Financial Control and Budgeting Project in Healthcare Sector

This assignment provides a comprehensive analysis of financial control and budgeting within the healthcare sector, focusing on the National Health Service (NHS) in the UK. It begins by examining the impact of budgetary changes, legal and regulatory factors, and macro-environmental shifts on NHS operations, including the allocation of funds, workforce management, and performance benchmarks. The project then delves into the challenges of funding health and social care services, exploring alternative funding models such as increased taxation, private finance initiatives, and short-term investment strategies. Furthermore, the assignment emphasizes the importance of stakeholder assessment and communication, detailing the various stakeholders involved in NHS operations and discussing both procedural and integrated engagement approaches. The project also incorporates a practical application of financial analysis, including break-even analysis for a care home, capacity usage calculations, and the implications of different capacity usage rates on target profits. Finally, the assignment touches upon corporate governance and accountability within the context of stakeholder management, highlighting the significance of these elements for the long-term sustainability of healthcare operations.

Running head: FINANCIAL CONTROL AND BUDGETING IN HEALTHCARE
Financial Control and Budgeting in Healthcare
Name of the Student
Name of the University
Author note

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Task 1:
Question (a):
The budget on November 2017 consisted some valuable news of providing more
money to structural, operational and fundamental development (Dunn, McKenna and Murray
2017). With regards to these developmental concerns, there are some other factors that also
need sincere attention from both the national level authority as well as from the higher
management board of NHS. These significant factors are the legal, regulatory, social and
financial changes due to the new funding and changing macro environmental factors. The
budget provided an additional £1.6 billion for the NHS within the time span of 2018 to 19
(Robertson et al. 2017). In terms of operational development, NHS has declared that £600
million goes direct to the Clinical Commissioning Groups (CCGs) to stop repeating the
experience of holding the funding back. Additionally, the growth of CCGs has also
contributed to the overall share of fair funding. The reformation of 2011, has already
demanded significant financial changes in terms of funding allocation and payroll
development in workforce management (Dunn, McKenna and Murray 2017). The overall
performance of the provides has improved considerably by March 2018. The revision of
standardisation allowed NHS to set their new performance benchmark 7% above their
previous benchmark. Hence, after the revision of 2018 the providers are aiming to achieve
95% for the four hour A&R waiting times (Baylis and Powell 2018). This is the fundamental
fact of regulating the referral-to- treatment waiting time. As per the report of 2017, the
amount of people waiting more the 52 weeks is 1750 (Farchi and Salge 2017).
The situational analysis of the recent development of NHS can be examined through
their newly proposed system in order to uplift their ability to managing the procedural
distribution and operational efficiency as per the requirement. Accountable Care System or

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ACS has now become the Integrated Care Systems (ICSs) (Morgan, Munday and Roberts
2017). The leadership capabilities and human resource allocation has been prioritised for
integrated performance improvement plan. NHS now has £2.85 billion in revenue to spend in
the sustainability operation as an additional capital spending (Alderwick and Ham 2017). In
terms of workforce engagement, the annual report of 2016 can clearly reflects the significant
improvement in the amount of practitioners, specialist, nurses and general caregivers. From
2014 to 2016 the number of total doctors and nurses has increased by 8000 (Lafond,
Charlesworth and Roberts 2016). Along with that, NHS has initialised a several primary care
teams with a significant number of general practitioners, which include the social care
professionals, mental health practitioners and voluntary sector partners. A new care models
has been co-designed with patients, public and voluntary sectors to ensure that the local
healthcare facilities are meeting the needs of locality, while having significant evidences of
improvement. A big change in regulatory policy has found in 2013, where the NHS trust
legislative model has been changed where government has proposed a greater opportunity for
foundation trust through raising the income via private patients (Farchi and Salge 2017). On
the other hand, the national tariff under NHS Commissioning Board is currently serving the
objectives set by the ministers. The responsibility of regulating the tariff for NHS-funded
services is allocated to the monitor. At the same time, the Co-operation and Competition
Panel has been absorbed into Monitor.
Question (b):
Health and social Care service of UK is currently facing some issues regarding their
financial support and capital distribution with the relation to the demand pressure on national
level. Now the task has become more complicated than facing the government by secured
resources and delivers service change within next 5 years (Bryson et al. 2018). It is the time
to reform the funding system of health and social care service in UK more strategically,

