Advanced Management Accounting Techniques for NHS Trust Challenges

This report examines the challenges faced by the NHS trust, primarily focusing on resource limitations exacerbated by the Covid-19 situation. It identifies and explains two advanced management accounting techniques—budgetary control and activity-based costing (ABC)—as potential solutions. Budgetary control involves comparing actual results against standards to identify variances and implement corrective actions, while ABC helps determine the actual cost of services to improve profitability analysis. The report critically analyzes the strengths and weaknesses of each technique, highlighting that budgetary control can maximize profits and measure performance but suffers from future uncertainties and coordination problems. ABC offers better cost management and decision-making but is expensive, complex, and faces measurement difficulties. Ultimately, the report concludes that these techniques, if implemented thoughtfully, can aid the NHS in optimizing resource utilization and improving overall performance.

ADVANCED
MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
(a) Current Challenges faced by the NHS...................................................................................3
(b) Identification and Explanation of Advance management accounting techniques.................4
(c) Critical analysis of the strength and weaknesses of techniques of Advance Management
accounting...................................................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Advance Management Accounting is a process in which the company analysis and
implement the best and suitable MA techniques within the business in order to fulfil the demand
of financial and non-financial resources along with proper utilizing it. The report will discuss the
current challenges faced by the NHS trust and how it affects their business performance. Further,
the report will identify and explain the two techniques of management accounting which help the
manager of the NHS trust to improve the trust performance. Lastly, the report will critically
analyse the strength and weaknesses of each technique.
(a) Current Challenges faced by the NHS
There are basically only one but the most significant challenge faced by the NHS trust in
the current environment which are as follows:
Limited or Lack of Resources:
The lack of physical, human and financial resources during the Covid-19 situation is one
of the biggest challenge which are affecting the overall performance of the NHS trust. The NHS
trust ability to optimize its performance with the limited resources is quite challenging for them.
It is because the funding they receive from the government is not sufficient and further because
of lack of people and staffs they are unable to control unnecessary expenses. The impact of
which the overall performance of the trust and the people are highly affecting. A lack of
resources in the healthcare sectors is one of the serious consequences which are badly affecting
the quality of the patience care and professional work environment of the NHS. It is also affected
the nurses, therapists, surgeon and other service providers. The challenges faced by the NHS is
also involved lack of supply of emergency equipments such as PPE kit, lack of supply of vaccine
dosages along with the technological issues. Not having the proper system and technique of
communication and documentation along with the categorization of total cost on the basis of
activities in four hospitals of NHS trust (Franz Skinner and Kelleher, 2019).
Lack of human resources are also one of the issue that NHS trust are facing because
nowadays doctors are starting their own private clinics business at small level. The supplies of
gloves, curtains, ECG electrodes, suction supplies and other kits are also not supplied to NHS
trust on timely basis. The impact of this challenge is major on the management and performance

of the four hospitals as well as overall NHS trust. It is because the two most important
approaches that can satisfy the needs and demands of the workers as well as expectations of
patients are timely availability of health system resources and making better use of the same
resources (Faremi and et.al., 2019). So, on this basis it can be stated that the challenge faced by
NHS trust in the current environment is lack of resources such as human, physical and financial
resources. Along with that, the trust are also facing challenge in optimum utilization of such
resources within the hospitals using the proper management accounting techniques.
(b) Identification and Explanation of Advance management accounting techniques
The two most crucial and best technique of advance management accounting which help
the managers of the NHS trust in managing and controlling its performance are as follows:
1. Budgetary control:
This is a technique which is also known as the control technique used to reduce the issue
of lack of resources. Here, in this the management of the company need to compare the actual
results of business with that of the standards in order to analyse the gap and variance. After
identification of variance, the manager need to adopt the corrective actions in order to control or
revise the original budgets. It is always advisable to the NHS trust that they have to prepare the
flexible budgets as it helps the trust in changing the information because of the change in the
environment. The budgetary control and responsibility centres are revenue, expenses, profits and
investment centres (Eshete and et.al., 2019). The trust also require of providing proper training
and development session to employees that they can manage the service quality without wasting
many resources. Thus, it is also recommendable to the manager of the trust that they have to
prepare the budgets of all of its department such as cardiology, paediatrics, maternity, accident
and emergency department and identify the area which are resulting negatively.
Budgetary control to improve performance:
The budgetary control helps in improving the performance of the organization by
identifying the variance between actual and standard along with taking the corrective actions for
reducing the gap. For example, it is identified that the budgeted expenses of the maternity
department in the current year is less from the actual expenses of same year by percentage of
20%. This is an adverse result and it is also found out that the key area of this variance is

unnecessary wastage of resources such as gloves etc. Now, on this basis the various corrective
actions are required by the trust to adopt are providing guidance and feedback to nurse regarding
the wastage. In order to handle lack of resources in the healthcare company it is also advisable to
the manager that they prepare flexible budgets which will further enhance the open
communication between the managers of the different department (Lambovska, Rajnoha and
Dobrovič, 2019). In case if any of the department are not providing profit and benefit to the NHS
trust then the manager can stop and dissolve such department and further use that department
resources in other profitable department of healthcare.
2. Activity Based Costing:
Another technique of management accounting is activity based costing which helps the
company in determining the total actual cost of the business associated with the specific product
and services provided to the customers. On the same basis, the managers of the NHS trust can
adopt the activity based costing (ABC) in order to determine the total cost associated with the
service provided by them to clients based on the resources they consumed (Harelimana, 2017). It
is basically an advance method of cost calculations which further require the experts within the
NHS trust. In order to apply this method, the NHS trust need to follow the following six
procedures such as:
1. Defining the activity centres such as primary care service, mental health service,
ambulance etc.
2. Now analysis of activities under the various activity centres.
3. Determination of output of each activity centre.
4. Allocation of cost of administrative centre between the activity centres.
5. Calculating cost price of each service provided by the hospitals to its customers.
By following the above procedure the manager of the NHS trust is able to identify whether the
specific service are providing more benefits or not as compared to the resources it consumed.
Activity-based costing to improve performance:
This method helps in improving the performance as well as profitability of the NHS trust
and also helps in reducing the challenge of lack of resources. It is because it enables the
improved service and customer profitability analysis. For example, in case if the cost of mental

