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 Section 3 : Health Policy & Health Care Systems
3a) Management Process in Health Care
59 Medical Informatics and Public Health LS Vaz 309
60 General Concepts in Management Sciences Anuj Bhatnagar 314
61 Personnel Management & Human Resource Development Anuj Bhatnagar 322
62 Financial Management Anuj Bhatnagar 326
63 Logistics Management Anuj Bhatnagar 333
64 Modern Management Techniques Anuj Bhatnagar 338
3b) Health Systems and Policies
65 Planning and Evaluation of Health Services / Programmes RajVir Bhalwar 343
66 An Introduction to Health Systems Kunal Chatterjee 347
67 Assessing “Health Status” and “Health Needs” Amitava Datta 353
68 Assessing the “Health Impact” Amitava Datta 358
69 Community Diagnosis Amitava Datta 361
70 Ethics in Public Health, ; Health and Human Rights Amitava Datta 364
General Principles for Developing Management
71 Amitava Datta 369
Information Systems in Public Health Practice
72 Making Public Health Policies Amitava Datta 372
73 Strategic Planning in Health Care Amitava Datta 375
74 Bringing about Equality in Health Care Amitava Datta 379
75 Health Care Quality Amitava Datta 382
76 Social Marketing Anuj Bhatnagar 386
77 Public Health Aspects of Disaster Management Ashok K. Jindal, Puja Dudeja 389
78 Principles & Practice of Hospital Management Anuj Bhatnagar 399
79 Advanced Diagnostic Technologies in Public Health Rohit Tewari 411
80 Accreditation of Health Care Facilities Udai Bhaskar Misra 420
Sunil Nandraj, N Devadasan,
81 Health Care Financing 427
Alaka Singh
82 Trade and Public Health Sunil Nandraj 434
3c) Public Health Administration & Community Health Care in India
83 International Health Rajesh Kunwar 441
84 Organization of Health Care in India Leo S. Vaz 457
85 Reports of Health Committees Sunil Agrawal 467
86 Health Planning Process in India Sunil Agrawal 471
87 Public Health & Community Medicine Related Policies in India Sunil Agrawal 478
88 National Rural Health Mission (NRHM) Sunil Agrawal 490
89 Reproductive and Child Health (RCH) Programme Puja Dudeja, Ashok K. Jindal 496
90 Revised National Tuberculosis Control Programme (RNTCP) Puja Dudeja, Ashok K. Jindal 504
91 National Vector Borne Disease Control Programme (NVBDCP) Puja Dudeja, Ashok K. Jindal 513
92 National Leprosy Eradication Programme Puja Dudeja, Ashok K. Jindal 524
Pilot Project On Prevention and Control Of Human
93 Puja Dudeja, Ashok K. Jindal 528
Rabies Under 11th Five Year Plan
94 Guinea Worm Eradication Programme Puja Dudeja, Ashok K. Jindal 529
95 Leptospirosis Control Programme Puja Dudeja, Ashok K. Jindal 529
96 National Aids Control Programme Puja Dudeja, Ashok K. Jindal 530
97 Polio Immunization Programme Puja Dudeja, Ashok K. Jindal 536
98 Integrated Disease Surveillance Project (IDSP) Puja Dudeja, Ashok K. Jindal 538
99 National Mental Health Programme (NMHP) Puja Dudeja, Ashok K. Jindal 541
100 National Cancer Control Programme Puja Dudeja, Ashok K. Jindal 542
National Programme for Prevention & Control of
101 Puja Dudeja, Ashok K. Jindal 544
Diabetes, Cardiovascular Diseases & Stroke
102 National Iodine Deficiency Diseases Control Programme Puja Dudeja, Ashok K. Jindal 545
103 National Programme for Prevention & Control of Deafness Puja Dudeja, Ashok K. Jindal 547
104 National Programme for Control of Blindness Puja Dudeja, Ashok K. Jindal 548
105 Other Important National Health Programmes Puja Dudeja, Ashok K. Jindal 550
106 Health Legislations in India Sunil Agrawal 555
107 Rehabilitation : Policies & Procedures in India Sunil Agrawal 565
108 Human Manpower Resources in India (Including AYUSH) Anagha Khot 574
109 Medicines in India : Access & Availability Dr. Amit Sengupta 591
110 Medical Education in India
111 Health Care of Disadvantaged Groups Kunal Chatterjee 601
112 AYUSH RajVir Bhalwar 604
 2. Well-defined responsibility leads to accountability and
General Concepts in Management
60 Sciences
thus enhances performance of individuals. However
responsibility can only be effective when it is combined
with delegation of authority.
Anuj Bhatnagar 3. Discipline in any organisation is essential and a hallmark
of compliance and mutual cooperation between various
The key issue which forms the basis of any organisation or functionaries. Discipline within any organisation directly
group of people is a common objective or a goal, which may be depends on good supervision, fair codes of conduct and
winning the match, prevent thefts in the neighborhood, deliver judiciously implemented rewards & punishments.
good quality health care to community or earn maximum 4. An employee should ideally receive his/her orders only
profits. It is thus natural that without a common goal or from one superior since multiple commanding authorities
objective, there would be no need for people to form groups would lead to confusion and chaos. This principle is
or organisations. Since achievement of a common goal forms well entrenched in the armed forces, where the unity of
the basis for forming groups, each organisation must then command is practiced.
also have some plans to achieve the common goals and every 5. Organisational goals should receive preference and are
organisation must also procure and dedicate certain resources more important then individual goals.
(in the form of money, material and men) for achieving the 6. Remuneration in form of pay and allowances should be
common goals. pre-determined for all personnel, to avoid uncertainty.
7. Centralization of important policy decisions and key
Definition of Management matters is essential in any organisation to provide a well
The shortest definition of ‘Management’ is “Management is defined direction to efforts of individuals.
getting things done through and with people”. However, two of 8. Employees should function in well defined functional
the most widely quoted definitions are : chain of senior-subordinate relationships, called scalar
“Management is the art of getting things done through and with chains, ideally depicted by a line organisation (explained
people in formally organized groups. It is the art of creating subsequently).
the environment in which people can perform and individuals 9. Unity of direction, which means that directions for the
can cooperate towards attainment of organisational goals. It is entire organisation should flow downwards from the head
the art of removing blocks to such performance and a way of of the organisation to all other functionaries.
optimizing efficiency in reaching goals.” (Harold Koontz) 10. An order in an organisation ensures stability & efficiency.
11. Equity in an organisation removes conflicts and ensures
“Management is a distinct process consisting of planning,
compliance & cooperation.
organizing, actuating and controlling, performed to determine
12. Stability of working period (tenure) ensures certainty in
and accomplish stated objectives, by the use of human beings
minds of workers and enhances performance by inculcating
and other resources.” (George R Terry). Box - 1 represents this
a sense of belonging & responsibility among individuals.
often quoted definition of management :
13. Initiative among employees gives them a chance to
utilize their skills and hence results in better employee
Box - 1
satisfaction, besides enhancing performance.
Basic Resources Fundamental Functions Objectives 14. Team spirit (spirit-de-corps) is essential for any
(inputs) (managerial transformation (outputs) organisational work.
process)
Why must you study management as a medical doctor?:
Men Staffing & Products
It is sometimes said that doctors are poor managers. The
Planning unwillingness to study management sciences has led to a large
Material Directing Services
Machines Profits number of brilliant doctors being failures when it comes to
Methods Satisfaction leading. Like any other team, any medical team also consists
Money Goal achievement
Markets Organising Controlling of various individuals who perform their respective tasks in
Others
order to meet the common goal - of providing best health
care with optimum utilization of scarce medical resources. All
Basic Principles of Management aspects of management are equally, in fact more, applicable
Henry Fayol (1881-1925), generally considered as the founder to a health team, be it at a PHC or a highly specialized team
of classical management theory, laid down certain basic of a multi-speciality tertiary care centre in a metropolis. As a
principles of management. Prior to Fayol, it was believed that medical doctor, you are expected to lead a highly professional
good managers were born, not made. Fayol proposed that team of trained health care workers. All your activities, be it a
management, like any other skill, could be taught and mastered vaccination drive in a village or a highly complicated surgery
once its basic underlying principles, as under, were understood. has to be planned well in advance. You will have to carefully
These principles are : select your team members & motivate them to perform. In
short, any health team with you as its leader is just like any
1. Division of work according to the ability, capacity and
other organisation with its unique organisational objectives,
aptitude of the workers is essential in any organisation
which have to be attained through sustained efforts of all the
for optimal utilization of scarce human resource and to
members.
maximize productivity in any form.

