Task 1 3-5
Task 2 6-8
Types of business costs
Business costs can be classified as fixed and variable, or direct and indirect costs based on operation
Fixed costs – these are costs which remain the same and cannot be adjusted. The control for fixed costs is determined by the business requirements for effective operation. These include loans salaries, insurance among others, normally determined by the organizational requirements and existing regulations. Fixed costs are controlled during budgeting by ensuring allocation of enough funds to essential operational functions. The budget for these costs provides the controlling element.
Variable costs – these refer to those costs which remain proportional to the volume of business experienced. These include materials utilized in running the business like medicine administered to patients. These costs are controlled through ensuring utilization only for income generating activities within organizations. The variable costs mainly occur within the operations because they resulting from operating requirements arising as business continue with operations (McLaney & Atrill, 2012).
Financial Resource Management
Financial resource management requires relevant information to be made available to the management authorities. The management should be able to establish the financial resources available for use, towards a specified application or operation (Brayley & McLean, 2008). This enables the management to adopt a budget for various resource-consuming operations within an organization. The source of the resources also remains important in management of financial resources. The financing source might have a proposal on how the resources provided should be utilized. Financial resources acquired through loans also need to be paid. Having source information could enable the management to establish the best methods for utilizing the provided resources, to ensure return on investment, in the case of borrowed financial resources.
The financial management within the healthcare system is commonly regulated for efficiency and effectiveness. This regulation varies within the industry, depending on the classification of the healthcare facility. Public and private healthcare facilities have different regulations imposed on them from the financing sources. Government departments in-charge of healthcare system regulates spending within various government hospitals. Public hospitals are normally provided with guidelines on their expenditure from the funding source and provide subsidized services because of government funding assistance. Within the private healthcare facilities, financial management becomes regulated by different requirements. These organizations should operate and ensure profitable returns, to the investors. The major regulating aspect of finances within these organizations remains the capacity for the establishment to operate profitably.
The case of Norfolk and Norwich University Hospital (NNUH)
This healthcare facility operates in the National Health Service, NHS and also has a private wing. Being jointly owned by private and public organization, the hospital’s financial management functions are effectively handled by numerous stakeholders. Budgeting for the establishment’s operation is undertaken by the management of the hospital seeking to ensure generation of enough financial resources to sustain the operations. The budget includes a percentage of income generated from the hospital private wing and financial resources form NHS. The healthcare facility is expected to generate profits which could be utilized in paying for the PFI financing used for construction of the hospital. Financial accountability for the hospital is executed through parliamentary Public Accounts Committee, because the hospital receives public finances from NHS. Other than the PAC, the National Audit Office also conducts audit of the hospital to ensure accountability and efficiency in financial management.
Sources of income in healthcare
Within the healthcare and social system income is normally generated from two major sources. The sources of income normally vary depending on healthcare facility ownership. The primary source of income for public hospitals remains external funding. This normally occurs through various non-governmental organizations and government’s budgetary allocation. These institutions receive higher percentage of financing from government, and other government related organizations. Public healthcare facilities in England, for example, are financed through the NHS. Private hospitals generate their income from services offered to patients. These hospitals normally operate with profit targets, which ensure the hospital can maintain itself through income generation. The hospitals offer highly priced services to generate enough financial resources for covering various operating costs. The owner of these hospitals can also fund the facilities through equity financing, from private funds.
Factors influencing financial resource availability
Following availability of income within various healthcare organizations, the availability of financial resources in healthcare facilities is affected mainly by several factors. Within the public and private sector, healthcare facilities operate within stipulated budgetary allocations. Within the public sector, the budgets allocated to various hospitals determine the amount of financial resources available. Public hospitals are required to stick to the budgets because of the accountability to external audit and other government bodies. Once budgets have been released by government, changes cannot be included and this affects availability of financial resource. Within the private sector, other than the budget, operating costs are financed through sales generated. The sales volume in these hospitals, therefore, presents a significant impact on availability of financial resources.
Budget expenditures within healthcare
The healthcare budgets contain different expenditure which can be characterized as follows
Hospital care- this refers to the hospitalization of patient within hospitals. Expenditures include provision of beds and other services required by admitted patient. This function constitutes a large percentage of the total budgetary allocation.
Clinical services – these refer to specialized services offered by professionals within hospitals like physiotherapy, dental services among many others
Health insurance – this refers to the financial costs covered by hospitals and other healthcare facilities on behalf of the people seeking healthcare services
Drugs – the purchase of drugs administered to patients also falls among the major expenditures within the healthcare sector.
There are other services offered within the healthcare sector which also constitute a significant percentage of allocation within the budget. These include home care, ambulance services, administration, investments and miscellaneous expenses.
Factors contributing to budget expenditure decision making
The individuals involved in decision-making within the health sector consider various factors when making expenditure allocation to the various issues. The importance attached to various expenditure elements is considered when deciding on the amount to allocate (Brayley & McLean, 2008). Within the various government and public healthcare facilities, government policies remain the guiding principles in budgeting. Importance is attached to prevailing policies concerned with budgeting in public hospitals. Private hospitals, however, have different focus when making budgeting decisions. The element of profitability remains important and decisions normally follow the expected returns when deciding on expenditure. The most profitable elements might be given priority over others, deemed less profitable to the organization.
Brayley, E. & McLean, D. (2008). Financial Resource Management. Illinois: Sagamore publishing.
McLaney, E. & Atrill, P. (2012). Accounting: An Introduction. NY: Pearson Pub.
Need to specify different task such as 1.1, 1.2 and so on
Harvard referencing is needed
Task 2 not well explained
Overall assignment looks fine
Introduction and self evaluation is required
Need some more research