Hyatt Hill Healthcare Centre

Case Evaluation

Management Control Systems

Presented By

(873/10) Ms. Maria Holm Bohsen

(201/46) Nipak Das
(270/46) Sanglap Banerjee
Table of Contents
1. Primary Objectives of HHHC....................................................................................................................................3
2. Q1. Does the control mechanism ensure meeting objectives for the centre?........................................................3
3. Q2. Is the system of measurements appropriate?..................................................................................................4
3.1. Major Flaws.....................................................................................................................................................4
3.1.1. Personnel Controls..................................................................................................................................4
3.1.2. No Action Accountability.........................................................................................................................5
4. Q3. Are the cost computations “accurate”?............................................................................................................6
5. Q4. Suggest an alternate and hopefully superior system.......................................................................................7
5.1. Action Control.................................................................................................................................................7
5.2. Results control.................................................................................................................................................8
5.3. Use of ‘Balanced Scorecard’ for performance evaluation...............................................................................8
5.3.1. The CCAF/FCVI framework’s twelve attributes of "effectiveness".........................................................10
 1. Primary Objectives of HHHC

We first try to enlist the primary objectives for the centre. These are:

1. To become financially self sufficient

2. Create awareness about the importance medical services among the community
3. Reduce suspicion & resistance to receiving services of social workers & psychiatrics
4. To provide adequate preventive as well as therapeutic care & do so by becoming an accepted force
in the community

2. Q1. Does the control mechanism ensure meeting objectives for the centre?

The HHHC has a semblance of a not for profit organization. The existing control system is narrowly
focussed.

 The institution's objectives are not well-defined. None of the objectives had measured economic
purposes.
 The goals have not been quantified.
 Presently the emphasis is on measuring the financial viability of the Centre i.e. meeting objective of
becoming financially self-sufficient.
 The current control systems measures ‘Costs (input control)’ & ‘Revenues (output control)’ but has
no measure to quantify in dollar terms the intangible services of the centre namely creating
awareness, imparting training & doing social service.
 Budget is not allocated to each department independently.
 No measures are in place to reward/punish i.e. there is no action accountability built into the
system.
 One cannot say with reasonable confidence that major unpleasant surprises will not occur
 3. Q2. Is the system of measurements appropriate?

The answer to the above question is No.

Too much opportunity cost is incurred by making the highly qualified doctors fill out forms thereby
reducing their effective contact hours with the patients.
The current Control system is based on the existing data. But we are not sure that the current process of
collecting the data is correct.

In the current system of measurement, the time spent by doctors in non patient care activities is billed as
overhead costs.

Direct overhead = (Total time the physician was available–Total time spent in patient care by the physician)

Direct overhead costs = (Direct overhead X Salary per minute of the Physician)

Here everything that the doctor does apart from treating walk in patients (revenue generating activities) is
included in the overhead costs incurred by the doctor. The control system has no mechanism to quantify
the future revenue generated due to social service done by the physician which increases awareness
among the community & hence decreases resistance & suspicion or imparting training.
The costs of the non-patient activities, the majority is borne by the Social work department. But these
activities are in turn helping to generate revenues for the entire hospital.
The control system should quantify the objectives that a doctor is required to achieve like max/min hours a
physician should spend in patient & non-patient activities & measures should be put in place to
reward/punish the deviators.

3.1. Major Flaws

3.1.1. Personnel Controls

A good control system should have measure in place to find the right people, give them a good work
environment & the necessary resources
One of the major flaws of the control system is that it fails to implement Personnel Controls & fails to take
into account or quantify the intangible benefits it derives by imparting training to the members of the
Flower Hospital of NYC department of Health Staff who were interested in community medicine.
By imparting training they

 Give employees a greater sense of professionalism;

 Create interest in the job by helping employees to understand their job better.

These trained physicians may themselves be recruited by the HHHC & would be motivated & qualified
employees having a high probability of success
 3.1.2. No Action Accountability
The control system is currently measuring the costs per encounter of the physicians & their efficiency in
performing the same kind of work. However there is no reward/punishment mechanism in place to hold
employees accountable for the actions they take, defining what actions are (un)acceptable, communicating
these definitions to employees, rewarding good actions, or punishing actions that deviate & observing or
otherwise tracking what happens like

 Direct observation/supervision
 Periodic tracking (e.g. “mystery shoppers”)
 Evidence of actions taken (e.g. activity reports)
 Internal audit, peer reviews

Patient feedback should be used to measure how effective is the social work
 4. Q3. Are the cost computations “accurate”?

