Review of the Assignment
1. As a basis for possible improvements to St Edith financial and medicalperformances, produce a SWOT analysis, with appropriate qualitative and quantitative dimensions. Assume neighbouring hospital performance represents best practice. 30 marks
2. Using appropriate theoretical frameworks critique St Edith budgetary planning and control processes for Income and Expenditure and Capital Investment. This is to be presented as a report to the Management Committee proposing a new planning and control system. Justify the change by referencing the current process and problems. 40 marks
Budgetary and control processes and practices
How does the organisation prepare them?
How does this compare with best practice?
What would be the most appropriate process for the St Edith organisation?
Make recommendations for improvements
3. Identify possible improvements to St Edith financial and medical performances and incorporate them into year 1 and year 2 Expenditure and Income Statements. Justify the improvements.30 marks
Prepare a Two year Profit & Loss Forecast:
To return the income & expenditure account to break even.
1. Using Cost Benefit Analysis methodology decide and justify your decision whether St Edith should immediately proceed with the integrated stock management and creditor system. 60 marks
1. Apply capital appraisal methods
Include cost-benefit analysis
What is your preferred method
Justify your recommended method
2. Show the impact of the investment on the P&L Account
3. Discuss the capital investment strategy
Possible ways forward
5. Critique St Edith arrangements for corporate governance using UKs Combined Code for Governance. Justify any recommendations you may make. 40 marks
Case Study: St Edith Memorial Hospital
The Management Committee of the St Edith Memorial Hospital (SE) was meeting under crisis conditions. The Hospital had moved into a financial deficit and most of the key participants in the decision making process could not agree on the best way to resolve the crisis. The Chief Executive Officer (CEO), Michael Gonzales, reported to the Chair of the Hospital Board. The Board was inhabited with local luminaries and met three times a year. The Hospital was located in the less affluent part of a North American city'. It was a large general purpose hospital which served a stable population. Its revenue came mainly from the central government in the form of a grant, based on the size of population served and the actual amount of surgical and medical work carried out. Central government grants accounted for about 65% of total revenue and the remainder was almost equally split between two other funding bodies.
Firstly, the local city council provided about £20 million of grants and secondly, private medical insurance companies paid a similar amount for treatment of their insurance holders. This gave a total annual revenue of some f115 million but costs had risen to £125 million with all parts of the cost structure, including medicines, salaries and materials, seeing increases above the level of inflation. Unfortunately, the outlook did not look good for the Hospital. Revenue from central government was under pressure as the government sought to reduce public expenditure in order to fund significant tax cuts. Grants from the city council were linked to the level of the central government grant and consequently revenue from this source was not expected to increase. Even more depressing for the Hospital was its failure to attract private healthcare patients. They were choosing to go to a neighbouring hospital with a better reputation for patient care and more attractive facilities. Consequently income from medical insurance was likely to decline even further. Relationships between St Edith's and The Neighbouring Hospital (NH) were good. The Neighbouring Hospital supplied several specialist medical services to St Edith's.
The Management Committee estimated that if the situation did not improve the St Edith Memorial Hospital would have a deficit of £75 million within three years putting the survival of the hospital in doubt. Action needed to be taken urgently. The Management Committee Students should note that the American health system is different from the NHS in the UK. A key difference is that although the state pays for basic healthcare for those who cannot afford it, US hospitals are not 'owned' by the state in the same style as the NHS. US hospitals tend to be more independent and have no direct access to public funds thereby putting greater emphasis on sound financial management. was made up of a number of coalitions. One was led by Michael Gonzales, the CEO. He was an administrator and an accountant by training. His concern was that St Edith should be run efficiently. To him and his fellow administrators on the Management Committee, it was important that the Hospital should be financially viable. However efficiency and effectiveness are not always the same thing. In fact some of the actions taken may also lead to further ineffectiveness or inefficiencies elsewhere. An indication of this dilemma was the administrators wish to reduce the length of time patients spent in hospital so as to reduce costs. However sending patients home early could result in them requiring home visits from nursing staff for up to four or five extra days and in some circumstances this early release might require a re-admission to the Hospital. Consequently initial savings might he eroded by further unanticipated costs. Furthermore some medical staff suspected that these administrators were more concerned with short-term financial concerns than with medical priorities. Certain medicines might be rationed or withheld to reduce costs and patients might be denied treatments such as physiotherapy or occupational therapy in a similar drive for cost savings.