3FINANCIAL CONTROL AND BUDGETING IN HEALTHCARE
which can allow better capital utility and back-up security plan. Hence, the aim of the
alternative funding should not only to ensure the backup and more capital destitution, having
a long term financial foundation is a major factor.
With this regards the public political buy-in on ling term funding arrangement can be
considered as a strategic funding system to establish. However, in this strategy the major
challenge will be to keep track about how the public react to different funding models and
different funding policies. The health foundation has researched by RAND Europe that most
of the European countries are dependent on the public purse or mandatory insurance for their
social care and public health care related funding (Zhang et al. 2018). Government of UK can
earmark an increase in contribution for health and social care where the extra revenue could
be collected on progressive line. The progressive line defines a economically significant
structure payment structure where who earn most have to pay most. Eventually, this model
can become the long term beneficial alternative model.
Taxation is an effective strategy that can build up enough funds to distribute adequate
capital for public health and social care services. UK government has to impose more strict
regulation, so that no one can avoid taxation. The government can creates a hostile
environment for tax avoiders, tax evaders, money launderers and corporations using overseas
jurisdictions to avoid paying their fair share of tax, in order to fully fund the NHS. Private
finance can be another effective alternative in the fundraising issue. Public Finance Initiatives
or PFI is a kind or procurement process, where the private sectors can work under a
agreement with the public organisations (Alderwick and Ham 2017). In case of NHS, the
government can enable more privatised investment on the gross capital with the help of
agency partnership strategy, through which adequate development can be possible. However,
in this strategy the profit margin of public sectors will be reduced due to the profit sharing
contractual intervention. Currently the healthcare department is currently paying for 105 NHS

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projects and will be paying until 2050. However, a net shortage of £108 billion has been
already estimated. PFI can definitely help the NHS fund raising process in this current
financial crisis (Dunn, McKenna and Murray 2017). The short-term alternatives or the direct
investment can be also used, where the committee will recognise the potential shareholders
for raising fund under a shorter period with the help of tendering and outsourcing process. In
this situation, the direct investment could be considered as a major short-term alternative
procedure, while involving tendering and outsourcing process. Through this process, the
tendered or outsourcing party will only get benefit from the value they receive in exchange of
provided services and products. Therefore, their profitability is limited to the part of the
project they are involved with, rather than the whole profit margin.
Question (c):
In order to develop a financial and operational sustainability and quality improvement
plan stakeholder assessment has to be considered as one of the most essential parts of the
developmental phases. For NHS, the stakeholder refers to various groups of engaged social,
financial, business and operational bodies (Baylis and Powell 2018). However, the
stakeholders of NHS can be segregated into different sections namely the partners, investors,
monitoring authority, government, practitioners, nurses, caregivers, supplier of equipments,
service providers, research boards, trusty boards and patients. Joint development groups such
as London Cancer Board, CCGs, are the major partners of the NHS. On the other hand, local
medical committees, local commotions, Scrutiny representatives and support officers, Health
and Wellbeing Boards are the monitors. Department of health, Academic bodies of UCL and
QMUL, Trade union, Media are the tertiary stakeholder for the healthcare operations of NHS
(Farchi and Salge 2017).

