Developing A Health Business Case And Zero-Based Budget

The Proposal

A health business case plan has been prepared supported by the financial and non-financial data. It discusses the breakeven analysis and all the forecasts have been made through zero-based budgeting.

The project has a huge value to the Local Health District as it would serve one of the major project requirements of public health and safety in the area (Baker, 1989). Off late, there has been increasing focus on prevention from diseases, the increase in the number of beds and hospital units such that major surgeries can be done in the district itself without going outside the district.

The given services are required to be introduced simply because of the fact that the quality of the health care needs to be improved in the region and join hands with the government in this approach. The plan discusses the operating budget, the fixed and variable cost requirement, the space requirement and the timeline of the project as well. The aim of the project is to provide quality services at affordable costs and therefore the breakeven analysis has been done in financial analysis (Bogle, 2018).

The proposal of the health business case plan at the very outset is to set up a health facility, which should be efficient, financially feasible, and operationally achievable.

Aims: The aim is to have a comprehensive health care facility for the community with the adequate number of beds and medical staff at affordable costs (Choy, 2018).

Benefits: There will be a number of benefits out of the project like those of introduction of many health care facilities and services, which were not there in the city earlier. The expected benefits for the different stakeholders are mentioned below in the table:

Factor	Benefits
Patients	They would not have to travel to other cities in search of good and quick treatment; this would be available in the town itself and that too at affordable costs (Erik & Jan, 2017).
Facility	The local district and community would benefit out of the facility given in the hospital as it would be giving comprehensive health care facility.
Clinicians	The nurses and the doctors in the local region would not have to go far in search of the employment opportunities and it would be available in the city itself and therefore there will be a 2-way benefit (Dichev, 2017).
Other	There would be several other financial and non-financial benefits, as it would help in reducing the patient stay at hospital from nearly 4 day to 2.5 days.

Besides the benefits, there are several inherent risks as well in the project, which have been mentioned below in the table:

Risk Issue	Severity	Impact	Mitigation Plan	Notes
Financial risk	Moderate	Moderate	The contingency has been built in the plan considering the same if the requisite funds are not available.	NPV. Payback period has been computed even as per the revised scenario.
Patients	Moderate	High	In case the critical patients do come for surgeries, specialist doctors need to be there in hospital for operations. The cost for the same has been factored in the financials (Delone & Mclean, 2004).	The doctors and nurses would be available all the 7 days in a week so it is not a cause of worry.
Insurances	High	Moderate	The insurance of the hospital premises and the patients is very critical so the same has been applied for.	Necessary precautions have been built up in the set up plan.
Other	NA	NA	NA	NA

The procedure in which the above plan will be executed has been shown below in the form of the flowchart.

All the resources, which will be required, have been shown in the calculations below. There would be space requirements for the main campus and administrative building of the hospital and for the parking area of the ambulance and other patient vehicles. The radiology machines, the X-ray equipment’s, the operations theatres and other surgical equipment is which will be very necessary and will be planned as per the circumstances of the case (Fukukawa & Mock, 2011). Initially, the proposed strategy implementation and investment period has been assumed to be for the period of 5 years and therefore the simulation of calculations has been given for the same period.

Requirement of Resources

The dedicated finance team of the health care unit will do the financial result and the tracking of the project. This will consist of two accountant who will be reporting to the top management of the unit regarding the financial performance of the unit. They will also be responsible for monitoring the savings and the outcomes of the project through a monthly MIS report (Fay & Negangard, 2017). They will also highlight the possibility of the cost savings or increasing the revenue by any means in the future. The report will be sent out monthly to the management and they will have a quarterly meeting to take the initiatives forward and discuss on current and future issues, if any (Hepp, 2018).

Budget build-up and financial activity

For the given project in hand, the budget has been build up based on zero-based budgeting. Zero based budgeting means the budgeting, which has no base of last year or industry and is not based on past precedence’s. It has a number of advantages of traditional costing and budgeting and aims to eliminate all the legacy or non-warranted costs (Jefferson, 2017).

In the old times, the capital charge in the form of depreciation, interest, debt repayment and the dividend were being ignored in the financial statements and were being considered as free of cost or free goods as most of these assets like those of building and significant equipment were being financed by the government but post 2005, the same has been started to be considered. In the modern scenario as well as in the given case, the organization is required to pay for the assets and thus there is a pressure on the organization to make a savings in the capital charge as well (Kew & Stredwick, 2017).

The profit and loss account has been prepared for the health care unit based on the different items of the income statement and the costs have been divided into fixed, variable and semi variable costs and the capital costs. The capital costs have been assumed to have been incurred only in the 1^st year of operation and then the costs are shown as fixed and the variable costs (Heminway, 2017).

