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The health care industry has become a financially strong industry at present. The industry has made incredible developments in recent years and has become a mentionable contributor to the GDP. The discussion is based on the financial aspects relating to the health care sector. It has also discussed the budgeting process, the investment appraisal methods, the sources of revenue and other aspect of finance and also the ways to improve services offered under this sector.
Maintaining a system of costing is regarded as an integral part of the whole process carried on by an organization. It is true that a business is set up with an objective to earn profit but at the same maintaining a cost system is highly essential for a business. The costs incurred by an organization for running its activities have a direct bearing upon its output and earning. A cost system helps in keeping an eye upon the costs incurred by a business and tracking them efficiently so that control can be employed in regulating the cost structure of the firm. For Care Tech Holding Plc the following principles of cost are required to be adopted:
Shareholders engagement: The shareholders provide various inputs to an organization and it is required to establish an efficient costing system by the utilization of such inputs.
Data accuracy: There must be proper accuracy of data that will be used for the cost system. It is a vital and sensitive part as the data provided if fails to meet the accuracy level then the organization will have to face a big challenge in maintaining an accurate costing system.
Consistency: There must be consistency maintained in the costing system that is to say that the methods of costing employed by an organization should be same. This initiative will let the organization calculate the cost of all the activities in line of expense undertaken by the organization.
Materiality: Materiality suggests that the costing process should follow the prime costs and expenditures of the concern. The prime costs and expenses of the organization should be considered while calculating the costs of the organization (Agrawal, 2010).
Transparency: Transparency is a vital part that an organization must follow in order to maintain a cost system for the organization, the principle of transparency says that the organization is required to perform an in-depth view and projection of the every element of costing utilized by the organization. The organization should carry on its activities in such a way that each elements of the cost can be identified properly.
Causality and Objectivity: Causality principle implies the awareness of the organization regarding the cause and effect of such cause both internal and external to an organization. Objectivity implies the goals that are required to be set by the organization in order to achieve the same with utmost efficiency.
Control systems are also parallel important for an organization to install. As a manager my job will be to install the control systems properly and make them run efficiently. The following control systems are recommended for Care Tech Plc:
The health care sector has projected a steady growth and many incredible developments have taken place in this industry. At present various individuals are getting involved in this sector as decision makers. They are taking vital decisions in the segments relating to financial resources and related financial information. They require certain information for taking such decisions. The information required for managing financial resources are mentioned below:
Management accounting information:Cost and pricing information: this is very vital information for ascertaining the price of each unit of production and to get a clear idea regarding the quantum of inventory.
Budgeting: Budgeting helps in predicting the future performance of an organization, inadvance. It sets out the future cost and revenue for an organization. It helps in evaluating the performance of the organization by comparing the budgeted results and the actual results and that forms basis of decision making by the decision makers of the organization. Control can also be established through the process of budgeting.
Variance and cost benefit analysis: variances helps in evaluating the performance of different aspects of an organization, it also helps in ascertaining the performance of a project by comparing with the pre-set targets and on the other hand the cost benefit analysis helps in analysing the benefits received by a business over the cost that have been incurred by the organization for the same. Thereby it helps in taking essential decisions relating to the management of financial resources of an organization (Brayley and McLean, 2008).
Financial accounting information:
Statement of financial position: the statement of financial position provides information relating to the financial position of the organization. It conveys the information relating to the position of assets and liabilities of the organization that helps the decision makers to a greater extent.
The income statement: it is the statement prepared by an organization in order to project the financial performance of the same during a particular time period. The decision makers get vital information relating to the profit and losses of the organization through this statement.
Cash flow statement: it is the statement that helps its users to get an idea relating to the position of cash within an organization; the cash flow statement provides information relating to the cash inflows and outflows of an organization, it also projects the activities such as operating, financing and investing activities that causes the cash flows.
There are certain other factors that help in taking decisions relating to the management of financial resources, being the manager of the concern I must follow certain regulatory policies that will help me in managing the financial resources of the organization and also in keeping a favourable relationship with the various levels of internal management and the employees of the concern:
Audit Committee: it mainly involves in managing the audit process of the organization, which is concerned with the audit of the financial performances. It acts as a regulator that controls the financial measures of the concern.
HMRC: it acts as a regulator of various taxation policies relating to the organization.
