Introduction to Managing Finance in Public Sector
Finance plays a significant role in each and every business, without financial resources an enterprise can not exist and survive in the market or industry. The main objective of managing finance is to assure the best use of available funds. It further ensures optimum utilization of funds at least cost. Thereafter, managing finance assure constant and appropriate supply of funds to the business. The present report is based on the national heath services PLC (NHS) company which is England based firm and operating in the healthcare sector. The company provides its products and services across the world. The report describes informations which are needed for increase the fund and require reporting to the authority body. Another part of the project shows responsibility for financial informations and process for making financial decisions in the public sector business. Apart from this last part of the report describes regarding to the tender and its documentation as well as system of scoring for evaluating tenders.
In chosen nation explanation of the public sector
The public sector can be referred to as the state sector or the government sector, is a portion of the state that deals with the manufacturing, control, sale, precondition, transportation and allotment of goods and services by and for the government or its residents, whether national, regional or local/municipal. It is the income generating division which renders administrative services to the public and community. The public sector differs from nation to nation where it may involve, health care, education, roadways, railways, postal services, military and police etc. In the public organisations there are all the control and monitoring is in government's hand, it can be said that regulatory body of public company is government of the country. Here the national health services company which is operating in the England country where it needs to follow all the rules and regulations framed by respective country. Ownership of the company is with government due to regulating the public organisations and all the policies must be followed by the NHS. The England is in Europe continent where a union is established by the countries for public sector and private sector companies as well. As per the European union the public sector company has not to do any discrimination between employees, customers and other stakeholders. Apart from this in the county the company can move or sell and buy goods and services without any taxes and tariffs. In the England there is policy for the government companies is that free movement of its products and services. Apart from this the public sector business entities can freely provide its services across the world, in case of health care companies there are no restrictions as well as obstacles in order to provide its services in the world.
Further more, in the England country the public sector companies has freedom in order to establish a new firm or expand existing business. There are all the rules, regulations and policies as well procedures are better up to greater extent due to not facing any obstacles for establish and operate in the country. As per the rules of England public sector companies are needs to follow all the rules and regulation which are imposed by government for various functions such as financial, operation, accounting and auditing, human resources, recruitment and selection process etc. According to the present scenario government of the country is contributing in the financial resources by which profitability ratios are high and business performance is also better in comparison to another segment.
Organisations funding and operating system
Every organisation whether it is public, private or non profit, all are needs finance or capital in order to expand the business. For raise fund or capital in the firm there are different sources available which provide financial services to the companies. National health services organisation which is a public sector company also require finance for expand the services and products as well as increase consumers. The government of the country is main sources of finance for public sector enterprises and other several sources are also available. Another various sources of finance are such as equity share, bank loan, venture capital, retained earnings, merchant banking, leasing etc. When the NHS raise fund through various sources then it has to pay cost of this in terms of different kinds and there are some limitation as well. Drawbacks or limitations of the funding are enumerated below:
Most of the business entities prefer equity financing in order to enhance financial resources in the company which helps to expand firm and product range as well. Very main limitation of this funding is that, the company have to pay dividend amount year by year to the stakeholders or investors. This factor impact to the financial performance of the firm adversely because dividend is given to stakeholders from net profit of the enterprise. Apart from this without listing or registering in stock market of respective country NHS cannot raise fund through equity and unable to offer shares. As per the another funding option venture capital it imposes cost on company in terms of stake of the firm. When the entity raise fund from venture capital then it needs to give stake and dividend amount as well from margin earned by it. Dividend is just like expense of the firm which lead to decrease level of profit by which financial performance hampers in the industry. Hence, it can be said that funding is affects to the firm in negative manner. Apart from this when NHS raise capital from bank loan then cost of it is in terms of interest amount which is depended on the stock market. Interest amount is also leads to reduce benefits or profit of the firm and impact on profitability in negative manner. Drawback of bank loan is that when the firm is unable to pay loan amount then bank has power to wound up whole business.
Government funding is another main source for the company in order to raise finance. In the present case NHS raise fund from European regional development fund which a kind of government funding. In this limitation is that, if government found any problem in respective business then it can terminate contract and not provide fund. As per the sources all formalities related to documentation must be appropriate, without this firm cannot raise capital in the company. Hence, it can be analysed that with various advantages on other side there are several drawbacks of the funding.
Informations which are required to reporting in public sector company
The financial information reported to varied public sector company is described as follows:
Information regarding source of public income
The main financial gain of government enterprise is directly in the form of taxes and duties. The different projects and activities of regional government is funded from the finances procured through taxes which are charged from company and private individuals. The NHS is needed to present information regarding total amount collected through taxes, its use in different areas etc. in form of financial statements.