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In addition, we must also remember that all medical personnel
Fig. - 2
are highly trained and intellectual, posing a challenge to any
leader of such capability. Medical logistics and resources, like Planning Organising Staffing & directing
in any other field are always in short supply and hence have to
be optimally deployed and utilized to ensure maximum benefit.
For example, a MRI scan machine worth a few crores must Feedback Controlling Decision making
give adequate returns in the form of adequate patient load.
Investing heavily in such equipment at a location where only Planning
one or two MRI scans are done in a month would be waste Planning is the fundamental and initial process in any activity
of vital resources which could be better utilized elsewhere. and success of any project or activity depends on how well it
Thus, medical profession today is no more isolated and has has been planned. If any team effort has to be successful, all
to extensively draw upon all managerial sciences of human team members must know in advance what they are expected
resource development, financial and material management to accomplish (objectives). Thus setting the objectives is a
for smooth functioning of the health team. Hospitals today major function of planning. Planning consists of deciding in
are complex organisations and hospital management, as a advance what to do, how to do, when to do and who is to do it,
sub-specialty of management, has gained grounds rapidly. It and thus it bridges the gap between where we are presently and
is now being increasingly felt that basic management skills where we have to reach. Planning consists of taking conscious
are essential for every medical doctor for him/her to function and well thought out decisions about which course of action
effectively as a team leader. to take out of the many available and most suitable method to
Management Vs Administration achieve these objectives. Planning ensures that pre-determined
Some ambiguity exists regarding ‘management’ and objectives and goals are identified so that all resources can be
‘administration’, with some writers thinking them to be allocated and dedicated in achieving these goals in the most
distinct activities whereas others feel they are different optimal manner. In short, it can be said that the process of
aspects of management itself. Having defined management, planning answers the following questions for the manager :
administration can be defined as ‘those functions in an a) What will be done – identifying short and long term
organisation, which are concerned with policy formulation, objectives and goals.
finance, production, distribution and ultimately control all key b) What resources will be used – identifying the available &
activities for meeting the organisational objectives’ (Sheldon). potential resources required for achieving the objectives
It can thus be assumed that policy-making, planning and and filling the gaps in resources, if any.
decision making are the basic components of administration c) How will it be done - determining the specific activities
whereas supervision, implementation and operational aspects required for attaining the goals and formulating strategies,
are considered components of management. Thus the top policies, procedures, methods, standards & budgets.
management such as Director or Dean of a teaching hospital is d) Who will do what – delegating responsibilities to various
more concerned with policy and decision making and lesser of individuals for attaining the organisational goals.
day-to-day supervision & control, whereas lower management e) When will it be done – assigning the time frame and
levels (Heads of Departments and Registrar) are concerned sequence for completing each activity.
more with effective supervision & control of daily activities The Planning Process in Health Sector
being carried out. Fig - 1 depicts the difference between
Administration (administrative management) and Management As a leader of medical professionals, a doctor is often faced
(operative management). with a situation where he has to plan various health activities.
The basics of planning process in the health sector can be
remembered by answering the following key questions :
Fig - 1
(i) Where are we at present (situational analysis)
Administration
(ii) Where do we finally want to reach (objectives & goals)
Top level (iii) How do we get there (resources & constraints)
(iv) How effectively we have performed the required activities
Middle level (evaluation, monitoring & feedback)
(v) What new problems do we face and how do we overcome
Lower level them (re-planning)
Management Steps Involved in Planning a Health Program
This aspect has been deliberated in detail in an exclusive
The Management Processes chapter in the section on epidemiology. You are advised to go
A medical officer, in many ways is like any other leader and through the same.
manager and has to daily meet some objectives, which may General Terms used in Relation to Plans : As a leader of the
range from implementing a health program in a district to health team, it is important for a medical officer to know about
undertaking a complicated surgery with his surgical team. the various types of plans and the distinction between them.
To successfully attain the objectives with optimum resources, As discussed earlier, all organizational plans are formulated
requires a series of managerial processes, which are as shown with the instinct to achieve the pre-determined objectives in the
in Fig. 2 :