FRC: the financial reporting council is the body that remains involved in the process of delivering financial reporting and corporate governance.
Company house: It is the authority that is involved in obtaining and providing information relating to the organization.
NHS Litigation Authority: it is regarded as the authority that remains involved in managing the cases relating to negligence and different other litigations against the NHS.
For the proper management of the financial resources information relating to the business environment and external influences are also required, such as:
The regulatory requirements are regarded as important factors that help a business to grow and function in a hassle freeway. The benefits of the regulatory requirements are discussed below:
The regulatory requirements help a business to remain steady and enhance the efficiency of the finance manager. The managers of different businesses engaged in the health care sector must follow the provisions presented in the Health and Social Care Act 2012. Care Tech is required to adhere to the following regulatory requirements:
There are a number of regulatory authorities with in the country who regulate the functioning of health care industry, they are the following:
It is important for an organization belonging to the health care industry to manage its financial resources. The following systems are regarded helpful in managing the financial resources of Care Tech:
Budgeting: Budgeting is a vital practice that helps an organization in setting financial targets. The budget is a statement that forecasts the future financial performance of an organization. The budgeting helps in managing the financial resources of the organization as it sets the future targets of the company in relation to cost and revenue of the organization thereby it helps in proper utilization of the financial resources.
Audit requirements: Auditing helps as a check relating to the management of the financial resources of the organization. There is required to be present a proper internal and external auditing system within the organization.
Financial accounting systems: The financial accounting system is regarded as a beneficial system for an organization that helps in the proper management of the financial resources of the organization. It is a system that helps in collecting and recording the financial information of an organization which is in turn used for the preparation of the financial statements of the organization (Thomas, 2001).
Costing and management accounting system: The cost and management accounting system is help full in keeping the cost record of the organization so that the organization can control its cost and manage the financial resources present within.
For the management of financial resources IT infrastructure and software also play a vital role. There are different software that helps keeping financial information and also managing different projects. Care Tech must also avail the utility of IT infrastructure to manage its financial resources.
Income is the main part of every business that has been set up as a profit making entity. In general, income is regarded as the revenue earned by an organization during a particular time period. There are various sources through which income generates for an organization. An organization should take care of its income as it will help the organization to grow. The various sources of income for Care Tech can be divided into two different categories, namely:
1. The general sources: The general sources of income for Care Tech are the sources through which the business earns income in the ordinary course of business, such as provision of accommodation, mental health care etc.
2. Other sources: These are the sources that are not considered as the main sources of generating income for the organization. Such as income from renting, revaluation of assets, interest received from deposits, donations received from NHS etc. (Hunt, 1984).
The financial resources are very much helpful in making an organization function properly and their availability is entirely dependent upon certain factors that are presented below:
Government policies:The government is the regulatory body of a nation and it frames changes and modifications in the regulatory policies framed by it. The variances in the regulatory policies of the government can be regarded as a factor that influences the availability of the financial resources.
Policies of the organization:An organization frames different policies that it follows. The income for an organization entirely depends upon the policies framed by it.
Geographical locations:Different locations have different features; the availability of financial resources is influenced by the geographical location of the organization. The locations set the nature of service provided, the users of such services, the funding opportunities etc.
Legal form:The form of the entity decides the financial resources that the entity will receive. Suppose, in the case of a company form of organization it can raise huge funds through the issuance of shares but a proprietary undertaking cannot do so (Avery, 2003).
Budgets are the statements that help in forecasting the future performance of a business in relation to revenue and expenditure. The budgets help an organization to pre-set its financial targets relating to expenditure and income for a particular period. At the end of such period the business compares its actual performance with the budgeted one in order to evaluate the performance of the business. The various types of budgets have different characteristics, the different types of budgets are:
Sales budget: It helps an organization inpre-setting its sales performance. It sets the targeted sales of the organization for a particular period and compares the same with the actual sales made by the organization after that period thereby helping the organization to take initiatives to increase its sales.
Capital budgets: Capital budget helps in taking vital decision in making investments in capital projects. It helps an organization in projecting the financial viability of different investment proposals and thereby assessing the investments made by an organization towards capital assets.
Master budget:A master budget includes various budgets formed in a business such as sales budget, cash flow budgets, capital budgets etc. it projects the performance of a business as a whole.