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Stakeholder Communication is a major obligation of any organisational bodies, where
the involvement of stakeholders depends on the frequency of participation, influence on
decision making, significance, process of communication and chosen media. NHS can apply
many communicational approach in local, regional and national level including the clinical
workshops, team meetings, core printed communication, electronics communication
channels, telecommunication and others (Alderwick and Ham 2017). During the
communication NHS have to clearly signify some strategies that is comprised of maintaining
consistent communication with partners for decision making and funding, keeping the
monitors informed about the process that are being undertaken as a part of development,
collecting information from primary research organisations. Integrated and procedural are the
two types of stakeholder engagement procedures, which influence the decision making
abilities as well as duration of development operation. In the procedural approach, NHS has
to communicate with the stakeholders in a more conventional way, where stakeholders are
only informed where they are highly involved (Lafond, Charlesworth and Roberts 2016). On
the other hand, the integrated communication approach will allow NHS to involve the
stakeholders in all stages under a cooperative decision making model.
Agency theory is an alternative approach of resolving issues within the business
partners and shareholders. Agency theory is more focused on the day to day contractual based
activities where the engaged parties has different goal and risk potentials than the main
organisation. However, the major disadvantage of this agency theory is, it makes different
interests of participants, which can cause unnecessary internal conflicts resulting decayed
operations. Corporate Governance is the system by which NHS can directly control the
stakeholders (Bryson et al. 2018). In this case, the NHS can be the major decision maker in a
project. The major disadvantage of corporate governance is it restricts the core organisation
to analyse the situation through different perspective for making decision that is more

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competent. Accountability implies the degree of reliability on the stakeholders for their roles
and responsibilities. For NHS the accountability should be the major priority in stakeholder
operation, which can ensure sustainability of implemented changes in a long run.
Task 2:
Question (a)
Cost of ABC Care Home
Direct materials £150 per month
Direct labour £180 per month
Other Variable overheads £220 per month
Fixed overheads £45,000 per month
Care Home charge £18,000 per annum
Therefore,
Charge for a patient per month (18000/12)= £1500
From the above costs the following table can be developed
Total Variable cost £550 per month
Total Fixed Cost £45,000 per month
Revenue form care giving £1500 per month
Therefore, the break-even point = 45000 / (1500 - 500) = 45
The capacity of ABC care home is 60
Therefore, the capacity usage rate = (45 / 60) x 100 = 75

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The capacity usage rate for ABC Care Home ltd is 75%
Question (b)
For 90% capacity usage the break-even point should be (90 / 100) x 60 = 54
The target profit will be = (45000 / 54) + 500 = 1333
Hence, the target profit for 90% capacity usage will be £1333
For 90% capacity usage the break-even point should be (95 / 100) x 60 = 57
The target profit will be = (45000 / 57) + 500 = 1289
Hence, the target profit for 95% capacity usage will be £1289
Question (c)
The break-even analysis could be used for both short term and long term decision
making. For short term decision making, the break-even point can be used to identify the
critical sales unit. In other words, for ABC Care Home ltd, break-even point helps to
determine what is the least number of patients they must have in order to avoid any loss (Park
et al. 2016). This number can also be used as the target value that cannot be minimised
further. However, maximising it will improve the profit level. The safety selling margin can
be also found by multiplying the break-even point with the existing unit price.
For long term decision making the break-even analysis can be used in cost
controlling. The company can use the break-even point to determine their impact of changing
the fixed cost. From changing the payroll to rental expense the break-even point will help to

8FINANCIAL CONTROL AND BUDGETING IN HEALTHCARE
formulate the target pricing aligned with the fixed cost (Zietlow et al. 2018). For instance if
ABC Care Home has to increase their fixed cost from 45000 to 47000, to keep the break-even
point at same position (45), the company can decide that they have to make their charge per
patient (47000 / 45) + 500 = 1544 for each month. If the company cannot allow this much
pricing increment as per the market standard, they have to decide that they should not
increase their fixed cost from 45000 to 47000.
Task 3:
Question (a)
The budgeting and financial estimation can be conducted through many strategic
methods namely incremental budgeting, zero based budgeting, activity based budgeting,
rolling budgeting and others. In the following section, the advantage and disadvantages of
these budgeting techniques have been discussed.
Advantage and disadvantage of incremental budgeting
The most essential advantage of incremental budgeting is its simplicity of incremental
budgeting, while based on real time financial results. Therefore, because of being dependent
on a recent budget it can be readily verified. When an operational project needs significant
amount of funding for more than one years consequently, incremental budgeting can ensure
that funds will keep flowing to the program sustainably through its specific structural features
(Kovaleva et al. 2016). This Incremental Budgeting therefore is capable of keeping the
departmental operations consistent and stable manner for long periods of time.
The major disadvantage of incremental budgeting is it is able to assumes only minor
changes from the preceding period, even if there are some major structural changes present