• 315 •
most efficient manner. Various types of plans can be classified organizational objectives.
as under : (iii) Goals often represent a target to be achieved or a hurdle to
(a) Mission : The mission of an organization is described as the be overcome.
very reason why that organization exists. It is always described (iv) Achievement of goals has to be within a specific time
in terms of the benefit (direct or indirect) provided to users by frame.
the organization and not in terms of the product or services Thus we have seen that goals are action-oriented, provide a
rendered. It is of utmost importance for any organization to means for converting plans into smaller achievable tasks and
clearly define its mission, since that will determine all efforts are time bound. Goals also play a major role in motivating
of that organization. The organization must ask the question people towards working in a coordinated fashion towards the
“what is our business” and answer it from the users’ viewpoint. larger organizational objectives.
The mission of an organization is described in its ‘mission (d) Strategies : Strategy is any decision, plan or action which
statement’. For example the ‘mission statement’ of Department takes into consideration the actions of competitors and other
of Community Medicine of a medical college would be “To provide factors in external environment, with the aim of achieving
comprehensive training in community medicine to medical the objectives. For example, when as a doctor, you would
graduates and post graduates, with the aim to make them better plan your IEC campaign for promoting condom usage among
public health specialists.” The mission of an organization is community, keeping in mind the reaction and resistance of a
dynamic and must adapt to the environmental changes and particular section of community, it would be called a strategy.
requirements. The organization has to decide how it would like The strategist would thus consider the reaction of external
to define what its business would be. Formulating the mission is environment and plans of his ‘rivals’ (anyone who could delay
of utmost importance and never easy; it must balance between or derail the achievement of his goals & objectives), while
the present & the future. A narrow definition of ‘mission’ will planning his course of action. As a health strategist, one would
limit the activities of the organization to the immediate present select strategies (plans) that would help in achieving the
& prevent its growth and utilization of newer opportunities & objectives and which would create an advantageous position
technologies, whereas too broad a definition of mission will for the entire health team in dealing with the external (socio-
not enable the organization to concentrate on any workable economic & socio demographic) environment in which the
activity and opportunities at present. For example, a doctor health team has to operate.
at PHC would most likely describe his mission as “providing (e) Policies : It is important to understand the difference
timely and expert primary care to villagers in his jurisdiction” between strategies and policies, since both are often confused
whereas a cardiothoracic surgeon at a large multispeciality and used interchangeably. Whereas strategies focus of the best
metropolitan hospital would describe his mission as “providing course of action (among alternatives) after considering external
highly specialized cardio-thoracic surgery to all those who are environment and possible actions of competitors / rivals, policies
brought to the cardiothoracic department of the hospital”. on the other hand, provide guidelines for decisions and actions.
(b) Objectives : Having first formulated the ‘Mission’ of For example, it is the policy of a state government to immunize
the organization, which answers the question ‘what is our all children against Hepatitis B, which is thus the guideline
business’, the next step would be to translate this relatively for the health directorate of that state to procure vaccines and
abstract mission into smaller, tangible, measurable & implement Hepatitis B vaccination at all its health centers &
achievable ‘objectives’ for managers at lower levels. Thus hospitals. Policies do not tell a manager what he should or
objectives are the ‘action orientation of the mission’ and form should not do in a given situation. Policies tell a manager what
the basis for taking action in appropriate direction and for he can do by setting a limit within which a manager must
measuring the performance. For example, let us assume that operate. Well formulated policies in any organization help in
the mission statement of a measles immunization program achieving the pre-determined objectives by channelising all
is ‘to immunize children below 2 yrs with measles vaccine managerial decisions in the right direction, providing tangible
to protect them against measles’. The objective in this case and measurable criteria for evaluation of decisions taken and
would be ‘immunization of 90% of all children in any given by ensuring uniformity in decisions throughout the entire
village’, which would form the basis of action to be taken by organization.
the health workers and would also act as a measurement of (f) Rules : As compared to policies (which are guide to
performance. However, it must be remembered that objectives decisions), rules are guides to action and prescribe a type of
remain statements of expected outcomes and not the actual behavior / actions which are permissible. Rules define what
performance or outcome. should or should not be done. For example, the attendance rule
(c) Goals : Goals can be described as intermediate time-bound of PHC staff states that if any health worker is late for three
and specific targets which are necessary for achievement of days in a month, he shall loose one day’s casual leave. Rules
objectives in the organization. Being derived from objectives, are effective only when they carry a penalty / punishment for
goals are very specific (quantitatively or qualitatively). ‘Goals’ non-compliance and thus regulate employee behavior, though
would broadly have four characteristics as under: at the same time restricting their initiative and innovativeness.
(i) Goals are derived from the objective which they seek to Policies by and large, define a broad sphere within which a
fulfill. leader has to act using his discretion. Rules on the other
(ii) Goals form the benchmark and standards for measuring hand, leave no scope for any discretion by clearly defining the
performances & progress towards achieving the larger acceptable behaviour/actions.

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 which aim at achieving certain health related objectives within
General principles to be followed for formulating
a stipulated time-frame through a series of actions.
organizational policies
1. Policies should always assist in achieving the
Organising
organizational objectives. As a function of management, organizing deals with identifying
and grouping various activities, delegating authority and
2. Policies should be well defined and should be in
command to managers and coordination of various activities
writing.
and hierarchies in the organization. The process of organizing
3. Policies at each level should be derived from and should can be described as a series of steps as under :
support the policies of the next higher level. (i) Detailed description of various activities to be performed
4. Policies of a department in the organization should be for achieving organizational goals : For achieving the pre-
well coordinated with policies of other departments, determined organizational goals, we must know in detail what
and should not pose a hindrance / obstacle to policies of activities are to be performed. For example, before a hospital
other departments. team can actually start treating the sick (organizational goal),
5. Policies should be just, unbiased and equitable towards they must know what equipment to buy, how many doctors,
all sections of employees. nurses and paramedical workers to hire, where to locate the
hospital, how to construct and how many departments to
6. To incorporate the changing needs and changing create in the hospital.
organizational environment, policies should be
periodically reviewed and revised. (ii) Grouping of various activities in some meaningful
manner : An organization invariably functions better when
(g) Procedures : We have seen that policies are guides to activities of a similar nature are grouped together, based on
decisions and rules are guides to action. Procedures are their essential similarity & difference from other activities. This
chronological steps involved in performing any action or taking would be best exemplified in creation of various departments
any decision. For example, the procedure of administering an in a large hospital. For example, all patients requiring surgical
intra muscular injection to a patient can be broken down into intervention (which may be for hernia, burst abdomen, gun
distinct sequence of actions as under : shot wound or a simple abscess requiring incision & drainage)
are referred to & attended in the surgery department (which
(i) Disinfection of site with spirit.
itself may be further divided into cardio-thoracic surgery,
(ii) Assemble the syringe & needle.
gastrointestinal surgery, neurosurgery or vascular surgery
(iii) Break the injection vial.
depending on the detailed type of surgeries performed).
(iv) Fill the syringe with injectable drug (say Inj Voveran).
(v) Insert the needle into the muscle (deltoid or gluteal (iii) Delegation (comprising of authority, responsibility
region) and accountability) : Consists of assigning each group
(vi) Partly withdraw the plunger to ensure that needle is not in of activities (departments) to a manager with authority to
a blood vessel. supervise its functioning (head of the department). Delegation,
(vii) Depress the plunger to inject the drug. thus, is the most important part of organizing since any
(viii) Withdraw the needle out of the skin without shaking/ manager due to limited individual capabilities, can not carry
bending . out all organizational activities alone and has to delegate
(ix) Swab the injection site with cotton. work to his subordinates. Successful delegation of work is
Thus, procedures are sequence of activities that have to be accompanied by delegation of authority to take decisions &
performed in order to achieve a certain objective (e.g. giving actions of accountability.
an intramuscular injection). All medical officers are well (iv) Coordination (horizontal and vertical) : Makes the
conversant with many surgical or nursing procedures which organizing process complete. In any organization, every
have to be performed sequentially to complete a task, such as individual or group of individuals very often start concentrating
‘Hand washing procedure’ in operation theatre, procedure for on performing only their specific assigned task, often relegating
starting an intravenous lifeline in intensive care unit etc. the overall organizational goals to the background and
(h) Programs : As a doctor, one is often required to manage and generating conflicts. For example, in a large multispeciality
implement various health programs in our respective areas, hospital, the medicine department may be unwilling to part
which makes it important for every doctor to understand the with their assigned vacant bed in ICU in anticipation of a case
concept of a program as a plan at the national level. A program even when the surgery department needs it urgently for a
is a set of those activities which have a specific time schedule patient of burst abdomen. The medical stores may be refusing
and a distinct mission. Thus programs are a series of actions to issue costly medicines prescribed by a junior doctor with
performed for achieving the organizational objectives ‘within the aim to curb wasteful expenditure, not realizing that the
the scheduled time’. In our example, when a medical officer of a medicine is urgently required by the patient. Such occurrences
PHC undertakes specific actions with the objective of attaining are quite common in medical practice and this is where the
the 90% vaccination mark for measles among children below role of the medical superintendent as a manager is of utmost
2 years by the end of the year 2010, it is a health program. importance. Coordination between departments and between
All medical students are also well aware of several National various hierarchies in organization is thus an essential
Health Programs (described in detail elsewhere in this book), requirement to channelise energies towards achieving the

