Decision Support - East Midlands HFMA Conference

Investment Decision Support – Promoting Business like Behaviour in Healthcare Duncan Orme, Deputy Director of Finance & Procurement Allison Rigby, Project Accountant 13 th October 2011 NUH: Turnover = £750m CIP Target = £44m Capital Programme = £32m Inpatient Beds = c1,700 Theatres = 48

Common Problems ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

The Decision Support Team ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

1. Impact on the margin ,[object Object],[object Object],Example: The investment, while producing a small return, would dilute the overall specialty margin for 2012/13 onwards reducing its financial risk rating score from 3 to 2.

2. Return on Asset ,[object Object],[object Object],Example: (Calculation used = (I&E Surplus + Depreciation) / Net Book Value) The proposal to invest in a Central Patient Kitchen should generate a ROA with a FRR of 5 in the first full year of operation.

3. Expenditure Audit ,[object Object],[object Object],Example: The case has assumed recruitment at bottom of salary scale which does not reflect current specialty average costs and future increments have not been taken into account. Reworking the financial model reduces the proposed surplus from £117k to £41k pa.

4. Income Audit ,[object Object],[object Object],Example: SLA has not been seen therefore funding commitment from commissioners cannot be confirmed. This should be obtained prior to recruitment.

5. Downside Stress Testing ,[object Object],[object Object],Example: The breakeven point for this proposal is 310 cases pa compared with the base case proposal of 340 which is still a significant improvement on current performance. More detailed modelling is required to evidence the current reasons for failure and incrementally show how each proposed action will contribute towards the additional cases as assurance has not been evidenced that other causes are not having a detrimental impact on success.

6. Upside Stress Testing ,[object Object],[object Object],Example: The Catering Manager has indicated further opportunities exist to reduce costs and improve efficiencies. The impact of these should be worked into an upside case. The impact of further increases in provisions costs should also be modelled.

7. Risk Assessment ,[object Object],[object Object],Example: The current price paid for this activity is not set by a national tariff. How likely is a change in pricing structure (where does this sit within the PbR programme) and what impact would that have on the case?

8. Market Impact ,[object Object],[object Object],Example: This proposal would increase capacity within the service. Market analysis shows competitors and their share. How would the service ensure that it can recapture lost market share and fully utilise the additional capacity ? Does the case have commissioner support for this course of action?

Understand the impact of each Investment Decision on driving the Business Forward ,[object Object],[object Object],[object Object],Summary Financial Impact Baseline Option 1 Revised Position Total Capital Investment Required £2,148,130 Annual Operating Income £2,196,799 £195,000 £2,391,799 Annual Operating Expenditure £2,096,133 £234,164 £2,330,297 Annual Operating Savings -£175,560 -£175,560 EBITDA margin £100,666 £136,396 £237,062 EBITDA margin 4.58% 69.95% 9.91% Total Additional Capital Charges £296,636 Return on Asset -4.9% Payback Period (if in 1 st five years) N/A years

Decision Support - East Midlands HFMA Conference

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