Consider the following statement: It is most sensible to start with the sales budget and develop the other budget from there. After what you have learned this week with regards to budget processes and procedures, analyse the validity of this statement. Do you agree with the statement? Justify your answer based on the week’s readings. How should sales revenues be considered when determining other costs? need 750 words, use 3-4 references including the attached reading material( publication and book(Atrill & McLaney 2012) please make sure it is checked for plagiarism as last time had really high return and i will ask for refund if that is the case again. try to use one example from your own experience or from the web. the deadline is in 30 hours from now. but please don't copy and paste from internet as plagiarism level allowed is 9% and please your response to be related to the attached reading material.
Uses of management accounting information for benchmarking in NHS trusts222222.pdf PUBLIC MONEY & MANAGEMENT AUGUST 2008 239 © 2008 THE AUTHORS JOURNAL COMPILATION © 2008 CIPFA This article presents findings from the first phase of a longitudinal study on implementation of benchmarking in three large acute National Health Service (NHS) trusts in the eastern region of England. Benchmarking of performance uses Healthcare Resource Groups (HRGs) (NCMO, 1997, p. 5) as the basis for compiling the National Reference Cost Index (NRCI) (NHSME, 2000), which ranks all hospitals in terms of their cost position relative to the national average. The findings concentrate on the attitudes of professional groups towards preparation and uses of this management accounting information for performance measurement and comparison between NHS trusts. It considers: •The management accounting challenges in building up the HRG costing information. •Accountants’ views on the validity of the costing information. •The different approaches to benchmarking adopted in the three trusts. •Contrasts in the views of accountants, managers and clinicians towards benchmarking. Role of HRGs in Performance Measurement The 1989 White Paper Caring for Patients instituted a split between the role of district health authorities as purchasers of services and hospitals as providers of services governed by contractual arrangements. An internal market was created and hospitals began competing, rather than collaborating, with each other. Resulting problems included high transaction costs and dysfunctional behaviour. These were recognized when the newly-elected Labour government in 1997 abandoned the internal market, and heralded a new era of co-operation and sharing of information and learning when it published The New NHS White Paper (DoH, 1997). The proposals under the new framework introduced a period of radical change. The fundamental theme linking the objectives of the White Paper was the concern to reduce variations in performance. Publication of the Acheson Report (1998) on inequalities in health emphasised this theme. A quality framework for the new NHS was proposed in A First Class Service (DoH, 1998), which set out how variations in quality of care would be tackled. Initiatives intended to ensure consistent, high- quality patient care included the setting of national standards in National Service Frameworks (NSFs), and the setting up of the National Institute of Clinical Excellence (NICE), to provide guidance to clinicians on the most clinically- and cost-effective treatments and drugs. The government claimed that the new NHS would give equal importance to cost and quality of health services and would make use of both groups of performance measures (NHSME, 1999). These major initiatives were coupled with a huge increase in funding for the NHS. Spending on the NHS in cash terms reached £90 billion in 2007/08 (Audit Commission, 2007). In the context of the massive increase in funding instituted by the Labour government, and criticised by some on the basis that extra funds had previously failed to produce commensurate increases in performance, it was necessary to demonstrate that this time the funding was being put to good use, and value for money was being achieved. The government Pinar Guven-Uslu is a lecturer in accounting at Norwich Business School, University of East Anglia. Lynne Conrad is a principal lecturer in accounting at Portsmouth Business School, University of Portsmouth. Uses of Management Accounting Information for Benchmarking in NHS Trusts Pinar Guven-Uslu and Lynne Conrad This article investigates the implementation of benchmarking in three large acute NHS trusts. The findings concentrate on the attitudes of professional groups towards the preparation and use of management accounting information for performance measurement and comparison in NHS trusts. The problems revealed in developing appropriate costing information in this organizational context suggest difficulties lie ahead as more far-reaching organizational and financial change permeates the NHS. � ���� ��� ��� � �� ���� � ���� � ������ ���� ��� ��� ��������� PUBLIC MONEY & MANAGEMENT AUGUST 2008 240 © 2008 THE AUTHORS JOURNAL COMPILATION © 2008 CIPFA announced the publication of the National Reference Cost Index (NRCI), based on a compilation of HRG costs reported by all hospitals in England, weighted by casemix. The result was a league table, which ranked the performance of hospitals based on reported costs of procedures categorized by HRG. More far-reaching change was announced when details of the planned payment by results method of financing hospitals were published in Reforming NHS Financial Flows (DoH, 2002). This method uses the NRCI to determine the average cost of each HRG, and then pays hospitals that average sum according to the actual activity carried out for each HRG. This marks a major change in the funding mechanism, which was previously based on block sums paid by purchasers to providers, according to agreed planned levels of service. HRG costs are crucial and central to funding in the NHS, and this article looks at the extent to which experience of HRGs to date suggests that they are fit for their very important purpose. Study Design Our case study used multiple research tools including preliminary interviews, questionnaire responses, follow-up interviews, investigation of archival materials and informal observation in the trusts. The basic methodology was to conduct intensive analysis of a relatively few cases, rather than a more superficial analysis of a larger number. Perceptions of four groups