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overall organizational goals and look beyond individual or responsible is ideal for research and development such as in
departmental goals. groups developing new drugs, vaccines or conceptualizing
Principles of organizing : Some important principles of newer & better methods of health care delivery in remote
organizing are enumerated below : villages.
(i) Unity of direction : One leader & one plan for a group of Factors determining an effective span of control : Though there
activities having the same objectives. is no laid down limit of the optimum number of subordinates
a manager can supervise effectively, the most important factor
(ii) Unity of command : A subordinate reports only one boss
is the managers ability to reduce the time he spends with each
to avoid conflict of orders.
subordinate in order to gain the maximum output from him.
(iii) Authority : Every individual in an organization has some Seven important factors which determine the frequency and
responsibility commensurate with his authority. duration of superior-subordinate interaction (time spent by a
(iv) Span of control : Number of subordinates supervised by a superior with each subordinate, hence the span of control of
leader should not be too many for better control. each manager) are as under :
(v) Flexibility : Organisational staffing pattern & structure (a) Training levels of subordinates : Well trained subordinates
should be able to accommodate changes in internal & external require less frequency and duration of contact with superiors &
environments. result in wider span of control for the superiors.
(vi) Management by exception : All routine decisions should (b) Clear delegation of authority : If a subordinate’s task is
be taken by subordinates & only policy decisions and unusual not clearly defined or if he is not given enough authority, he
matters should be referred to the leader. would be spending disproportionate time seeking clarifications,
(vii) Scalar principle : Clear lines of authority in hierarchical thereby reducing his span of control.
structure ensures more effective performance. (c) Clarity of plans : A superior would need to spend
Formal and Informal Organisations : The organizing process considerable time supervising & guiding the decisions of
results in a deliberately designed and thought out organizational subordinates wherever subordinates have to do much of their
structure where it is specified who will do what, with whom own planning. This usually occurs whenever organizational
and under whose supervision. Such an organization is said plans are not clearly laid down.
to have a formal organization where hierarchies and levels of (d) Objectivity in standards : Use of tangible and measurable
authority are formally laid down and observed. For example, a standards against which actual performance of subordinates is
large corporate hospital, with its clearly and formally defined to be measured enables the manager to avoid time-consuming
departments and its rigid hierarchy with the CEO at the top is procedures to ascertain if his subordinates are actually
a formal organization. On the other hand, a volunteer group following the plans.
of specialists who undertake charity work every weekend at (e) Rate of organizational change : Narrow span of control
a nearby charitable hospital for the poor would have emerged becomes necessary wherever the rate of change in the
spontaneously due to their common likes and dislikes. Such an organization is fast; which determines the stability of policies.
organization, which was not ‘planned’ to come into existence Organizations with slow rate of changes (or relatively stable
and which has no formal departments or hierarchies, is an organizations in stable environment) would do better to have a
informal organization. As a doctor, one is faced everyday with broader span of control.
informal groups, like the village elders, a village self help
(f) Communication techniques : If instructions have to be
group, a youth club etc and we must remember that informal
personally delivered by a superior to his subordinates and
organizations, with expressed shared values and sentiments of
repeated clarifications have to be sought, naturally there will
a large majority, can be very effectively utilized for achieving
be an added burden on the managers time, reducing his span
the organizational goals. The effort to include religious leaders
of control.
& volunteer groups such as Rotary Club in the Pulse Polio
Immunization in India is an example where such informal (g) Amount of personal contact required : Under many
groups are often more successful in achieving organizational circumstances, face to face meetings or conferences with
goals than the highly formal organization of the government. subordinates are essential, which draw upon the time of a
manager resulting in narrower span of control.
Staffing
The concept of line and staff relationships : Traditionally,
The concept of ‘span of control’ : Depending on the type of it has been held that line functions & personnel are those that
organization and objectives to be achieved, every manager are directly responsible for achieving an organization’s primary
must decide how many subordinates he/she can effectively objectives, while staff functions and personnel are those that
supervise. Consequently, a wider span of control (generally assist line managers to function more effectively. Conceptually,
found in highly technical organization with highly motivated it is important to note that in line relationship, there is a direct
subordinates) will result in lesser ‘levels of management’ than relationship of command between superior and subordinate,
a narrow span of control (where one subordinate is controlled whereas staff functions are advisory nature to line managers
only by one superior). A ‘flat organisation’ (with lesser levels whom they support. It is essential for any medical manager to
of management) has faster flow of information and greater know in what capacity (for example, an orthopedic consultant to
satisfaction levels for individual subordinates. Such type of a tertiary care hospital) their job is to advise and not command,
organization, where subordinates are highly motivated and

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but when in line capacity (such as a medical superintendent of Box - 3 : Line and staff organization
a large government hospital), they must make decisions and
issue instructions for others to follow. Advantages
Line organization : A line organization consists of line ●● Managers at various levels get the benefit of specialized
personnel, where each position has direct authority over technical advise of specialists.
all lower positions. No subordinate is under more than one ●● Staff specialists (like financial experts) are able to
superior, and the scalar principle and principle of unity of concentrate fully on their technical jobs and perform
command are strictly adhered to. The flow of authority in line them more effectively.
organisation is depicted in Box - 2. ●● Staff specialists assist line managers in taking better
decisions, by providing them the right information at
Box - 2 the right time.
●● Since experts can be appointed to advise line managers
Advantages on technical issues, the structure is more flexible than
 Simple, economical & effective
A
the line pattern.
 Permits rapid decisions & effective
coordination Disadvantages
 Follows unity of command B ●● Conflict between line and staff personnel is very common
 Directly fixes responsibility for
in such kind of organizational structure.
performance of subordinates.
●● Performance of staff personnel may not be optimum
Disadvantages
since, they in their capacity as technical advisors, are
 Cannot be adopted for large organizations. C
not directly accountable for achieving the objectives.
 Lack of specialization, each level has to
perform all functions & does not have ●● Inadequate job satisfaction among staff personnel due
access to specialized advice from experts. to slower promotional avenues.
 Too much responsibility on single manager. D
Functional organization : In the large and complex
organizations of the present day, the traditional principle of one
Line and staff organization : When in addition to the line boss and one subordinate (unity of command) is not possible.
authority of managers, there are specialists and experts to In such organizations, different superiors performing different
advise various levels on specialized issues, it is called the line functions (finance, human resource, inventory control etc)
and staff organization . In the figure below, A, C and D managers exercise control over a subordinate in respect of their respective
are in direct line relationship as discussed earlier; but B is in functions. Thus a functional organization is one wherein a
staff relationship and advises A and C on important issues. B worker is accountable to two or more different executives
may have lower status than A and higher status than C in the for a given specific and specialized function. For example a
organization, but is not in direct line of command. Generally radiographer in a large corporate hospital may be providing
in any organization, those personnel who develop new ideas, specialized services (radiotherapy) in three different wards and
undertake research and advise on technical matters and fall thus would be accountable or advising their respective Medical
outside the direct chain of command are staff personnel. It is Officers in-charge in addition to being accountable to the Head
important to remember however that even in a staff department of Department of Radiology Services. The advantages and
(for example, finance department of a large corporate hospital), disadvantages are as in Box - 4.
the departmental head would still have line control over all
subordinate financial experts. The flow of authority in line and Box - 4 : Functional Organization
staff organization is depicted in Fig. - 3.
Advantages
Fig. - 3 ●● Benefits of specialization at work are available to all
levels of managers.
●● Supervision is easier since each specialized manager is
A C D an expert in his / her own field.
Disadvantages
●● From the view point of control, the system appears
confusing since exact nature of functional authority is
B often not well defined.
●● The lines of authority and responsibility, as seen in line
organization are totally merged.
The advantages and disadvantages of Line and Staff ●● Since same worker has to work under different superiors,
Organization are as in Box - 3. control is not easy.
●● It is difficult for the management to fix responsibility for
non performance.