Reported financial and non financial performance indicators
The financial performance indicators is effective method that state how effectively company use it financial and other assets from original way of business and yield revenue. They must be communicated in yearly financial report so that stakeholders of NHS can determine the financial position of the business (Revsine and et.al., 2005). The financial performance can be shown through organization gain, sales, cash inflows and outflows, worth of assets. The financial data must be communicated so that capitalist can make wise judgement on whether to spend or not in NHS. While, non financial performance indicators depends upon the satisfaction of employee, customers, service quality, market share, and rate if creativity introduced in offering by entity. The information regarding non financial and financial indicators is communicated which assist in knowing the forthcoming fiscal performance of NHS.
Published reports for varied entities
The public sector company is needed to prepare annual report. It is broad report on the entity activities throughout preceding year. The financial information along with the list of board of directors, key person of company are detailed in annual report.
It is the formal record of the financial activities and standing of NHS. It further includes balance sheet, income statement, cash flow details etc. They must be reliable as capitalist decision to make investment is depended upon the financial statements.
Quality commission report
Being a health care organization, it is very much important for NHS to provide the best quality services to its customers. The care quality report specifies that company is maintaining the said quality standards or not.
Accountability of the firm with availability of financial information
Financial data are very necessary for the management which helps to determine financial performance and accountability towards various stakeholders of the national health services organisation. Analysis of the financial data which are helps to meet objectives of its stakeholders.
Financial informations are derived from financial statements of the NHS company. There are different financial statements are such as profit and loss statement, balance sheet or statement of financial position, cash flow statement etc. From this all statement the company is able to meet with goals of the various stakeholders. Customers are key stakeholder of the company, without them a business can not run in the industry. They have objective towards the firm that, it provides better products and services, when the firm has adequate finance then able to fulfil their objectives. Financial information is profit which is most important, when investors or shareholders make investment in the firm then analyse profitability. Hence, the firm generate higher profit leads to attract more number of investors and increase shareholders. Apart from this another financial informations are related to assets and liabilities of the firm which are shown in balance sheet. Employees are another key element of the national service organisation, financial data such as profit requires providing adequate and proper wages and salary by which it able to meet their requirements. When NHS wants to raise fund then its responsibility that it has all the informations properly or not. Furthermore, budget is also another concept which provides financial information for the upcoming financial year. By this it able to fulfil objectives and goals which are its stakeholders have. Every business entity have responsibilities that to meet goals and objectives of several stakeholders such as consumer, investor, employee, government etc.
Monitoring and controlling of financial resources in NHS organisation
There are wide range of decision that are taken by NHS Trust to assure proper functioning of company. Since, it is inception that it is public sector company that can be impacted by political parties and varied community. The decision are also influenced by different factors. The example of major decision that are taken by NHS trust are investment into growth and diversification activities etc. Thereafter, purchase of expensive machines, medical equipments and technology are some decision that involve significant amount of funds. The financial decisions are further supported by various techniques which are explained as follows:
It is a process where budget is prepared which leads to determine financial data for the next accounting year. It is techniques in which budget is formulated on the basis of past financial informations, where the management is able to forecast about future cash flows such as inflow and outflow. For example various budgets such as cash, sales, material, production etc. which provide information that how much revenue is to be generate in next year. Furthermore, it gives informations to NHS related to production units, raw material required etc. and incomes and expenditures as well. With this the management is able to control and monitor all financial resources in effective manner and enhance profitability as well.
Cost benefit analysis
It is method which is reasoned to ascertain the advantage of pecuniary worth over cost. During financial decisions making, NHS Trust's use the cost benefit analysis. In this technique, if the profit surpass the worth of cost, then the decision is reasoned as executable and taken by the financial executive. It is assured that in no case, profits must not be less than the cost. In this analysis there are various components are used such as variable cost, direct cost, fixed cost, indirect cost etc.
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Capital Budgeting methods
Tool which helps to organiser in order to assess viability of the project and provide appropriate decision, known as a capital budgeting method. It helps to the NHS for undertake or choose and particular project among two or more mutually exclusive projects. National heath service trust execute investment appraisal techniques while planning to start other healthcare facility under the reputation of trust in other location and spread out their market share. The decision is taken only after analysing that such expansion project are executable and gainful in coming time. For example net present value, internal rate of return, profitability index, average rate of return, payback period etc (Abraham, 2006). By this firm able to chose appropriate project and able to manage its financial resources.
It is among the effective method that help in taking future financial decisions. The analysis helps to the management in order to determine financial health and performance of the firm in the healthcare industry. It is followed by NHS during preparation of financial report to be bestowed to the stakeholders. With the help of this method, various ratio are analysed to study the performance of organization. Examples are such as profitability, liquidity, gearing or solvency, efficiency ratios etc. which measures financial performance in the industry.
Financial decision making process for NHS
Each organisation need to take financial decisions in order to enhance its financial performance and achieve goals and objectives as well. Process for financial decision making is given as below:
Very first step of the financial decision-making process is problem identification where the NHS will analyse and identify that what is the problem is there (Broadbent and Cullen, 2012). For example: it going to expand the new project then it will find that due to which problem decision is to be taken.