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in the business that are casing significant budget alterations. Because of being dependent on
prior budget, the results can be disconnected from the expected outcomes. it is difficult to
obtain a large funding allocation to direct at a new activity because the incremental budget
allocates maximum amount of funds to the a particular activity every year.
Advantage and disadvantage of zero-based budgeting
The advantage of zero-based budgeting is it can overcome the limitation of
incremental budgeting. Because of being very justified, zero-based budget ensures that the
resources of the organizations are economically and efficiently allocated (Brusca and
Labrador 2016). Through the zero-based budgeting the obsolete operational results can be
neglected while developing better costing, better pricing and better profitability for the
organization. Zero-based budgeting also helps to enhance the interpretation and knowledge of
different cost patterns.
One of the major disadvantages of Zero-based budgeting is it is a very time-intensive
exercise to conduct every year as a complementary process of incremental budgeting, which
is comparatively easier method than the Zero-based budgeting. Because of the complex
budgeting structure it often cause management conflicts for its requirement of large amount
of time and efforts of the managerial and executive staff. At the same time, the zero-based
budgeting also required highly skilled stuffs and prolonged time of preparation.
Advantage and disadvantage of activity based budgeting
The major advantage of Activity based budgeting system is that it is able to eliminate
all unnecessary activities that can help the business to save unnecessary expenditures . The
lower costing allows any business to increase the competitive advantages. Indirectly this

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enforces the workforce of a company to serve the customers more efficiently to enhance
customer satisfaction.
The major disadvantage of activity-based budgeting is that it requires a deep
understanding of various functional areas of the business. The complexity is the biggest
disadvantage of Activity-based budgeting system. This budgeting requires several in depth
research and analysis of various organisational factors and capabilities. Hence, the process of
executing activity-based budgeting consumes a significant amount of time as well as human
resources of an organization (Opgenoord and Willcox 2016). For this, it requires the
employment of top officials of the organisation. Another disadvantage is that the Activity-
based budgeting focuses on only short-term goals of the business. Therefore, this budgeting
does not have any long term benefit.
Advantage and disadvantage of rolling budgeting
Rolling budget is a typical budget method that helps in planning and controlling the
financial operation more accurately. Therefore, it helps in reducing the uncertainty of
budgeting. Rolling Budgeting can be considered as a long term because it has very high
adoptability in any situational change. It helps as a guiding tool to spend the money in more
cost effective way.
Rolling budget requires more efforts, time and money. Spending much time on
preparation of budget may lead to demoralizing the employees. The biggest disadvantage of
rolling budgets is not updated for the entire period (Szűcsné Markovics 2016). It is updated
only for the incremental period. But The incremental period may have some new
assumptions. These assumptions are not considered in the original budget.
Question (b)

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An effective budget implementation process has to ensure the achievability of
government policies and priorities with effective service delivery, operational efficiency, and
corruption-less transparent operation. Hence, in public organisations the purpose of the
budget implementation process is to maximize the contribution of public expenditure to
national welfare. At the same time, institutional constraints can also cause complexities in
Budget implementation (Farre-Mensa and Ljungqvist 2016). A public organization which has
put a lot of emphasis on human resource development yield better returns in terms of
performance. Therefore, from operational policies to human resource administration, any
diversion of budgeted funds can lead to postponement or cancellation of already planned
budget while failing executable project arrangements.
Monitoring and reporting expenditure against budge
In principle, this task seems relatively simple but collating data from multiple budget
holders across numerous departments and districts this task can be a significant, time
consuming challenge. When the budget holders have their own unique ways of working on
spreadsheets, this process can tech significant amount of time that can also lead to illogical
and inconsistent processes. After the complete development of the detailed report it is very
difficult to analyse and understand the framework because of their fragmented sources
(Edwards, Schwab and Shevlin 2015).
Set allocated funding and efficiency targets
Many public organisations work on an annual or a fixed number of years funding
allocation. As an example, the NHS currently work on a 5 year funding plan provided by HM
treasury. In this case the challenge arises when they have to allocate the limited funding out
to the budget holders and reach an agreement. Apart from hat, other associated departments