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The Matrix Organisation : A combination of the product and called a ‘task-management leader’.
functional structures, the matrix structures are the choice for ●● The (1, 9) leader, called the ‘Country Club’ management
large and complicated projects where the skills of a functional leader, is only concerned with people, to establish good
man (manager) and specialized (technical) knowledge (e.g. relationship with and among his subordinates such leaders
finance consultant) are both required. Under the matrix has least concern for tasks.
structure, an employee is accountable & takes orders from two ●● The (1, 1) leader (impoverished leader) is neither concerned
different superiors at the same time. For example, a ward nurse with welfare of his subordinates nor with the task. Such
is accountable to the Head Nurse of the Hospital as well as to a leader does not take any decision and stays out of the
the ward MO in which she is working. An example of the matrix way.
organization in a large hospital is as represented in Box - 5. ●● The (9, 9) leader (Team Management leader) has maximum
concern both for people and for task. Though an ideal
Box - 5 situation, such a leader wants to achieve the goals through
committed people.
Ward MO ICU i/c Anesthesio-
●● The (5, 5) leader (middle-of-the-road leader) attempts to
logist
compromise between high production and satisfaction of
Head Nurse Ward Nurse ICU Nurse OT Nurse the subordinates.
Chief Sanitary Ward sweeper ICU OT Sweeper
Supervisor Sweeper Box - 6 : Managerial Grid
Chief Ward ICU Nurse OT Storekeeper
Pharmacist Pharmacist 1,9 9,9

Person Orientation (concern for people)

Directing (Leading)
Leadership can be described as the activity of influencing
people to strive willingly to achieve the group objectives. This
ability may be formal (as in form of formal authority vested
with an individual) or informal (as in form of power and
ability to influence people outside the formal structure of an 5,5
organization).
Leadership styles : This refers to the way in which a leader
would influence the followers. Some of the leadership styles
are described below :
(a) Iowa leadership studies : Lewin, Lippitt and White, in
1939, studied different styles of leadership among 10 year old
boys in three groups. Three main types of leadership which 1,1 9,1
emerged from their studies were :
(i) Authoritarian leader : Where the leader was directive and Task orientation (concern for task)
did not permit any participation from team members. Concern
for completing the task was of prime importance and each
member of the team was told what to do and how to do. Summary
(ii) Democratic leader : One who encouraged participation and Management is the art of getting things done through and with
discussions by group members, he involved all group members people in formally organized groups. It is the art of creating
in planning and completing the task. the environment in which people can perform and individuals
can cooperate towards attainment of organisational goals.
(iii) Laissez-faire leader : Such a leader give complete freedom It is the art of removing blocks to such performance and a
to the group members, did not provide any leadership, did not way of optimizing efficiency in reaching goals. It is a process
establish policies or procedures to complete the job. Under such consisting of planning, organizing, actuating and controlling,
scenario, no member of the group influenced another member. performed to determine and accomplish stated objectives, by
(b) The Managerial Grid Theory the use of resources like men, material, machines, methods,
The Managerial Grid Theory proposed by Black and Mouton in money and markets. The basic principles of management are
1978 indicates that leaders can be oriented towards both tasks Division of work according to the ability, capacity and aptitude
and persons. The managerial grid, based on the interaction of the workers; Well-defined responsibility; Discipline; Orders
between person-orientation and task orientation of a leader, is only from one superior; Preference of Organisational goals to
depicted in Box - 6 : individual goals; Pre-determination of remuneration in form
The Managerial Grid shown here is characterized by the of pay and allowances for all personnel; Centralization of
following qualities among the leaders : important policy decisions and key matters; Functioning in well
defined functional chain of senior-subordinate relationships
●● The (9, 1) leader is only concerned with task and has least
(scalar chains); Unity of direction; Equity; Stability of working
concern for welfare of his subordinates. Such a leader is

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period (tenure); Initiative among employees; and the Team functions are advisory nature to line managers whom they
spirit. Administration can be defined as ‘those functions in an support. A line organization consists of line personnel, where
organisation, which are concerned with policy formulation, each position has direct authority over all lower positions.
finance, production, distribution and ultimately control all No subordinate is under more than one superior, and the
key activities for meeting the organisational objectives’. It can scalar principle and principle of unity of command are strictly
thus be assumed that policy-making, planning and decision adhered to. A functional organization is one wherein a worker
making are the basic components of administration whereas is accountable to two or more different executives for a
supervision, implementation and operational aspects are given specific and specialized function. A combination of the
considered components of management. product and functional structures, the matrix structures are
To successfully attain the objectives with optimum resources, the choice for large and complicated projects where the skills
requires a series of Managerial processes which are Planning, of a functional man (manager) and specialized (technical)
Organising, Staffing & directing, Decision making, Controlling knowledge (e.g. finance consultant) are both required. Under
and Feedback. Planning is the fundamental and initial process the matrix structure, an employee is accountable & takes orders
in any activity. Setting the objectives is a major function of from two different superiors at the same time. Leadership can
planning. The basics of planning process in the health sector be described as the activity of influencing people to strive
consists of deciding Where are we at present (situational willingly to achieve the group objectives. This ability may be
analysis), Where do we finally want to reach (objectives formal (as in form of formal authority vested with an individual)
& goals), How do we get there (resources & constraints), or informal (as in form of power and ability to influence people
How effectively we have performed the required activities outside the formal structure of an organization).
(evaluation, monitoring & feedback), what new problems do Study Exercises
we face and how do we overcome them (re- planning). Various
types of plans can be classified as Mission of an organization Long Question : Enumerate the basic principles of Management
(described as the very reason why that organization exists), and describe the steps involved in Planning process.
Strategy (any decision, plan or action which takes into Short Notes : (1) Management and administration (2) Line and
consideration the actions of competitors and other factors staff relationship (3) Steps in planning process (4) Concepts of
in external environment, with the aim of achieving the strategy, policy and program.
objectives), Policies (guide to decisions), Rules (guides to MCQs :
action), Procedures (chronological steps involved in performing 1. Following is a guide to Action (a) Policy (b) Rule (c)Program
any action or taking any decision), Program (a series of actions (d) Objective.
performed for achieving the organizational objectives within 2. A series of actions performed for achieving the
the scheduled time). organizational objectives within the scheduled time is
As a function of management, organizing deals with identifying known as (a) Policy (b) Rule (c) Program (d) Procedure.
and grouping various activities, delegating authority and 3. The following are basic components of “Administration”
command to managers, and coordination of various activities Except (a) Policy-making (b) Planning (c) Implementation
and hierarchies in the organization. The process of organizing d) Decision making.
can be described as a series of steps which include Detailed 4. Unity of direction and Unity of command are some of
description of various activities to be performed for achieving the important principles of (a) Planning (b) Organising
organizational goals, Grouping of various activities in some (c) Staffing (d) None.
meaningful manner, Delegation (comprising of authority, 5. A wider span of control will result in (a) Lesser levels
responsibility and accountability), and Coordination (horizontal of management (b) Wider levels of management
and vertical). Some important principles of organizing are Unity (c) Independent of each other (d) None.
of direction, Unity of command, Authority, Span of control, 6. The type of organization in which worker is accountable
Flexibility, Management by exception and Scalar principle. to two or more different executives for a given specific and
Depending on the type of organization and objectives to be specialized function is (a) Line (b) Functional (c) Matrix (d)
achieved, every manager must decide how many subordinates None of the above.
he/she can effectively supervise. Consequently, a wider span 7. The type of organization in which no subordinate is under
of control will result in lesser ‘levels of management’. Seven more than one superior, and the scalar principle and
important factors which determine the frequency and duration principle of unity of command are strictly adhered to is
of superior-subordinate interaction are Training levels of (a) Line (b) Functional (c) Matrix (d) None of the above.
subordinates, Clear delegation of authority, Clarity of plans, 8. The type of organization in which an employee is
Objectivity in standards, Rate of organizational change, accountable & takes orders from two different superiors
Communication techniques and amount of personal contact at the same time is (a) Line (b) Functional (c) Matrix
required. (d) None of the above.
In line and staff relationship, there is a direct relationship of Answers : (1) b; (2) c; (3) c; (4) b; (5) a; (6) b; (7) a; (8) c.
command between superior and subordinate, whereas staff

