Managing Finance in Health and Social Care: NHS Trust Hospital Project

This report provides a comprehensive financial analysis of an NHS Trust hospital's proposal to open a trust hospital. The analysis includes an executive summary, introduction, and detailed examination of the original and revised proposals. The report focuses on investment appraisal techniques such as payback period, accounting rate of return, and net present value to evaluate the financial viability of the project. The report compares the initial proposal, which was deemed financially unviable, with a revised proposal that aims to reduce expenses and increase revenue. Calculations and recommendations are provided based on these techniques, with the final recommendation to accept the revised proposal. The report highlights the importance of both financial and non-financial factors in making investment decisions and emphasizes the need for effective budget management to identify and control costs, ultimately aiming to maximize returns and improve healthcare facilities. The report is contributed by a student and is available on Desklib, a platform providing AI-based study tools for students.

MANAGING FINANCE IN
HEALTH AND SOCIAL CARE
ORGANISATION

EXECUTIVE SUMMARY
In this report, health and social care organisation is seeking for a most suitable and beneficial proposal for opening a trust hospital
through which society will be served with most efficient healthcare facilities. Health and social care organisation should consider the
revised proposal as it will be more beneficial to generate higher revenues to the trust which can further used in providing more
facilities in the best manner. Decision for the revised proposal can be undertaken by following investment appraisal techniques.
Organisation should develop a most suitable and informative budget which will assist the management in identifying relevant costs
and ways to manage and control those costs.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
PART A...........................................................................................................................................4
PART B............................................................................................................................................8
PART C..........................................................................................................................................14
PART D.........................................................................................................................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................19

INTRODUCTION
The report prepared as under takes into account what London based NHS trust hospital is planning and in what ways hospital
is planning facilities to be given with the help of clinic. The report further helps to analyse the plan prepared and developed for
carrying out important operational functions and activities which would prove to be helpful for the company in carrying out
forecasting and coming up with innovative techniques and technologies which would prove to be useful in cutting down costs and
minimizing expenses, risks as well as threats. It would further help in improving performance being rendered by a firm in economic
environment. Further in this report, three types of investment appraisal techniques are elaborated along-with their advantages and
disadvantages. These investment appraisal techniques have many benefits which helps to make decisions for the project whether the
individual project should accept or reject. Some calculations are also performed on the basis of these techniques in order to check
viability of the project of clinic establishment and decisions is to made based on the calculations (Akopova and et.al, 2020).
PART A
The original proposal that has been made and the following techniques are used for evaluating this project is that NHS is going to
open a hospital for its expansion and normal budget prepared for the project is £ 7.5 million for treating the patients of diabetes
suffering from type 1 and type 2. For this the various types of costs for the staff is summarised in the proposal made. The revenue
earned for the forecasted 5 years is budgeted as per the proposals. Then with the help of the investment appraisal techniques, the
proposal is evaluated and then on the basis of the outcomes, it will be decided that whether the project should be accepted or not.
Investment Appraisal Techniques:
Particulars 5-year cash flow projections
Year0 Year1 Year2 Year3 Year4 Year5
Budget 1800000 1140000 1140000 1140000 1140000 1140000

Fully Equipped Clinic -
1800000
Expected Revenues 185000 185000 185000 185000 185000
PC(x5) -5000
Rent -25000 -25000 -25000 -25000 -25000
Insurance -1000 -1000 -1000 -1000 -1000
Utilities -15000 -15000 -15000 -15000 -15000
Medical supply -45000 -45000 -45000 -45000 -45000
Foot and amputation -240000 -240000 -240000 -240000 -240000
Screening for MODY
Diabetes
-65000 -65000 -65000 -65000 -65000
Other running cost -32000 -32000 -32000 -32000 -32000
Staff costs
 Diabetes specialist -160000 -160000 -160000 -160000 -160000
 Nurses -260000 -260000 -260000 -260000 -260000
 Pharmacists -120000 -120000 -120000 -120000 -120000
 Dietitians -85000 -85000 -85000 -85000 -85000