ABC Health Care Centre
Break Even Analysis
Particulars	Amount ($)	Income	Particulars	Amount ($)
8 x Nurses @ 50.00 x 8 x 5	832,000	Patient revenue
4 x Nurses @ 60 x 8 x 2	199,680	Weekly X rays (week)	X ray x 10 x 70 x 10 x 5	1,820,000
		Weekly X Rays WE	X ray x 10 x 40 x 10 x 2	416,000
On costs 15%	18,000
Yearly cost (F)	120,000
		Other revenue from Emergency service and ambulatory services
X Ray films x 5 x 25 x 8 x 5	260,000		250,000
X Ray films x 5 x 12 x 8 x 2 (W/E)	49,920
Yearly cost (F)	20,000
4000 x 4 (F)	192,000
1500X 4	72,000
Yearly cost (F)	50,000
2 FTE @ 20.00 x 10 x 7	145,600
5000 per week (F)	260,000
Yearly cost (F)	30,000
250,000* x 20% (F)	50,000
Yearly cost (F)	10,000

	2,309,200	Total		2,486,000
ABC Health Care Centre
Statement of Revenue and Expenses
Projected for the next five years
Particulars / Years	0	1	2	3	4	5
Net patient service revenue	–	2,236,000	2,347,800	2,512,146	2,725,678	2,970,989
Other Income	–	250,000	262,000	275,000	290,000	312,000
Total incremental revenue	–	2,486,000	2,609,800	2,787,146	3,015,678	3,282,989
Expenses
Building	420,000	–	–	–	–	–
Equipment’s	250,000	–	–	–	–	–
Furniture	65,500	–	–	–	–	–
Other capital costs	41,000	–	–	–	–	–
Setting up costs	22,750	–	–	–	–	–
Operating Expenses	–	–	–	–	–	–
Fixed Expenses	–	732,000	732,000	732,000	732,000	732,000
Variable Expenses	–	1,577,200	1,561,428	1,592,657	1,632,473	1,697,772
Total incremental expenses	799,250	2,309,200	2,293,428	2,324,657	2,364,473	2,429,772

Incremental income year wise	(799,250)	176,800	316,372	462,489	651,205	853,218

Computation of the Net present Value and other parameters of the Company
Year	Net Cash inflow	PV factor (10%)	P.V. Amount of Flows
0	$ (799,250.00)	1	$ (799,250.00)
1	$ 176,800.00	0.909	$ 160,711.20
2	$ 316,372.00	0.826	$ 261,323.27
3	$ 462,489.44	0.751	$ 347,329.57
4	$ 651,205.44	0.683	$ 444,773.31
5	$ 853,217.57	0.621	$ 529,848.11
Total Cash inflow			$ 1,743,985.47
Net Present Value			$ 944,735.47
Pay Back Period			2.66 Years
Discounted Pay Back Period			3.07 Years

In case the desired funding is not available to the given optimum desired level and is less by 10% than the optimal budget, then the possible deletions and the costs cutting measures would be on account of staff costs which would be reduced from 8 and 4 nurses respectively to 7 and 3 nurses. Furthermore, the admin salaries would also be reduced from $ 20 to $ 16.5 per hour and finally the rent on building would be reduced from $ 5000 per week to $ 4000 per week (Werner, 2017). The yearly cost would also be reduced from $30000 to $ 20000. The rest of the expenses could not be saved or lowered being fixed in nature. All these savings would help in reducing the overall operational expenditure from $2309200 to $ 2067800. In addition, there has been savings in the capital cost upfront in building, setting up costs, furniture and other capital costs (Linden & Freeman, 2017). The revised simulation in such a scenario has been shown below:

ABC Health Care Centre
Break Even Analysis
Expenses	Particulars	Amount ($)	Income	Particulars	Amount ($)
Staff costs	8 x Nurses @ 50.00 x 8 x 5	832,000	Patient revenue
	4 x Nurses @ 60 x 8 x 2	199,680	Weekly X rays (week)	X ray x 10 x 70 x 10 x 5	1,820,000
			Weekly X Rays WE	X ray x 10 x 40 x 10 x 2	416,000
Weekly	Oncosts 15%	18,000
	Yearly cost (F)	120,000
Consumables	X Ray films x 5 x 25 x 8 x 5	260,000	Other revenue from Emergency service and ambulatory services		250,000
	X Ray films x 5 x 12 x 8 x 2 (W/E)	49,920
	Yearly cost (F)	20,000
Electricity	4000 x 4 (F)	192,000
Water	1500X 4	72,000
	Yearly cost (F)	50,000
Admin support	2 FTE @ 20.00 x 10 x 7	145,600
Rent on Building	5000 per week (F)	260,000
	Yearly cost (F)	30,000
Depreciation on equipment	250,000* x 20% (F)	50,000
Yearly cost (F)	10,000
Total		2,309,200	Total		2,486,000