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 Functions of Personnel Management
Personnel Management & Human
61 Resource Development
The functions of personnel management include the following :
Planning of the manpower requirement; Recruitment; Organising
manpower resources; Selection; Classification of employees;
Anuj Bhatnagar Staffing; Transfer & promotion; Manpower development;
Training; Motivation; Recreation; Communication; Collective
Any organization is entirely dependent on the people who bargaining; Employee discipline; Performance evaluation;
work there, for its success, i.e. for achieving the organizational Employee counseling.
goals. Broadly, four competency requirements have been Manpower Planning : Manpower planning is an essential
identified for any organisation; Technical, Managerial, Human and integral part of any organisation which has to survive in
and Conceptual. Human resources, unlike all others, have future. It can be defined as the ‘Strategy for the acquisition,
to be nurtured and have almost unlimited potential. Since utilization, improvement and presentation of human
all organisations are made up of ‘people’, acquiring their resource of an organisation. It is aimed at meeting the future
services, developing skills, motivating people for high levels requirements and assessing the availability of different types
of performance and maintaining their commitment towards of human resource available to an organisation and ensures
organizational goals are essential in achieving these goals. that the organisation always has the right kind of the people
Human Resource Development (HRD) system uses various for the right job, at the right time. For example, as a Medical
mechanisms, as under, with the view to achieve these Officer in-charge of a hospital, it would be essential for you to
objectives. keep in mind, if your pharmacist is retiring next year, to start
(i) Recruitment & training the process of recruiting another pharmacist for your hospital
(ii) Potential appraisal & development before the present one retires. This is essential to ensure the
(iii) Performance appraisal smooth functioning of your hospital.
(iv) Career planning Broadly, manpower planning consists of Forecasting (estimating
(v) Organisational Development (OD) future manpower requirement), Inventorying (analyzing the
(vi) Rewards & compensation present manpower available and the extent to which they are
(vii) Employee welfare employed optimally), Anticipating (projection of the present
(viii) Human Resources Information resources for the future and assessing their adequacy) and
Personnel Management Planning (drawing up plans for recruitment, selection, training,
development etc. to meet the future requirements).
Personnel management (also known by several other terms such
as personnel administration, labour management, industrial Manpower planning for any organisation is a vital activity to
relations, employee relations) is the functional front of HRD in ensure optimal utilization of presently available human resource.
any organisation. Thus, personnel management : At the same time, it also forecasts the future requirements of
(a) Is concerned with employees as individuals as well as trained manpower and ensures that right type of manpower
groups. is available when needed. Human resource being the most
(b) Covers all levels of employees including senior managers, important resource in any organisation, manpower planning
clerks, technical workers as well as the ‘blue collar’ directly affects future of the organisation by anticipating
workers. and catering for the redundancies and recruitment levels. It
(c) Aims to help employees to develop their potential to the indicates the optimum training needs and infrastructure like
maximum. accommodation, office space, recreational facilities etc based on
(d) Is an inherent and continuous process in any the manpower projections. Manpower flow in an organisation
organisation. is as shown in Box - 1.
(e) Attempts to obtain willing cooperation of all employees to
achieve the organizational goals. Box - 1 : Manpower Flow in an Organisation
Objectives of Personnel Management Promotion out
(a) Achieve optimal utilization of human resources with the
aim to achieve organizational goals. Transfer out
(b) Maintain adequate organizational structure among Recruitment in Retirement
members of the organisation. Termination/
(c) Develop a feeling of involvement, commitment & loyalty discharge
towards the organisation among the members.
(d) Personal growth & development of individual workers Transfer in Resignations
through opportunities for advancement. Retrenchment
(e) Satisfy the individual needs through optimal
Promotion In
remuneration.
(f) Develop high morale and better human relationships.
Recruitment of Personnel : The success of any organisation
naturally depends entirely on its workforce and the people

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who work for the organisation. Recruitment, thus, naturally 2. Identifying the sources of manpower : These could be
assumes great importance to ensure that the right person is following :
selected and employed. This section would deal with the issues (i) Internal sources are personnel already employed, (including
of recruitment, selection, placement and induction. past employees who quit voluntarily or on production lay
Recruitment : It is defined as the “process of identifying off, whom the organisation could retire for the new
prospective employees, stimulating and encouraging them posts.
to apply for a particular job in an organisation”. The aim of (ii) External sources that are not associated with the
recruitment is to have an inventory of eligible and qualified organisation, selecting internal candidates for new posts
people from whom most eligible will be selected by the improves morale of the workforce and promotes loyalty
organisation to work for it. for the organisation. External sources on the other hand
Selection : This is the process of “examining a large number of provide wide choice and bring in new ideas and enthusiasm.
applicants for their suitability for a given job and selecting the However larger investments in training & induction have
best suited & qualified candidate(s) and rejecting the others”. to be made in case of external candidates.
Selection of Personnel : Selection of personnel can be defined
Placement : It is the “determination of the job for which a
as the ‘process of acquiring the relevant information about an
selected candidate is best suited and assigning that job to him”.
applicant, evaluation his qualifications & experience in order
Proper employee placement improves productivity, motivation
to match these to the job requirements’ and is thus the process
& output by reducing absenteeism, accidents & turnover of
of picking out the best suited individual for the organisation.
employees.
The ‘successive hurdles technique’ is often used for selection
Induction : This can be defined as “introducing the new process in organisation, which is depicted in Fig - 1.
employee to the job and to the organisation with the view to
‘sell’ the organisation to him so that he takes pride in his new Fig - 1
job and association with the organisation”. This is also called

Work history/Experience
‘indoctrination’.

Interview with superior

Preliminary interview

Physical examination
Before we actually start ‘recruiting’ people, we have to clearly
know what job is required to be done. For example, before

Second interview
Application form
advertising for an anesthesiologist for a hospital, we must
know that he would be required to provide anesthesia in

Employment
Referemces
OT during surgeries and would also be required to manage
seriously ill patients in ICU. Only then can we plan our
recruitment effectively. This process is carried out by job Testing
analysis. It can be defined as “a systemic compiling of detailed
description of tasks, determination of relationship of the job to
technology and to other jobs and examination of knowledge, Rejections
qualifications and employment standards, accountability and
other requirements”. Simply put, job analysis indicates the
activities and accountabilities associated with any job. It is the Training & Development of Personnel : We have seen that
process of examining a job to identify its various components after an individual is selected & inducted into an organisation,
and the circumstances in which it is performed. The information he/she has to learn how the assigned work can be done most
gathered from job analysis is used to make vital decisions about efficiently and effectively. This is done through training
organizational design & planning, recruitment and selection of programs. Training is defined as a “short term process utilizing
personnel and all other managerial functions. Ideally, all jobs a systematic and organized procedure by which non-managerial
in an organisation need to be analyzed, but the complexity personnel acquire technical knowledge and skills for definite
of the process will depend on the complexity of the job. For purpose.” Designed primarily for non-managerial personnel,
example, the job analysis of a safai worker’s job in a corporate training is essentially of short duration and for a specific job
hospital can be simple description of the steps required to be related purpose. Development, on the other hand is a “long
taken to sweep an OPD. However, job analysis of a cardio- term educational process utilizing a systemic and organized
thoracic surgeon in the same hospital (including his position procedure by which managerial personnel get conceptual and
in the hospital hierarchy) is very complex. theoretical knowledge. Thus, development pertains not only
to technical knowledge and skill, but also to theoretical and
The step-wise process of recruitment : These include the conceptual concepts; and involves education and long-term
following steps development. Training of personnel is undertaken by both “on
1. Preparation for recruitment : Identifying the ‘job the job” as well as “off the job” training methods.
specifications’ (based on job description) to decide what type of
people, with what characteristics should be invited to apply for Performance Appraisal as an Element of
the job. These will include specifications of physical, medical, HRD
mental, social and behavioural attributes for the job. Performance Appraisal (PA) is an important managerial tool
by which an employee’s performance, accomplishments and

