Providing appropriate information to the managers to take necessary steps for their decision making.
Cost Concept & Establishment of Division – A Brief History: -
Cost Allocation is an indispensable factor in nearly every organization and in every facet of accounting, particularly in a very large organization where diverse affairs are dealt with by independent departments. Scarcity of funds and management of available or allocated funds are the two major factors usually facing an organization. Unless there is a properly established Costing Division, management will not be made aware of the organization is running profitably or spending the available/allocated fund in an economically viable manner.
No organization can survive for long without proper management of its available running fund. BDF Royal Medical Services as a service organization and the management of its running fund is significant for its day to day activities. Therefore, a single Dinar spent without proper thought or extravagantly will affect long term success. To achieve effective cost control and make people aware of the proper utilization of resources, the management decided to establish a cost accounting division in the year 1996 supervised by University of Bahrain under the patronage of Under Secretary to Ministry of Defence and former Director of Medical Services Lt. Gen (Dr.) Mohammed Bin Abdulla Al Khalifa.
With immense support from the former Director of Medical Services Lt. Gen. (Dr) Ali Al Khalifa, the methodologies and concepts provided by the university personnel were put into practice. By day to day discussions and critical thinking, many of the methodologies were reviewed and changed according to the international standards. The calculations and Statistical formulae used in the costing report are according to the Ministry of Health – Kingdom of Bahrain Standards.
The Costing Division aims to provide useful financial and statistics information to the top-managers so that executive decision-making and management operations may be improved and the use of allocated funds will be optimized.
The purpose of the Costing Division is mainly to develop cost & budget awareness among the departments, thus motivating them to reduce the costs and avoid wastage as much as possible.
Departments are provided with the monthly status of their income and expenditure and the ways and means to reduce unnecessary costs. Departments are encouraged to increase productivity and reduce unnecessary costs to provide better treatment to patients. Departments are given incentives in recognition of their efforts to achieve this. Diagnostic and surgical procedures costs are reviewed to make them competitive based on benchmarking techniques.
- Develop Cost/Budget awareness among the departments.
- Reduced wastage.
- Providing the income/expenditure status for the departments and the way to reduce unnecessary cost.
- Motivating the department to reduce the cost and give better treatment to the patient.
- Providing competitive diagnostic/procedure costs – benchmarking awareness from the markets.
- Motivating the department to increase their productivity, by showing their capacity/facilities etc.,
In short, the objectives of the costing program are to allow better control of resources, to understand the consumption of a given department and therefore, it will be easy to forecast its budget based on its productivity, establish benchmark data for comparative study, and underline the share of each patient category (Entitled, Ministry of Interior, Royal Family or Private) from hospital resources and cost in order to justify more budget funding.
Why Costing is important in an organization?
- To create Cost Awareness
- To control costs and ensure funds are not misused.
- To price the product
- To take better decisions and actions
- Resource allocation or expansion on basis of cost.