No.
The allocation of the fixed overhead cost to each doctor is skewed. This results in a inflated standard cost
per visit for the social work departments & the physicians who indulge in more non-patient care activities
Currently it is calculated as

Zj - Tj
FOHj = X ($x)
Q

Where
FOHj Fixed overhead cost of the physician j
Zj Time in minutes that physician j was available
Tj Total time spent in patient care by physician j
Q Total time spent in non-patient care activities by physicians in the department
$x Fixed cost of the department

The fixed overhead costs include

Furniture & Equipment Service Reps
Supplies HCCC Outpatients
Rent General
Heat & Power Medical Records & Accounting
Evaluation Accounting

Here,
Total time spent in non-patient care activities by physician j in the department
FOHj = X ($x)
Total time spent in non-patient care activities by physicians in the department

Now the fixed costs of the hospital are allocated to only the physician’s non-patient care activities.
It is unfair to allocate fixed costs only to the non patient care activities because the physicians of the social
work department (who relatively spend the most time in non-patient care activities) are penalized &
accorded higher fixed costs. All physicians use the facilities of the hospital more or less equally so the
incidence of the fixed cost on the physicians of the social work department or the physicians imparting
training & creating awareness among the community members should not be disproportionate.

A more relevant cost driver like the ‘time in minutes physician j is available’ should be used to allocate
fixed costs among physicians as all physicians use the facilities depending on their hours of work.
 5. Q4. Suggest an alternate and hopefully superior system

5.1. Action Control

Prerequisite
 Clear understanding of requirement- Clarity in goal of organisation, quantify social goals and
profit making goals clearly
 Exhaustive internal analysis of the organization's structure
 Establish agreements with competitors in order to diversify activities
 Produce a detailed program of proceedings and outsource non-critical functions.
 Knowledge of observance & reward / punishment- Action accountability of all practitioners with
clarity in guidelines for time allotment in various activities

Tracking
 Direct observance - continuous / periodic reviews based on peer and community feedback
 In this case, the success of the management tools can be measured by the level of satisfaction
of the users. Users can confirm an improvement in the quality of the treatment received &
reduction in the waiting lists by filling out feedback forms.
 Examination of transactions – Conduct peer reviews as well as review based on feedback from
the community members of Bedford

Action Accountability
 Holding employees accountable for the actions they take.
 Design of feedback form to be filled in by regular and walk in patients measuring their
awareness and satisfaction for their physicians on various counts.
 At the end of the month/accounting period theses scores would be added and based on the
proportion of scores received i.e.

Score of a physician
Score of all physicians

A fixed cost driver could be generated to allocate part of the fixed overheads for the
practitioners. The higher the score the less proportion of fixed cost is allocated to the particular
physician.
The scores would be different for patient care, community work etc. which would help in proper
performance evaluation
 Communicating the review process to all members and the rewards system
 Observing or otherwise tracking what happens by
– utilizing evidence of actions taken (e.g. activity reports)
– Internal audit & peer reviews
 5.2. Results control

• Measuring performance
• Non financial – Quantify the benefits of non patient time spent by doctors by measuring referrals
from these activities which enhance the performance of the other departments
• This can be done by measuring the ratio of

Number of walk in Patients NWj

=
Number of regular patients NRj

The lesser the ratio the greater the success of the social activities

This is based on the rationale that walk in patients are mainly patients who want to avail the
emergency services & hence are not affected by community awareness and trust on HHHC. On
the other hand the increase in regular patients would be a direct result of increasing awareness and
trust of the community in HHHC

5.3. Use of ‘Balanced Scorecard’ for performance evaluation

Balanced Scorecard:
HHHC could use a Balanced Scorecard for performance evaluation & Management Control.
In the Balanced Scorecard approach, outcomes in the area of learning and growth are causally and
chronologically linked to outcomes in the area of internal business processes, which in turn are linked
directly to long-run expenses and indirectly through the area of customer satisfaction and growth to long-
run revenues.
Strategy is the translation; through budgeting and resource allocation; of a set of hypotheses about cause
and effect into objectives and outcomes in a set of integrated variables (the components of the scorecard)
all of which are focused on a single long-run objective. Balanced Scorecard will thus complement short-
term financial measures of past performance with measures of the drivers of future performance.