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behavior are evaluated for a given period of time. This becomes Important Issues in Employee Compensation
important for any organisation to achieve the maximum possible
Employee compensation and wages paid to employees are
utilization of human resources available. Thus performance
the foremost issues for any manager. Over a period, these
Appraisal is an important managerial tool for monitoring and
issues have become more complicated with the involvement
measuring the performance of employers, with the overall aim
of legislature, issues of equity and justice and also national
to improve performance and enhance individual efficiency to
economy. The wages for employees, which was initially only
benefit the organisation. PA is therefore an important method
an issue decided by the employer, is now an inescapable
for collecting, reviewing, analyzing and recording information
component of the socio-economic texture of a country.
about performance of an employee.
Basic Wage and Dearness Allowance
Methods of Performance Appraisal
Basic wage is the stable wage paid to employee, which is based
As managers and leaders of men, all doctors should be able
on the statutory minimum wage and is aimed at providing not
to objectively and successfully assess the performance of their
only basic sustenance for family of four, but also provide for
subordinates, whether in a PHC or in a tertiary health care
social amenities like education, health, recreation etc. Dearness
centre. Ideally, all performance appraisals should be based on
allowance was first conceptualized after First World War
pre-determined and objective performance standards; should
subsequent to the steep and uncontrolled increase in cost of
lead to improvement of the subordinate by means of a joint
essential household commodities, the basic idea being to offset
performance review and should be based on more than one
the rising cost of living by giving some additional monetary
channel/ method of assessment, as explained subsequently.
relief over and above the basic wage.
Performance appraisal becomes more important where work
The flat rate system of DA administration provides a one-time
performed can not be directly measured in terms of tangible
standard payment to the employee to offset the inflation. On
goods and where individual characteristics affecting productivity
the other hand, the consumer price-linked system, though
and performance must be determined. It is important to specify
complex is more realistic because it attempts to offset the actual
the job performance criteria to be measured. The following
increase in cost of living. In one form of DA based on consumer
methods are used for PA in most organisations.
price-linked index, a specified rate of DA is determined for
(a) Global Assays & Rating where the assessor, in an essay every point increase in consumer price index, irrespective of
form, provides an overall impression of the performance the income, and thus employees of all pay-scales get the same
of the ratee during a specified time period. This method amount of DA, thereby giving higher proportion of basic wage
may have serious disadvantages in the absence of specific as DA to the lower paid employees. The other system is based on
performance criteria derived from a job analysis procedure income groups where the actual DA admissible (as a proportion
undertaken well in advance. of basic pay) steadily reduces with each higher income group.
(b) Trait Rating Scales usually include a list of personal traits
of an individual, such as loyalty, leadership qualities, The Concept of Social Security
sincerity, courage of conviction etc, which are required to Social security programs are essentially instruments of
be rated on a numerical scale. Trait Rating Scales tend to social and economic justice and forms one of the major
be unreliable if elements of halo effect, leniency/ strictness pillars of a welfare state such as ours. The International
or central tendency creep into the evaluation process. Labour Organisation (ILO) has defined social security as “the
(c) Ranking Procedures involves an overall assessment of protection which society provides for its members through a
performance and classifying the employees into categories series of public measures, against the economic and social
(such as Top 10%, Bottom 10%, Exceptional, Unsatisfactory distress that otherwise would be caused by the stoppage or
etc). This procedure, even through it prevents rating-errors substantial reduction of earnings resulting from sickness,
like central tendency, but is not based on specific and maternity, employment injury, unemployment, invalidity, old
objective rating criteria. age and death, the provision of medical care, and the provision
(d) Behavioural Anchored Rating Scales (BARS) are based of subsidies for families with children”.
on objective parameters on which the behaviour of an
In India, a number of legislative measures such as ‘The
employee is assessed. Although the performance appraisal
Workmen’s Compensation Act 1923’, ‘The Employees’ State
in such a case tends to be more job oriented, it still faces
Insurance Act 1948’ etc have been passed as social security
the problem of identifying which actual behaviour matches
measures, which are described in the section of occupational
with which (objectively determined) performance scale.
health.
(e) Objective and Goal-setting procedures focus on the
outcomes and the output of an employee, as a measure of Motivation
performance appraisal. Goals and targets are previously
As a doctor and manager of men, you are often faced with a
set, most often by the manager and the performance
situation where one wonders about “what is motivation” ? We
appraisal of a subordinate is undertaken based on the
may erroneously label people who have no motivation as ‘lazy’.
extent to which these objective have been achieved.
Today we know that motivation is the result of interaction
between the individual and the situation. We may get easily
bored reading a textbook but may finish an interesting novel in

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a single sitting. Motivation can be defined as the willingness shown that need structures are not necessarily organized as
on the part of an individual to exert extra effort for attaining proposed by Maslow and that satisfied needs at a particular
organizational goals, which is determined by such an effort’s level may not necessitate movement to the next level.
ability to satisfy some individual need (tangible or intangible). 2. Theory X and Theory Y : Proposed by Doughlas McGregor,
In short, when an individual is motivated, he ‘tries hard’. this theory broadly divides human being into inherently
But this effort has to be also channelised in the direction negative (Theory X) and inherently positive (Theory Y)
that would benefit the organization. Therefore, motivation is individuals. Under ‘Theory X’ the basic assumptions are that
dependent both on the intensity and quality of the effort. In individuals are inherently dislike work, will attempt to avoid
addition, there is also a component that satisfies some tangible it whenever possible and hence must be coerced or threatened
or intangible ‘need’ in the individual. The motivation process with punishment to achieve organizational goals, since they
can be summarized as : inherently dislike work. ‘Theory Y’ in contrast, proposes that
the individuals would inherently consider work to be as natural
Unsatisfied need Tension Drives Search as rest or recreation and will naturally exercise self control if
behavior they are committed to the organisational goals.