Another coalition was represented by Stefan Kopechnik, a consultant surgeon. He was in favour of implementing a state of the art EPR system2 (Electronic Patient Record) would involve the issue of handheld PDA units to all medical staff. These units would access and present patient data in real-time via a wireless LAN and supposedly improve the performance of all concerned. For Stefan and his fellow surgeons believed that the St Edith Memorial Hospital was losing out to its rival hospital because it was seen as old-fashioned and out of touch with modem medical technology and surgical techniques. This was affecting its ability to attract the affluent private healthcare patient. Unfortunately the Hospital would require substantial capital investments to implement such a high-tech strategy. Kopechnik had discussed the project several times with Seth Doohan, the hospital IT Manager and Doohan had assured him that developing such a system would not prove to a major challenge to his staff providing sufficient funds were made available.
The Chief Pharmacist, Ellroy Jones, had a different but equally radical vision to Kopechnik. His views, frequently espoused to anyone that would listen, was that the IT function under Doohan was incredibly mis-managed and represented a criminal waste of resources that should be re-allocated immediately to improving patient care. His suggestions were based on the elimination of almost the entire IT department apart from a single supervisory manager required to negotiate and monitor a set of new service contracts. The important home-grown applications (PAS, SIS and HRM) would be phased out and replaced by leading COTS products and all PC supply, support and network/server management services were to be outsourced to local specialists. He based his views partly on prior experience at a different hospital and partly on the opinion of his wife, a senior IT Manager in a commercial bank. He was aware that Neighbouring Hospital outsourced all of its Communications and Information Systems (C&IT) activities to a major medical specialist outsourcing company, at a comparatively low cost per employee. The cost covered capital and operational costs including on-going training, up-grades and customer billing. Further, the systems and associated hardware, medical and administrative, were regarded as 'state-of-the-art'. He was aware that St Edith's did not have access to large funds for capital investment and wondered there might be other sources of funding available.
Naturally he did not endear himself to
2 Electronic Patient Record. A system holding all personal and medical information about all hospital patients in
real-time - and making it instantly available to authorised users in whatever format and via whatever device
suited their needs.
Doohan (or the IT department in general) and enthusiasts such as Kopechnik generally
regarded his ideas as too negative.
St Edith Memorial Neighbouring Hospital
|Income from central
|Income from local
|Income from medical insurance||19,000||23,000||63,000||60,000|
|IT and communications||3,000||2,000||1,000||1,000|
|Other variable costs -
|Further referrals required %
(need for re-admittance)
|Mortality % (% of patients
dying in hospital)
|Number of staff (actual)||1,000||
|Number of beds (actual)||350||350||450||450|
|Waiting time (days)*||95||90||
|Post-operation time in
|Day surgery operations***
Number of patients treated
|Ratio outpatients to those
committed to hospital****
Table 1 Comparison of Statistical Data between St Edith Memorial Hospital and the
Neighbouring Hospital for calendar years 2003 and 2004. Figures are in £'000.
from seeing doctor to hospital admittance
** number of days kept in hospital after an operation
*** minor operations which require no overnight stay
**** number of patients dealt with as external patients (excl. day surgery) compared with those committed to hospital for
one night or longer
There was one other important coalition that was very vocal in their support of the Hospital. These were the employees, including the nurses and the general medical and support staff (not the high-ranking surgeons). Their interests were not technological, political or financial, unlike the surgeons who were looking to expand their power and influence. This employee coalition was primarily concerned with the maintenance of an efficient and effective hospital service for the local population who could not afford private medical insurance and who relied mainly on government funded healthcare provision.
As one might have expected with these divisions, the Management Committee found it difficult to agree upon an acceptable business strategy to solve the financial crisis. Eventually the one chosen reflected the power wielded by the surgeons. These senior medical staff (the surgeons) had threatened to resign if the Committee did not agree to a capital investment programme designed to enhance the Hospital's surgical reputation. The Hospital would effectively cease to function without its surgical teams. Unfortunately the trade-off for this investment was to reduce the number of beds within the Hospital. It was argued that this reduced provision reflected the current utilisation patterns. Unfortunately this did not reflect the continual demand within the community. There were a significant number of patients who were not being given the treatment they needed as they did not have private healthcare insurance. Furthermore, waiting times for seeing the appropriate consultant surgeon or for being admitted to the Hospital were lengthening for this disadvantaged group of patients.
