Cost Information as an Aid in Decision-Making : with Particular Reference to Hospitals.

The absence or the ineffectiveness of input-output information for the activities of the public sector is always recognized as a serious problem. This is because it represents a solid obstacle facing the application of effective control and preventing access to a significant aid for policy decisions and the choice between alternatives. The reason for this problem is the absence of a costing system or the ineffectiveness of the reported information. Since the first years of the National Health Service (NHS) and till very recently, different costing systems were introduced respectively for the hospital. Unfortunately, none of them has succeeded in providing the information which enables meeting the requirements of effective control and planning. It is a fact that the decision involving resource allocation is a political decision, and the choice of the decision-maker is between benefits. But in order to assist the decision-maker in general, and in relation to the health sector, for instance, it is essential to have costing information on the activities producing the intermediate outputs which comprise the final output. The hospital has a particular significance, because the hospital is the consumer of the lion's share of the NHS budget and it comprises different activities in achieving many of the health programmes. In spite of the importance of the information on the performance level of these activities for the internal manager, the programme manager and for preparing the planner's requests, that should not be oversold or provided at the expense of other essential types of information, such as that required for vote accounting. Therefore, in designing an accounting system for the hospital, the system, should provide the information which is regularly demanded.

Chapter 1 deals generally with, the factors affecting the decision of resource allocation, pinpointing the problem of public expenditure, and gives brief of the possible contribution of hospital costing system by shedding light on the big decision problems outlined. A social and political background of health services is the concern of Chapter 2. An example of decision analysis in the public sector is introduced in Chapter 3 by presenting an analysis of the issue of reorganising the NHS, The question of performance budgeting in the non-trading activities, explanation of the past misunderstanding of its real role and the obstacle in the way of its implementation are the concern of Chapter 4. In fact, the importance of performance budgeting has been increased (and therefore the importance of adequate costing system) by the introduction of Planning Programming Budgeting System (PPBS).

The importance of adequate costing system, for establishing performance budgeting, which is a prerequisite for the implementation of PPBS for facilitating the analyst's role and for achieving the accountant's objectives, is presented in Chapter 5. The same chapter is concerned with the components of PPBS and focuses attention on some problems in cost-benefit studies. Chapter 6 deals with an application of the principles of PPBS to a health problem, and shows the effect of a lack of costing information, particularly for hospital activities, which stands as a real obstacle in making cost-benefit analysis. Chapter 7 deals first with the analyses of the shortcomings and advantages associated with different costing systems introduced for the hospital; secondly, with the analyses of the costing methodologies used in three researches in the area of disease costing; thirdly, with answers to the following two questions: What should hospital costing systems report for achieving effective control? and What decisions is the information from a hospital costing system supposed to assist?