 Psychologists -90000 -90000 -90000 -90000 -90000
 Podiatrists -160000 -160000 -160000 -160000 -160000
multidisciplinary foot care
team
 Consultants -240000 -240000 -240000 -240000 -240000
 Podiatrists -85000 -85000 -85000 -85000 -85000
 diabetes nurse
specialists
-140000 -140000 -140000 -140000 -140000
 Other healthcare
professionals
-92000 -92000 -92000 -92000 -92000
Net Cash Flow -5000 -530000 -530000 530000 530000 530000
Present Value -5000 -490741 -454390 -420731 -389566 -360709
NPV -2121136
Payback period 1.58 years i.e. 1.6 years
Accounting rate of return 63.00%
Recommendation To reject the proposal

In order to maximise the returns for the potential owners and stakeholders of the NHS Trust, management should ensure that
profitable investment projects will be selected. It would be disastrous for the firm for selecting an incapable investment project in
terms of strategic and financially (Chesak and et.al., 2019). There are several investment appraisal techniques which can be used to
check the viability of different investment projects. The table above shows an assessment of centres opened at NHS Foundation Trust
Hospitals in London. The total planned expenditure to open such a centre is £7.5m to treat both type 1 and type 2 diabetes. The base
capital expenditure for hardware is £1.8m, which will be spent on full facilities in year 0, and the trust expects the centre should
generate annual revenue of £185,000. It can be seen very well that out of the £7.5m, £1.8m was spent on fully prepared centres in year
0, while the overspending scheme was similarly applied over the next 5 years, i.e. £1.14m per annum, until the 5th year. Given this
information, a speculative evaluation strategy is being used to examine whether the launch of the new centre will pay off over the next
five years. These techniques are outlined below sequentially which are as follows:
Payback period can be termed as originally period required to recuperate the total cost incurred for the project. It is the period
in which earned cash flow will surpass the cash outflow initially. Total time required by the investment to generate the income to
equalise the total cash outlays. In case of even cash flows over the total period of the project, payback period is calculating by this
formula which is as under:
Payback period = Total initial capital investment/Annual cash flows
It is the simplest technique which required less computation than other techniques (Cottam, H., 2018). It is simple to
understand as the terms used in it are easy. It also depicts the risk associated with the projects as lengthy the project, higher will be the
risk and vice-versa. On the other hand, the biggest limitation of this technique is that it avoids time value of money. It ignores the
returns after the payback period as it considers only returns which required to cover its initial cost. This technique would avoid lengthy
projects having a long time duration.

Accounting rate of return is the rate shows percentage of income generated in the overall period of project on the initial cost
incurred (Getzen and et.al, 2022). This technique assists the management to check whether the project is capable to generate income
equal to standard return or otherwise it will be non-beneficial for the business. This can be calculated as follows:
Average rate of return = Average net income/Initial cost outflow
This technique uses financial data from the financial reports prepared at the year end. It does not require any specified data.
This technique can be used to evaluate performance of the project over the period. This is a commonly used technique. It undertakes
all the return generated over the period without making any differentiation. Likewise, the above technique, it also avoids time value of
money concept which is an essential concept. It requires pre-determined data in financial reports which can be based upon different
accounting processes followed by the business entity. This technique requires net income generated by the project rather than original
cash flow. It only considers total cash outflow regarding the project and avoids other required cash outflows.
Net Present Value is most popular technique for capital appraisal. This undertakes the concept of time value of money (Huang
and et.al, 2019). In this technique, cash inflows and cash outflows occurred are adjusted with the discounting rate. Discounting rate is
determined by considering the return factor. It takes into account view that cash flow earned in recent years is more precious than cash
flows earned within the late years of the project. NPV is calculated as under:
Net present value = Present value of cash inflows – present value of cash outflows
Recommendations: On the basis of above calculations, it can be said that as the payback period is less than the complete life of
project which depicts that project is able to recuperate the cost which have incurred earlier. Further, ARR also present that project is
able to generate revenue but net present value of project is negative which shows that even the project is able to generate revenue but
it would not be efficient for enhance the profit earning capability. As the NPV is an absolute measure therefore management should
reject the project.
PART B

