakeholders of the health and social care sector are
facing many challenges due to financial constraints. It includes patients, government,
charities, inspecting bodies, community, etc. will be facing many challenges due to
financial constraints. The government is facing in educate budgetary allocation to
health which becomes the main issue. Due to this, they are unable to hire human
resources.
It is identified that financial cost is also providing an impact on healthcare service
managers, clients and other stakeholders. Financial cost includes direct as well as indirect
cost in the health and social care sector. It is identified that 2021 will be a dynamic year for
the UK in terms of healthcare policies. It is the year in which they need to reform their
policies so that they can help better access, equity and affordability. During the pandemic

situation, the United Kingdom get to know about the financial cost which hit their system of
health and social care. It includes both direct and indirect costs (Ibrahim and Mustapha,
2019). It is providing a great impact on health and social care service managers as it becomes
very difficult for them to manage the cost. Due to the access cost of health and social care
facilities, clients and other stakeholders are unable to take services. It is similarly found in the
case of financial budgets. Budget is not an easy task for health and social care service
managers as they need to make a budget that is appropriate for each and every stakeholder
including their patients also.
Challenges of budgeting in public sector organisations
Budgeting is a process that is found to be essential for the financial success of any
organisation and it becomes more important than in the health and social care sector. It helps
to pay off debt, grow money with the help of investment and save money also (Setyawan and
Gamayuni, 2020). But it is identified that there are many budgeting challenges are found
which is necessary to tackle why organisation so that they can able to perform effectively.
Some important budgeting challenges are mentioned below:
 It is identified that budgeting involves a high degree of complexity. It is necessary to
understand that budgeting is a very complicated and multi-staff process. Due to this, it
involves unpredicted external changes which provide a great impact on budgeting. It
is found that any slightest modification in a budget will result in a complicated
process for managers as the need to recalculate all the numbers. In addition to this,
they also need to resend spreadsheets and respond to all the questions which arise
from the slightest modifications in a budget. It is found that financial budgeting has
no capability to accommodate mergers, acquisitions and reorganisation. It is not able
to perform and respond effectively as they have no ability to recognise changes. So it
becomes a challenge for an organisation how they can deal with the changes found in
the budgeting process.
 Creating a budget is found to be a very expensive and time-consuming task. It has
also become a challenge for the company to create a budget as it is a very time-
consuming process that requires constant iterations. It is identified that many CF force
spends their 250 hours only on the budgeting process which is a really poor use of
resources and time. In the case of multiple users are working in the organisation in
different versions than it becomes more time consuming to compile, coordinate and

consolidate. Due to the excess time, the cost of resources is increasingly and up in
budgeting.
 It is identified in the budgeting process that lack of communication between
employees will become a challenge as it leads to errors in the budget. This is
necessary to understand for each and every organisation that there are many moving
parts that should be covered. It is found that every step of the budget process requires
information and input from users and different departments (Kunnathuvalappil
Hariharan, 2020). Due to this, it becomes very difficult for users to coordinate all the
activities with each other. It leads to ineffective communication which will be
provided negative implications on the resulting budget. This is necessary to
understand that when two users are not communicating with each other than how it
will be possible to coordinate all the activities and it will result in a lack of alignment
in the budget. Every organisation knows that communication is very important in
today's business environment after the pandemic situation. Due to covid-19, it is
found that there is a continuous increasing online work in which the importance of
communication is becoming very important and in the case of the budgeting process,
it is found that company management should focus on scheduling all the meetings so
that they can communicate with the employees.
 One more challenge in budgeting is it leads to an excessive focus on financial
outcomes. It is very well known by every organisation that when they are creating
budgets then they need to spend time on numbers and the main focus of management
is always on financial outcomes. It is found that every organisation has an aim for
using the budget as they want to increase their revenue, profitability and reduce
expenses. This is the main reason that management of a company always overlooks
many qualitative aspects due to the focus on financial outcomes. They always ignore
employee satisfaction and the culture of the organisation.
Advantages and disadvantages of incremental and zero-based budgeting
It is identified that incremental budgeting is found to be a type of budgeting process
which is mainly based on the idea that a new budget can be developed only with the help of
some marginal changes in the current budget. That means it used a current budget as a base in
which they add or subtract some incremental assumptions in order to determine new budget
amounts (Schubert and Kirsten, 2021). It is found that incremental budgeting is one of the