Establish decision criteria
Furthermore, the criteria which is identified for make decision i.e. expansion of new project will be established in the present step.
Weigh decision criteria
In this firm will be analyse about that criteria and check that whether it will be effective for the firm or not. If effective and beneficial then move for further step otherwise corrective action will be taken (Metemadi, and et.al.,2016).
Here NHS will generate different alternatives for expand the project. For example: various capital budgeting methods such as NPV, IRR, ARR, payback etc. will be consider which are alternatives for taking decision.
Evaluate the alternatives
In this step the management evaluate that which one alternative or method will be appropriate for making decision. Mostly firms are use net present value which shows future value of initial investment.
Choose the best alternative
Further, the method which gives higher return of initial investment will be chosen and financial decision is to be taken by management of NHS.
Implement the decision
Second last step is implementation of the decisions which is made in earlier step. Here the decision is applied or implement in the organisation for expansion of the new project.
Evaluate the decision
Last step is evaluation of the decision where the management or controlling staff will be check and evaluate about the project. If it found any problem and identify that the project is not working properly then corrective action is taken in the step (Revsine and et.al., 2005).
Tender documentation and tender process for NHS organisation
Tender can be defined as offer to perform a function which offering party is duty bound to fulfil the promise to the party to which the offer is made. In this respect, the NHS Trust, issue tender to the outside bodies regarding building of new hospital for the intention of enlargement. It may consider supply of materials like, cement, construction equipments for building new hospital. In addition to tender can be given for supply of medicinal drug, beds, stretchers or medical devices which are needed by the NHS Trust (Schroeder, Clark and Cathey, 2011). In the context of the public sector companies, tenders are issued to the public and the written agreement is done with the suitable individual who meet the responsibility with supreme potency and minimal cost. The requirements of tender are collected in terms of invitation. This invitation can be provided through emails, post, by courier of by hand. The newspapers also contain information about tender.
Documents required for the tender are given as below:
- Certified copy of Document of registration of NHS, which show name of firm, registration number, registration date, current directors and board members.
- Certified copy of Directors and member's ID documents.
- Certified copy of its shareholder's certificates.
- Financial statements of last three years.
- Annual report of NHS company.
- Proof of membership of national contract association.
The tender process used by NHS Trust is described as follows:
Identification of need
First of all, the requirement for issuance of tender is determined. Therefore, tender is developed when company require reliable source of business. In case there are too many suppliers and there is confusion regarding which must be selected by entity tender can be used (Tenders & Contracts. 2014).
Since its inception that tender is open invitation to the public. To maintain the standards of NHS, entity only select the suppliers that provide the best quality products at affordable price. Hence, competent suppliers that can take tender and meet the requirement with maximum efficiency within the provided time frame can be selected.
Preparation of Documents
The required documents are prepared by management of entity. In this the introduction, description of contract and submission of documentation is required.
Just after the trust get tender application, they assess them and look forward for the best supplier. The assessment for choice the best bidder is done through different techniques and contract is granted to them (Wildeman and Jogo, 2012).
Monitoring and controlling
After providing the tender, constant observation and control is done to guarantee top-quality outcome from the suppliers. It is performed by NHS Trust to debar any destructive results that could cause failure of company efforts and money. Further, use of poor quality input provided by the suppliers can destroy the image of NHS and thus, it is important to supervise the work of suppliers.
Criteria and scoring system for evaluation of tenders
For choosing the best one from two or more alternatives there are benchmarks are set out which helps to undertake the best project in the business. In the present case NHS expand its service range or build a new hospital then it uses tender process in which there are two or more tenders available. The company needs to take one tender for which some criteria and scores are given as below:
In order to evaluate and choose the best tender among two or more tenders the main criteria are such as price of the tender and quality of that as well (Starling, 2010). Among various tenders a bidder who offer at lower price with higher quality in comparison to another bidders, that will be chosen by the management. In the quality criteria there are different elements which are evaluated in the tender for choosing by NHS. The various elements of quality criteria are such as technical, service delivery, environment, quality of product using, social value etc.
Apart from criteria system for evaluating of tenders, scoring system is also there which helps to choose the best tender among two or more alternatives. For this score or ranking is to be given as per its benchmarks (Zemaitis, 2015). Various components of scoring system are such as excellent, good, acceptable, limited, inadequate, not eligible etc. As per this the tender which is able to meet benchmarks, that will be eligible for consideration and chosen by the NHS enterprise.
From the above research it can be articulated that there are various drawbacks or limitation of funding process for expansion of the project in NHS organization. Informations which are required in order to reporting are such as income, expenditures, financial statements, quality of products and services etc. It can be summarized that various financial informations requires in order to complete responsibilities of fulfil objectives of its stakeholders. For taking appropriate financial decision there is a process which helps to make effective decisions and enhance profitability of the NHS. It can be concluded that for undertake one tender among two or more tenders there are some benchmarks, criteria and scoring system set out which helps to management for taking the best one tender.
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