Verified case study

Finance and Costing output review

by Sarah Rollason | 23 November 2016

Finance and Costing output review

Summary

Prederi was personally commissioned by the MD of NHS Hertfordshire CSU to be acting Finance Director and deliver a full output based review of the entire CSU service which assessed the true drivers of cost, the actual unit activity cost and the profit and loss making customers. To then use this information to help them better run their business.

Challenge

NHS Hertfordshire Integrated CSU wanted to assess all their outputs and activities to see how much each cost in total including overheads, what drove those costs and who the customers are and how profitable is each one. The major part of this was to understand the IT costs by output and activity. 

A team of Prederi costing experts delivered a full output based review of the entire CSU service and through workshops assessed the true drivers of cost, the actual unit activity cost and the profit and loss making customers.

Prederi delivered the following support throughout the project:

  • Full back calculation of volume data and reallocation of fixed costs, looking at Cost drivers, activities and customer costs to ensure they are put on a commercial front and ensures each then ensure each customer is charged appropriately
  • To better understand and allocate the proportion of the contract cost that relates to clinical services and GP IT support. This enables the customers to better understand how our costs were built up
  • To provide further information when required for new pricing into new opportunities and bids. Including to current customers like GPs and NHS Trusts (for IT support)
  • To set up quarterly management accounting process that facilitates the capture of actual costs and volumes into the system to facilitate governance and management. We use Herts staff to deliver this change although design and development via Prederi
  • To transfer model and skills to deliver to full time staff by 30th Sept 2013. Through a facilitated training process
  •  To undertake the cost driver and activity analysis to allow comparability of prices in multiple locations
  • To assess other contracts held to ascertain their true financial viability through the correct allocation of support and overhead costs
  • To recalculate finances into agreed activity and cost volume model to assess how much each actually costs
  • To compare the results between 5 benchmark cost areas and assess effect on all GP customers
  • To set up a quarterly report that analyses the relative costs and volumes of each county area to see if efficiency and best practice can be uncovered and shared.

Outcome

Our solution also gave a new view of the financial relationship with customers by looking at whether each provided net revenue or net cost to the CSU. This was possible through the detailed review of all costs and activities and to truly understand how those costs varied with time, volume and cost driver. It enabled the customer to fully understand the cost base of the contract.

In the IT business we were able to better allocate the overheads to where they were meant to lie. This meant that it was possible to ascertain what was the fair value of an output like the man-day. An understanding of how to divide overheads into fixed and variable, direct and indirect was essential to showing how our model was both fair and valid.

It enabled business managers to understand what drove the activity volume and related costs for the first time. This led to a different view of how to best run their business. It also allowed management to review relative performance between similar geographical areas by proper evidence based benchmarking.

A model that facilitated bidding for new work and re-assessing current contracts with NHS Trusts and GPS which enabled the organisation to better run the organisation as a commercial business.

user

Sarah Rollason

Sarah is a Project Manager and Researcher with 7 years professional experience. She has worked across multiple sectors, including education, training, health and regulation.

Sectors

Health

Success factors

Significant transformation

Keywords

Project lead

Stewart Johns

Project status

Complete

Start date

February 2016

End date

February 2016

Project value

Confidential