PROPOSAL 5-year cash flow projections
Budge
t
£7.5
million Y1 Y2 Y3 Y4 Y5
Budget 18,00,000 11,40,00
0
11,40,00
0
11,40,00
0
11,40,00
0 11,40,000
Fully equipped clinic -
18,00,000
Expected revenues 1,85,000 1,85,000 1,85,000 1,85,000 1,85,000
PC (x5) -5,000
Rent -25,000 -25,000 -25,000 -25,000 -25,000
Insurance -1,000 -1,000 -1,000 -1,000 -1,000
Utilities -15,000 -15,000 -15,000 -15,000 -15,000
Medical supply -45,000 -45,000 -45,000 -45,000 -45,000

Foot and amputation -2,40,000 -2,40,000 -2,40,000 -2,40,000 -2,40,000
Screening for MODY diabetes -65,000 -65,000 -65,000 -65,000 -65,000
Other running costs -32,000 -32,000 -32,000 -32,000 -32,000
Staff costs
diabetes specialist: £160,000 -1,60,000 -1,60,000 -1,60,000 -1,60,000 -1,60,000
nurses: £260,000 -2,60,000 -2,60,000 -2,60,000 -2,60,000 -2,60,000
pharmacists: £120,000 -1,20,000 -1,20,000 -1,20,000 -1,20,000 -1,20,000
dietitians: £85,000 -85,000 -85,000 -85,000 -85,000 -85,000
psychologists: £90,000 -90,000 -90,000 -90,000 -90,000 -90,000
podiatrists: £ 160,000 -1,60,000 -1,60,000 -1,60,000 -1,60,000 -1,60,000
multidisciplinary foot care team
consultants: £240,000 -2,40,000 -2,40,000 -2,40,000 -2,40,000 -2,40,000
podiatrists: £85,000 -85,000 -85,000 -85,000 -85,000 -85,000
diabetes nurse specialists: £140,000 -1,40,000 -1,40,000 -1,40,000 -1,40,000 -1,40,000
other healthcare professionals:
£92,000 -92,000 -92,000 -92,000 -92,000 -92,000
Net cash flows -5,000 -5,30,000 -5,30,000 -5,30,000 -5,30,000 -5,30,000
PV -5,000 -4,90,741 -4,54,390 -4,20,731 -3,89,566 -3,60,709
r
0.0
8 NPV
-
21,21,136
Particulars 5-year cash flow projections

Year0 Year1 Year2 Year3 Year4 Year5
Budget 1800000 1482000 1482000 1482000 1482000 1482000
Fully Equipped Clinic -
1800000
Expected Revenues 240500 240500 240500 240500 240500
PC(x5) -5000
Rent -25000 -25000 -25000 -25000 -25000
Insurance -1000 -1000 -1000 -1000 -1000
Utilities -15000 -15000 -15000 -15000 -15000
Medical supply -45000 -45000 -45000 -45000 -45000
Foot and amputation -240000 -240000 -240000 -240000 -240000
Screening for MODY
Diabetes
-58500 -58500 -58500 -58500 -58500
Other running cost -28800 -28800 -28800 -28800 -28800
Staff costs
 Diabetes specialist -144000 -144000 -144000 -144000 -144000
 Nurses -234000 -234000 -234000 -234000 -234000

 Pharmacists -108000 -108000 -108000 -108000 -108000
 Dietitians -76500 -76500 -76500 -76500 -76500
 Psychologists -81000 -81000 -81000 -81000 -81000
 Podiatrists -144000 -144000 -144000 -144000 -144000
multidisciplinary foot care
team
 Consultants -216000 -216000 -216000 -216000 -216000
 Podiatrists -76500 -76500 -76500 -76500 -76500
 diabetes nurse
specialists
-126000 -126000 -126000 -126000 -126000
 Other healthcare
professionals
-82800 -82800 -82800 -82800 -82800
Net Cash Flow -5000 20400 20400 20400 20400 20400
Present Value -5000 18889 17490 16194 14995 13884
NPV 76451
Recommendation To accept the proposal
As in the Part A, the above calculations that expenditure related to project excess the revenue generated by it. It will not be
beneficial for the trust hospital to accept the project neither strategically nor financially (Manavalan and et.al, 2019). Trust must revise