The St Edith IT Department
The roots of this team can be traced to the 'Technical Services department' which was established originally to support all manner of hospital equipment from wheelchairs to AC units. However as computers spread throughout the hospital during the 1990's supporting information technology became the main role of the department and a Technical Support Manager was recruited with the necessary practical IT skills. Seth Doohan secured the job in 1994 on the basis of some proven technical skills mainly associated with the repair and configuration of problematic PCs. He was given a free hand to select and prioritise projects. The strength of his team grew by at least one member of staff a year and by 1999 he had seven technicians working for him. Three were assigned to manage the hospital Local Area Network and various servers and the others, on a lower pay scale, ran around the hospital trouble-shooting. During 1999 he secured approval to recruit an IT Administrator, who he really wanted to deal with all the tedious paperwork floating around the department (software licences, equipment warranties, phone bills, invoices, support requests etc. etc.). Kirsty Fitzgerald, the person who ended up in the Administrator job proved highly competent and not only dealt with all the paperwork but also informally supervised the four support technicians on a day to day basis.
Doohan initially pleased with this development became thoroughly bored. He had too many free hours in his day and his thoughts turned to software development. How hard could it be? He enrolled himself on a number of database and programming courses and decided that this was not half the challenge he had anticipated. A Database Programmer (Jed Singh) was soon added to the team and he and Doohan embarked on an ambitious sequence of applications. The first project was a Helpdesk Request system essentially a Call Logging database. Doohan's vision was a highly complex application involving a sophisticated set of rules and algorithms to rank support requests and micro-schedule the hour by hour work of the four technicians. Despite hundreds of man hours spent on optimistic programming, the system never worked properly but was never needed in any case: Kirsty Fitzgerald had already implemented a perfectly efficient system using Excel.
Undeterred, Doohan and Singh tackled what became known as the hospital PAS (Patient Administration System). This was in fact an ultra-simple one table database holding the basic demographic details of inpatients (no medical data) and the ward where they were assigned. The main end-users were the two telephone receptionists who used it frequently to patch through relatives phone-calls to the correct ward. It was initially a single user system which caused much frustration until Singh understood that a network version could be accessed concurrently and implemented an easy win. Buoyed by this success Doohan intervened during a management meeting when the Hospital HR Manager announced her intentions to computerise her department with the acquisition of a leading personnel management package. Doohan persuaded the management committee that they would save much time and money - and improve system quality - by allowing his team to develop a bespoke solution. This project was not a happy experience and despite numerous verbal clarifications the HR team never really acquired the personnel system functionality they needed. The HRM program finally delivered some fifteen months later was widely despised by the hospital HR team and Doohan made a mental note to cross them off his list of future internal clients.
Mitch McCoy Jed Singh Frank Wood
Janie Van Damme Tam McShane Kelly Chambers
ST EDITH IT DEPARTMENT 2005
The only St Edith system that was considered reasonably successful was developed whilst Doohan was taking three weeks leave. One of the information analysts, working within the Finance department, had several years professional IT experience with Unisys and was very familiar with C&IT systems methodology. The analyst had an informal meeting with Singh on the first day of Doohan's leave and by the time the manager returned, the pair of them had produced a working prototype in the final stages of a review and refinement cycle. The purpose of the system — which became known as SIS (Surgery Information System) - was to accurately record all the surgical procedures carried out at the hospital so that claims could be made to the central government, city council and various healthcare insurers. The information analyst, involved closely with the design and development work, insisted on a simple design and neat set of reports — and the result was a reliable, useful system even if it was only ever used by one person. This success led to Doohan justifying the recruitment of another programmer as day to day system maintenance and general trouble-shooting grew with the installation of each new system. A permanent candidate could not be found and Doohan eventually hired Tam McShane, an agency contractor at a cost of £1700 (one thousand seven hundred pounds) per week. The latest organisation chart is shown on the previous page.
St Edith's are considering expanding its C&IT support by developing an integrated stock
management and creditor payments system. The current projections for this proposal are:
Purchase and Development cost £10,300
Staff savings year 1 £500
Staff Savings in all future years £1,200
Other savings £200 per annum
St Ediths are considering this option under a spend to save initiative where external grant will
be sought but they must demonstrate a return over 8 years at a rate of 8.5%