of professionals working in three large acute trusts in the same region were analysed. As these trusts were geographically close and working in partnership under the control of the same health authority, it was considered that they would provide an appropriate context for a comparative study of benchmarking practices. At the first stage of data analysis, the data were separated according to three data collection methods for professional groups and trusts, and then subdivided according to specified aspects of preparation and uses of management accounting information. Twenty- five in-depth interviews were undertaken. A semi-structured interview schedule was developed which contained a common core section and also an issue specific section. The interviews were fully transcribed and subjected to content analysis. Forty questionnaires were collected from the respondents and were cross- compared between trusts and professional groups for statistical differences. Emergent themes were identified for both trusts and groups separately and cross-compared around the specified aspects of management accounting information preparation and uses to investigate the interrelations between them. The questionnaire included Likert scale questions to measure attitudes of professional towards costing information, and in order to statistically analyse their perceptions Kolmogorov-Smirnov non-parametric tests were considered most appropriate, given the relatively small sample size (Siegel and Castellan, 1988). Thus the emergent themes of qualitative data were supported with statistical significance test results. Relevant Recent Literature A number of issues were raised by this investigation. First, the issue of standard costs being employed in a very different arena from usual. Developed in the context of mass production of identical units, they are now being employed in hospitals, where no two patients are identical. Jones (1999) considers the problems associated with the use of costed HRGs as standard costs, and suggests that HRGs lack the sophistication of standard costs established in manufacturing settings in a precise engineering manner, and represent an attempt to apply average costs when ‘there is no such thing as an average patient’. Llewelyn and Northcott (2005) develop this insight further, explaining how the costing initiative in the NHS has led to the construction of the ‘average hospital’, where the primary objective becomes ‘being average’ without any clear notion of whether that average is good or bad. This is a major consequence of the failure to link cost and quality measures. Being average avoids attracting too much attention, and Smith (1993) suggests that the media attention that comes with publication of public sector league tables means that public service organizations aim for convergence, so that they do not stand out as exceptional in either good or bad performance. Furthermore, these standard costs are now being used not only for internal performance management purposes, but to determine the flow of funds to hospitals. Second, HRGs are held up as an example of benchmarking. Consideration of the principles of benchmarking reveals considerable differences between the normal private sector practices used in implementing benchmarking and those being adopted in the NHS. Particular issues are the contrast between the confidentiality ethos surrounding benchmarking in the private sector and the requirement for openness in the public sector. Another contrast is the ‘no-blame’ culture � ���� ��� ��� � �� ���� � ���� � ������ ���� ��� ��� ��������� PUBLIC MONEY & MANAGEMENT AUGUST 2008 241 © 2008 THE AUTHORS JOURNAL COMPILATION © 2008 CIPFA surrounding benchmarking in the private sector—the objective is continuous improvement. In the public sector, by contrast, the publication of league tables is being used to ‘name and shame’ poor performers (Northcott and Llewellyn, 2003). However, the tensions between the openness required by public accountability and the ‘no-blame’ culture associated with continuous improvement are not explored. Co-operation between medical, accounting and managerial staff is an important aspect of successful implementation of benchmarking in the health sector, and this study investigates the perceptions of different professional groups towards benchmarking, recognizing the tensions found to exist between these groups in previous literature (Broadbent et al., 1992; Jones and Dewing, 1997). Third, it could be argued that benchmarking is a misnomer, and that the developments discussed here more closely resemble yardstick competition. Dawson et al. (2001) draw parallels with the use of the NRCI and the use of yardstick competition in utility industries such as water where there is a lack of competitive pressure. Yardstick competition tries to encourage efficiencies in these industries by measuring their costs relative to each other, and using that information to inform regulation. Using yardstick competition enables a regulator to force firms facing different markets effectively to compete on cost, by relating the utility’s price to the costs of firms identical to it. Shleifer (1985) likens Medicare, a prospective payment system for reimbursement of healthcare costs in the US, to yardstick competition. Patients are divided into 500 diagnostic related groups (DRGs), assigned to a group based on a physician’s diagnosis, and Medicare pays a fixed fee per patient. The fee paid is the average of costs of treating patients who fall into a particular group taken across comparable hospitals over the previous year. When introduced, the system was found to decrease typical length of stay for a patient possibly because payments, unlike costs, do not increase with length of stay. This system is imperfect because it does not fully account for heterogeneity (i.e. does not adjust for severity of illness, or equivalent duration of stay), and highlights the problem of moral hazard as doctors seek to beat the system. This article adds to the existing literature by investigating the quality of the standard costs used for performance measurement in the NHS, by ascertaining whether existing practice is more akin to benchmarking or yardstick competition, and thus evaluating whether use of the NRCI is likely to contribute towards the provision of high-quality, cost- effective patient care. Determination of HRG Costs HRGs are intended to have clinical coherence so that both managers and clinicians can use them as a common language. Two fundamental processes are used