Even a seeming constraint, such as social services for alcoholic & drug abusers or creating awareness about
benefits of using medical services & thereby decreasing suspicion & resistance to these services, may be
interpreted as serving to promote long-term membership growth and therefore long-run profit and
ownership equity.

The long-run Financial Independence objective has then to be reformulated either as the pursuit of
constrained profit-maximisation or as unconstrained long-run profit-maximisation defined to include the
specifically calculated public subsidy (either on the cost or revenue side or both) required to pay for the
pursuit of the additional objectives.
 Monitoring & Reporting

Achievement of Intended
Mission : Relevance of Results
Organization

Customers Result
(Acceptance)
Long run Strategic Outcome:
Long Run Financial Self
Long run
Sufficiency With Service
Intermediate
Secondary Impacts Effectiveness
Strategic context Strategic
Run Scorecard
Cost & Productivity
Performance
Management's Direction &
Appropriateness
Long Run Service Working Enviornment
Effectiveness for given Long
Run Financial revenues
Strategic Long Run Design
Responsiveness

Protection of Assets
Long Run Revenue
Constraint Outcomes
Financial Results
( Expenditures, Revenues etc.)

Long Run Financial revenue

Estimates (Constraints) Financial Revenue Constrain
Results

CCAF/FCVI Effectiveness Framework (A Balanced Scorecard)

 5.3.1. The CCAF/FCVI framework’s twelve attributes of "effectiveness"

1. Management Direction - The extent to which programmatic objectives are clearly stated and
understood;

2. Relevance - The extent to which the programme continues to make sense with respect to the problems
or conditions to which it was intended to respond;

3. Appropriateness - The extent to which the design of the programme and the level of effort are logical in
relation to programmatic objectives;

4. Achievement of Intended Results - The extent to which the goals and objectives of the programme have
been achieved;

5. Acceptance - The extent to which the stakeholders for whom the programme is designed judge it to be
satisfactory;

6. Secondary Impacts - The extent to which significant consequences, either intended or unintended and
either positive or negative, have occurred;

7. Costs and Productivity - The relationship between costs, inputs, and outputs;

8. Responsiveness - The capacity of the programme organisation to adapt to changes in the face of such
factors as markets, competition, available funding, and technology;

9. Financial Results - Accounting for revenues and expenditures, and for assets and liabilities;

10. Working Environment - The extent to which the programme organisation provides an appropriate work
environment for its staff, and staff has the information, capacities, and disposition to serve organisational
objectives;

11. Protection of Assets - The extent to which the various assets entrusted to the programme organisation
(physical, technological, financial, and human) are safeguarded; and

12. Monitoring and Reporting - The extent to which key matters pertaining to performance and
programme organisational strength are identified, reported, and monitored.
CCAF/FCVI attributes in a Balanced Scorecard framework would serve as

 A basis for reporting

 A basis for planning and budgeting,

In short, CCAF/FCVI attributes in a Balanced Scorecard framework would serve as a basis of both
governance and management control across the cycle of organisational activities.

Three of the attributes that are incorporated in what is defined as the Strategic Context are
 Management Direction,
 Relevance &
 Appropriateness
.
Relevance is defined as the basis of the organisational mission statement,
Management Direction is defined in such a way that it requires the translation of the mission into a single
strategic ‘financial self-sufficiency with service effectiveness’ objective which is to be maximised subject to
the long run revenue constraint.
Appropriateness is also included under Management Direction, and requires the strategic specification of
programme designs, i.e. the means to pursue the strategic end defined in the long-run objective.

The Intermediate-run scorecard incorporates the remaining eight CCAF/FCVI attributes.

Intermediate-run evidence on the Achievement of Intended Results is defined to include evidence of

intermediate-run achievement of the long-run service-effectiveness objective.

The other components, Acceptance, Secondary Impacts, Costs & Productivity, Working Environment,
Responsiveness, Protection of Assets, and Financial Results, are all defined as instrumental components of
performance, which, in an integrated, chronologically and causally linked model of organisational
performance, serve to achieve the long-run ‘ financial self-sufficiency with service effectiveness’ for the
given budget constraint. There would be objectives and strategies for each of these components, but their
outcomes would not be ends in themselves, but means to the single long-term strategic end.

The long-run financial independence objective in the case of HHHC has been constrained by ‘Social Service’
requirements which may be seen as additional objectives, but it remains the primary-organisational
objective. The profit foregone as a result of these constraints can generally be fairly accurately calculated,
and thus can be specifically identified as a reduced profit and thus a subsidy from the corporation to the
public.