ABC Health Care Centre
Statement of Revenue and Expenses
Projected for the next five years
Particulars / Years	0	1	2	3	4	5
Net patient service revenue	–	2,236,000	2,347,800	2,512,146	2,725,678	2,970,989
Other Income	–	250,000	262,000	275,000	290,000	312,000
Total increamental revenue	–	2,486,000	2,609,800	2,787,146	3,015,678	3,282,989
Expenses
Building	420,000	–	–	–	–	–
Equipments	250,000	–	–	–	–	–
Furniture	65,500	–	–	–	–	–
Other capital costs	41,000	–	–	–	–	–
Setting up costs	22,750	–	–	–	–	–
Operating Expenses	–	–	–	–	–	–
Fixed Expenses	–	732,000	732,000	732,000	732,000	732,000
Variable Expenses	–	1,577,200	1,561,428	1,592,657	1,632,473	1,697,772
Total increamental expenses	799,250	2,309,200	2,293,428	2,324,657	2,364,473	2,429,772
Increamental income year wise	(799,250)	176,800	316,372	462,489	651,205	853,218

Computation of the Net present Value and other parameters of the Company
Year	Net Cash inflow	PV factor (10%)	P.V. Amount of Flows
0	$ (799,250.00)	1	$ (799,250.00)
1	$ 176,800.00	0.909	$ 160,711.20
2	$ 316,372.00	0.826	$ 261,323.27
3	$ 462,489.44	0.751	$ 347,329.57
4	$ 651,205.44	0.683	$ 444,773.31
5	$ 853,217.57	0.621	$ 529,848.11
Total Cash inflow			$ 1,743,985.47
Net Present Value			$ 944,735.47
Pay Back Period			2.66 Years
Discounted Pay Back Period			3.07 Years

Thus, the breakeven point for both the scenarios have been computed and it would be 2.66 years in case the total funding is available and 3.06 years in case the 10% contingency is made. Furthermore if the cash flows are discounted at 10% (assumed) considering the time value of money, then the breakeven point increases to 3.07 years and 3.48 years respectively (Timothy, 2004).

References

Baker, W. (1989). Why traditional standard cost systems are not effective in today’s manufacturing environment. Industrial Management,, 31(4), 22-24.

Bogle, J. C. (2018). The Modern Corporation and the Public Interest. Financial Analysts Journal, 74(3), 1-10.

Choy, Y. K. (2018). Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis. Ecological Economics, 145. Retrieved from https://doi.org/10.1016/j.ecolecon.2017.08.005

Delone, W., & Mclean, E. (2004). Measuring e-Commerce Success: Applying the DeLone & McLean Information Systems Success Model. International Journal of Electronic Commerce, 9(1).

Dichev, I. (2017). On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), 617-632. doi:https://doi.org/10.1080/00014788.2017.1299620

Erik, H., & Jan, B. (2017). Supply chain management and activity-based costing: Current status and directions for the future. International Journal of Physical Distribution & Logistics Management, 47(8), 712-735.

Fay, R., & Negangard, E. (2017). Manual journal entry testing : Data analytics and the risk of fraud. Journal of Accounting Education, 38, 37-49.

Fukukawa, H., & Mock, T. (2011). Audit risk assessments using belief versus probability. Auditing: A Journal of Practice & Theory, 30(1), 75-99.

Heminway, J. (2017). Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents. SSRN, 1-35.

Hepp, J. (2018). ASC 606: Challenges in understanding and applying revenue recognition. Journal of Accounting Education, 42(1), 49-51.

Jefferson, M. (2017). Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland . Technological Forecasting and Social Change, 353-354.

Kew, J., & Stredwick, J. (2017). Business Environment: Managing in a Strategic Context (second ed.). London: Chartered Institute of Personnel and Development.

Linden, B., & Freeman, R. (2017). Profit and Other Values: Thick Evaluation in Decision Making. Business Ethics Quarterly, 27(3), 353-379. Retrieved from https://doi.org/10.1017/beq.2017.1

Timothy, G. (2004, November). Managing interest rate risk in a rising rate environment. RMA Journal, Risk Management Association (RMA).

Werner, M. (2017). Financial process mining – Accounting data structure dependent control flow inference. International Journal of Accounting Information Systems, 25(1), 57-80.

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