Cash flow budget:A cash flows budget helps in increasing the cash inflows and controlling the cash outflows of an organization. It forecasts the future cash inflows and outflows (MacEachen, 1980).
Maximizing value:This is the basic concept of decision making where every individual or organization desires to maximize the benefits and minimize the cost. The benefits can be maximized by the way of choosing the best brand of the product, or finding the lowest cost suppliers that meet the company quality standards. Ex: The care tech uses the purchases bulk amount of medicines at a time which reduces the transport charges and gives discount on overall prices.
Rational thinking:This concept emphasis on the decision maker in the business who takes decisions by using the past experiences and emotions. Such decision may skew the rationality in him and helps in avoiding uncertainties.
Cost-benefit analysis:The cost benefit analysis assumes that every decisions taken by the individual or the organization involves some gain and some part of loss. For example the investment decision, there is an opportunity cost which gives the options of losses. So the main theme of the concept is to make expenses which give huge benefits. Ex: Making tradeoffs that allows the budget owner to gain more than the loss incurred in every time.
Financial short falls are regarded as harmful for an organization. It is termed as a situation when the expenses of a business are higher than its income. There are various factors to control and manage the financial shortfalls; however they vary from organization to organization. For Care Tech the following factors can be considered efficient for managing financial short falls:
Reserve funds: Reserve funds are kept to counter the situations of financial shortfalls. The organization can use its funds kept in reserve to do the same.
Controlling the financial resources: The organization is required to manage its financial resources in order to avoid any financial short fall. The organization should invest the excess funds left with it in order to gain interest incomes. Also it should invest carefully in order to protect its funds.
Managing cash flows: The cash flows provides considerable amount of liquid funds to the organization. The organization should take proper initiatives to reduce its cash flows and increase its cash inflows.
Priorities: The organization should not payoff all of its creditors at a time as that will result in more cash outflows. Instead, the organization should pay off its creditors according to their priority.
Analysis of markets: The business should analyse the market condition, as by doing so it will be able to find out the opportunities to make profitable investments and deals (Linzer and Linzer, 2008).
There are several cases of financial frauds found in different organization. Financial frauds are regarded as criminal activities, which make different organization to face criminal litigations. Care tech may take the following steps to suspect the occurrences of financial frauds:
The preparation of budgets follows several steps. In Care Tech the budget formed by the organization can be monitored in the following ways:
Cash Flow: The cash flow statements will be used by the management to detect the quantum of cash inflows and outflows by an organization. The cash flow position of the business can be detected and the periods of negative cash flows can be identified.
Training Requirements: Training should be provided to the employees and management personnel of the organization in relation with control of cost, budget setting process, management of cash etc.
Spread sheet data: While keeping an observation upon the costs of a concern the managers are helped to detect the conflicting areas of the observation process.
The financial reviews and budget monitoring are two essential components of integrated control system. The below are the principles of budget monitoring and controlling the system.
Principles of budget monitoring & controlling:
Timely review: Periodic review of a budget report provides an important check that funds are being used appropriately to achieve unit objectives, that transactions are being recorded accurately, the funds governed by external restrictions are being appropriately utilized.
Multiple levels monitoring: Budget monitoring should be done in all departments and every fund source group in the organization. This fulfils the overall budget of the organization
Comparing actual spending with the budget: In order to monitor and control the spending the key task of the budget owners is to compare the actual expenditure in the business with the budget expenditure. This makes the organization to identify the areas where extra spending done and based on that further action will be taken to control.
Setting target: The key process of budget monitoring and controlling includes ensuring targets. Thi targets enable the budget owner to know whether they are meeting the internal budgets on a regular basis. For this the regular monitoring system should be arranged in order to revise the figures which are incorporated in the budgets.
The Unit 2 MFRD Assignment – Care Tech Holding PLC has put increased effort to make us understand the different financial aspects of the health care industry; it has also provided the idea relating to budgeting, investment appraisals, detection and control of financial frauds. The MERD Assignment has also included a practical example of Care Tech Holdings Plc to give us a practical view.
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Hunt, S. (1984). New sources of revenue. Washington, D.C.: Council for Advancement and Support of Education.
Kimmel, P., Weygandt, J. and Kieso, D. (2007). Financial accounting. Hoboken, NJ: John Wiley.
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