most commonly used budgeting methods as it is the most conservative approach. Some
advantages and disadvantages of incremental budgeting are mentioned below:
Advantages of incremental budgeting
 It is identified that implemental budgeting is found to be the easiest budgeting
approach. The creation of a new budget is not required any complex calculation
incremental budgeting.
 It is also identified that implemental budgeting is important for reducing internal
rivalry as it allocates equal incremental changes in the budget.
 Incremental budgeting is helpful for a company as it ensures that funding should be
remain stable which helps the company with projects.
Disadvantages of incremental budgeting
 It is found that it promotes unnecessary spending. It is identified that departments of a
company has always a tendency that they have to spend all the money which they
allocated in a budget so that they can obtain a greater amount of money in the next
budget. Due to this, it is identified that an incremental budget increases the budget
every year.
 It also discourages innovation because it is based on the previous budget. Due to this,
the production of new and innovative ideas are stopped.
Zero-based budgeting is found to be a method in which a company is focusing on all
the expenses that should be justified for each and every which means companies analyse the
need and cost of the budget of every function.
Advantages of zero based budgeting
 It is identified that zero-based budgeting is really very helpful for prioritizing resource
allocation efficiency.
 It is necessary to understand that zero-based budgeting promotes optimisation in
business process management. Zero page budgeting is focusing on those items which
provide is a direct benefit to the business with the help of cost reduction and greater
efficiency. It actually trims the fat and focuses on continuous improvement. It is

identified that zero piece budgeting is very helpful in strategic decision making as
companies are more able to forecast finance in an effective way.
 Zero base budgeting is strengthening strategic transparency and growth as it
encourages internal leadership to the project leaders. It promotes innovation and also
focuses on minimising waste.
Disadvantages of zero based budgeting
 It is identified that zero-base budgeting is found to be a complex and expensive
procedure as it is very complicated to implement. It requires extra training which
increase the budget. It includes time constraints.
 Zero-based budgeting is found to be difficult for managers to make changes in the
budget. It becomes disruptive when they are trying on changes.
Task 3
Compute the breakeven point and margin of safety for the year 2018 and 2019.
Break- even analysis: It is the process to make financial estimation that identify the weights
of an expenses of a new firm. It determines the breakeven point between the service or
commodity against each selling price of the units. On the other hand, it can be say that break
even analysis disclose the point at which company will have sold sufficient unit to balance all
of it expenses. Its main focus to determine the point of break even in which product and price
meets together.
Particular Amount Amount
Sales 49500000 49500000
Direct material 27500000
Direct labour 3300000
Prime cost. 30800000
Variable manufacturing overhead 4400000
Variable selling expenses 3300000
Variable administrative expenses 2200000 9900000
Contribution 8800000

Less : fixed cost
Fixed manufacturing 1100000
Fixed selling and distribution 1450000
Fixed administrative 675000 3225000
Profit 5575000
BEP for the year 2018: (in Amount)
BEP = fixed cost / PV ratio
= 3225000 / 17.77%
= 18148564.9
BEP (in unit) = Fixed cost / contribution per unit
= 3225000 / 40
= 80625 units
Profit volume ratio= contribution / sales *100
= 40 / 225 *100
= 17.77%
Margin of safety = profit / PV ratio (in amount)
= 5575000 / 17.77%
= 31373100.73
Margin of safety = Profit / contribution per unit
= 5575000 / 40
= 139375
In 2019:
Selling price = 225 +25%
= 281.25

Particular Amount Amount
Sales 61875000
Direct material 27500000
Direct labour 3300000
Prime cost. 30800000
Variable manufacturing
overhead
4400000
Variable selling expenses 3300000
Variable administrative
expenses
2200000 9900000
Contribution 21175000
Less : fixed cost
Fixed manufacturing 1100000
Fixed selling and distribution 1450000
Fixed administrative 675000
Fixed cost 1450000 4675000
Profit 16500000
BEP = fixed cost / PV ratio (in amount)
= 4675000 / 34.22%
= 13661601.40
BEP = Fixed cost / contribution per unit
= 4675000 / 151.25
= 30909.09 units
PV ratio = contribution / sales *100
= 21175000 / 61875000 *100

= 34.22%
Margin of safety = Profit / PV ratio
= 16500000 / 34.22%
= 48217416.71
Margin of safety = Profit / contribution per unit
= 16500000 / 151.25
= 109090
Analysis: From the above table it clearly shows that the profit of 2018 is less than the profit
of 2019 and when it calculates the ratios related for the given information then company
makes it one clear decision that the revenue of 2019 is more that the revenue of 2018 but they
didn't generate the profit in comparison with their revenue of 2019. As it can be seen that the
breakeven point of 2018 is more that the BEP of 2019 and The margin of safety of 2018 is
also more than the MOS of 2019. So, basically it concluded that the company generated more
revenue in 2019 but with less profit and in 2018 firm generated less revenue but with more
profit.
CONCLUSION
It can be concluded from the above discussion that financial and budgeting control is
playing a crucial role in the success and growth of organisation. It is identified that finance is
the backbone of any organisation and because of that it should be control for achieving the
goals and objectives. This report discussed different aspects of health and social care sector
such as legal, financial, and regulatory. In addition to this, it also covered importance of
budgeting as it helps to control finance.

REFERENCES
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Butyugina, A. and Gorbunova, E., 2021. Improvement of budgeting subsystem in agriculture
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Control Systems for Financial Reporting Quality at Local Governments in
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