health service provided by the NHS trust to the patients are €3000 based on the resources
consumed while the revenue this service are providing to NHS is only €2500 so the loss of that
service or activity centre -€500. The cost of service centre is easily calculated by the manager
with the implication of activity based costing technique and after the analysis of result it is
advisable to the NHS that they must stop providing mental care service to their customers
(Zamrud and Abu, 2020). The ABC is one of the accurate technique which helps the company in
improving the performance and profitability of the business because the company stop providing
non-profitable products and services and beside this they start using the same resources in
another services which are earning profit. It is also best for the NHS to determine the tariffs for
services and activity.
(c) Critical analysis of the strength and weaknesses of techniques of Advance Management
accounting
Budgetary Control
The various strength and weaknesses of the budgeting control which need to be
understood and analyse by the NHS trust before implementing this technique are as follows:
Strengths:
 Maximization of Profits: The aim of this method is to maximize the profitability of the
NHS trust by proper planning and organizing various revenue and capital expenditures
such as payment to nurse and doctors, purchase of equipments etc. (Eshete and et.al.,
2019).
 Specific Aims: In this technique, the pre-determined target is given to the various
departments of the NHS trust and after that the department manager have to achieve it.
With the achievement of the specific goals, the overall aim of the trust is also achieved.
 Tools for measuring performance: This is one of the best tool of measuring the
performance of the department based on the actual and standard differences. For
example, this technique helps the NHS trust to measure the performance of the
department by properly analysis the percentage of gap and variance.
 Corrective action: The manager of NHS trust can also take corrective actions based on
the favourable and adverse result of the variance which will further help in reducing the
cost and controlling the budget's gap (Lambovska, Rajnoha and Dobrovič, 2019).

Weaknesses:
 Uncertain Future: The budgets are prepared for the future period which is basically
based on the estimations and any wrong estimation may result into the heavy loss to the
NHS trust (Egbunike and Unamma, 2017).
 Coordination problem: Implication of this technique may also have the issue of
coordination because of the conflicts between the different department managers. The
impact of which the trust profit level decreasing rather than increasing.
 Budgetary revision required: Another disadvantage of this technique is that it require
constant revision on budgets because of the dynamic nature of external business
environment.
Activity Based Costing
The various advantage and disadvantage of ABC technique of advance management
accounting which need to be addressed are as follows:
Strengths:
 Cost Management: This provides the cost driver rates on the basis of which activity cost
is identified which is further helpful for the managers of NHS in cost management and
performance appraisal of each activity centres (Harelimana, 2017).
 Benefits to service industry: Implication of this technique is best for the service industry
thus if the four hospitals of NHS trust will adopt this it will help them more than non-
service companies as they have minimum direct cost.
 Better decision-making: The ABC techniques provides more reliable products cost data
to the NHS manager the impact of which they can make better decision regarding
whether to continue with the service or not on the basis of its profitability (Cidav and
et.al., 2020).
 Accurate product cost and information about cost-behaviour: This provides the
accurate information to the NHS trust about the cost-behaviour and cost of the service.
Weaknesses:
 Expensive and complex: The weakest point of this method is that it is quite expensive
and complex in nature and any wrong decision may leads to heavy loss to the NHS trust.

 Measurement difficulties: The measurement of the total cost into activity cost based on
the drivers is quite difficult which takes majority of time of the manager. Thus, it can be
said that this technique is time-consuming for the managers of the NHS trust (Duran and
Afonso, 2020).
 Selection of drivers: For the implementation of this technique it is important for the
company that they must select the correct drivers otherwise the result of the calculation of
cost will be wrong. The wrong result will further discourage the performance of
company.
CONCLUSION
The report has concluded the current challenges faces by the NHS trust in this
challenging and dynamic environment and that challenge is lack of resources. Further, the report
has also concluded the two technique of advance management accounting such as budgetary
control and activity based costing which help the NHS trust in improving their performance. The
report has also covered the information about how this technique has improved the performance
of service industries. Lastly, the report has concluded the strength and weaknesses of the both
technique which that provide to the managers of the NHS trust.

REFERENCES
Books and Journals
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officials on barriers to and facilitators of quality pain management in Ethiopian hospitals: a
qualitative study. PloS one. 14(3). p.e0213644.
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how to evaluate performance in the budgetary control process. Journal of Competitiveness.
Egbunike, P. A. and Unamma, A. N., 2017. Budgeting, budgetary control and performance
evaluation: Evidence from hospitality firms in Nigeria. Studies and Scientific Researches
Economic Education. 26. pp.23-31.
Harelimana, J. B., 2017. The effect of budgetary control on financial performance of Kigali
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Cidav, Z. and et.al., 2020. A pragmatic method for costing implementation strategies using time-
driven activity-based costing. Implementation Science. 15. pp.1-15.
Duran, O. and Afonso, P. S. L. P., 2020. An activity based costing decision model for life cycle
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Production Economics. 222. p.107499.
Zamrud, N. F. and Abu, M. Y., 2020. Comparative study: activity based costing and time driven
activity based costing in electronic industry. Journal of Modern Manufacturing Systems
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