Reduction of Tension Satisfied Need When McGregor’s theory is superimposed on Maslow’s

Hierarchy of Needs theory, it is evident that Theory X assumes
Theories of Motivation that lower-order needs such as physiological needs and safety
1. Maslow’s ‘Hierarchy of Needs’ Theory : Abraham Maslow needs dominates individuals whereas Theory Y assumes that
postulated that a hierarchy of five needs exists inside every higher order needs dominate individuals.
human being, which are (Fig - 2) : 3. Herzberg’s Motivation–Hygiene Theory : Fredrick Herzberg,
after asking workers for situations when they felt exceptionally
Fig - 2 : Maslow’s ‘Hierarchy of Needs’ Theory good or bad about their jobs, came to the conclusion
that certain variables (intrinsic factors like achievement,
recognition, responsibility & growth) are always related to
Self
job satisfaction and certain variables (extrinsic factors like
actualisation
company policies, administration, interpersonal relations and
working conditions) are always related to job dissatisfaction.
According to him, factors responsible for job satisfaction
Esteem needs
are distinctly different from those that are responsible for
job satisfaction. Hence, when managers remove the factors
responsible for job dissatisfaction, workers are merely placated
Social needs rather then motivated in the true sense. Herzberg emphasized
that if we want to truly motivate individuals, focus should be
on achievement, recognition, responsibility and growth, which
Safety needs individuals find inherently rewarding and motivating.

Summary
Since all organisations are made up of ‘people’, acquiring their
Physiological needs services, developing skills, motivating people for high levels
of performance and maintaining their commitment towards
organizational goals are essential in achieving these goals.
(a) Physiological needs such as hunger, thirst, sex, shelter & Personnel management is the functional front of Human
other bodily needs. Resource Development HRD in any organisation. Thus, personnel
(b) Safety needs like protection from physical & emotional management is concerned with employees as individuals as
harm. well as groups, covers all levels of employees, aims to help
(c) Social needs like needs for affection, belonging & acceptance employees to develop their potential to the maximum, inherent
etc. and continuous process in any organization, and attempts
(d) Esteem needs including internal needs (self respect, to obtain willing cooperation of all employees to achieve the
autonomy & achievement) and external needs (status, organizational goals. The functions of personnel management
recognition and attention). include the following : Planning of the manpower requirement;
(e) Needs for self actualization i.e. to become what the Recruitment; Organising manpower resources; Selection;
individual is capable of becoming, achieving one’s full Classification of employees; Staffing; Transfer & promotion;
potential & self fulfillment. Manpower development; Training; Motivation; Recreation;
According to Abraham Maslow, from motivational viewpoint, Communication; Collective bargaining; Employee discipline;
if a need is substantially satisfied, it ceases to motivate a Performance evaluation; Employee counseling. Employee
person and he moves on to the next plane of hierarchical need. compensation and wages paid to employees are the foremost
Maslow’s theory of hierarchy of need was widely accepted issues for any manager. Over a period, these issues have
initially but has not been validated by research, which has become more complicated with the involvement of legislature,

• 325 •
issues of equity and justice and also national economy. The organization. Therefore motivation is dependent both on the
wages for employees, which was initially only an issue decided intensity and quality of the effort. In addition, there is also a
by the employer, is now an inescapable component of the socio- component that satisfies some tangible or intangible ‘need’ in
economic texture of a country. the individual. The Theories of Motivation which explain the
Social security programs are essentially instruments of social concept are Maslow’s ‘Hierarchy of Needs’ Theory, Doughlas
and economic justice. The International Labour Organisation McGregor’s Theory X and Theory Y, Herzberg’s Motivation–
(ILO) has defined social security as “the protection which society Hygiene Theory.
provides for its members through a series of public measures, Study Exercises :
against the economic and social distress that otherwise would
be caused by the stoppage or substantial reduction of earnings Short Notes : (1) Personnel management (2) Human Resource
resulting from sickness, maternity, employment injury, Development (3) Motivation (4) Social security.
unemployment, invalidity, old age and death, the provision of MCQs
medical care, and the provision of subsidies for families with 1. Strategy for the acquisition, utilization, improvement
children”. In India, a number of legislative measures such as and presentation of human resource of an organization
‘The Workmen’s Compensation Act 1923’, ‘The Employees’ is (a) Manpower Planning (b) Recruitment (c) Employee
State Insurance Act 1948’ etc have been passed as social counseling (d) Collective bargaining.
security measures. 2. According to which theory, from motivational viewpoint,
Motivation can be defined as the willingness on the part of if a need is substantially satisfied, it ceases to motivate a
an individual to exert extra effort for attaining organizational person and he moves on to the next plane of hierarchical
goals, which is determined by such an effort’s ability to satisfy need (a) Abraham Maslow (b) Mc Gregor (c) Herzberg
some individual need (tangible or intangible). In short, when (d) None.
an individual is motivated, he ‘tries hard’. But this effort has Answers : (1) a; (2) a.
to be also channelised in the direction that would benefit the

62 Financial Management Fig - 1

4
Anuj Bhatnagar
Monthly rental (Lacs)

3
Accounting is defined as the “art of recording, classifying
and summarizing in a significant manner and in terms of 2
Fixed cost
money, transactions and events which are financial in nature,
and interpreting the result there of”. Accounting can also 1
be described as “the process of identifying, measuring and
communicating economic information to permit informed
judgments and decisions by the user”. 10 20 30 40 50 60

Concepts of Costs Output (Number of patients admitted)

‘Cost’ can be described as the amount of expenditure (actual or
notional) incurred on a thing. For example if a printer prints a Fixed costs can be broadly divided further into :
book by spending Rs 1000/- on paper, Rs. 500/- on printing ink (i) Committed Fixed Costs which are fixed costs that result
and Rs. 100/- on its binding, the cost to the printer is said to be from the possession of infrastructure such as building
Rs. 1600/-. The elements of a cost are :- and equipment or services to be rendered. For example,
Fixed Cost once a hospital has been set up, the management has
committed itself to paying property tax, salaries of health
Fixed costs (Fig - 1) are the costs which remain constant and do
care providers, depreciation of value of equipment etc.
not depend of the amount of output for example, if a hospital
(ii) Discretionary Fixed Costs also called ‘managed’ or
pays Rs.1.5 lac per month as rent for the premises, this amount
‘programmed’ fixed costs, are costs that are fixed for a
is constant and has to be paid even if no patient is admitted in
specified period by management through their budgeting
the hospital in the entire month.

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 process. For example, costs involves in Research & the hospital should sell the machine immediately and recover
Development, social donations etc have no link with the at least Rs. 9.5 lac.
quantum of output, can be even abolished completely and Controllable Cost
reflect the policies of the top management.
Controllable cost is the cost which can be influenced (controlled)
Variable Costs by the intervention of any member of the organisation. For
Variable costs are costs which are directly dependent on example, the cost of expired medicines can be controlled in a
the quantity of output, such as cost of direct labour, direct hospital if the pharmacist is careful in inventory control and
material etc. For example, if Rs 200/- are required for a film issues the medicines well before their expiry date.
by a Radiologist to undertake one X ray, Rs 4000/- would be
Uncontrollable Costs
required for 20 films to undertake 20 radiographs by the same
radiologist. This type of direct proportionate variation in cost is Uncontrollable costs are those that can not be controlled by
constant per unit of output the initiative of an individual. For example, the pharmacist
may be able to control cost of expired medicines but he shall
Semi Variable Costs have no control over the unwanted medicines prescribed by
Semi variable costs are the cost which vary with the quantum an overzealous medical officer. Thus controllable costs are
of output but not in direct proportion, such as electricity bill, controllable at a particulars level of management while being
telephone bill etc. uncontrollable at other levels.
Step Costs Differential Cost
Under some circumstances, the cost remains fixed for a range of Differential cost is used for assessing the suitability of
time period or for certain quantum of output and then steps up an alternative out of many alternatives, since it indicates
to the next level of cost. For example, it m+ay take one nurse the difference in total cost involved between two or more
to provide nursing care to 10 indoor patients. However, as soon alternatives. When an alternative option results in an increase
as the number of in-patients rise to beyond 10, a second nurse in total cost involved, it is called ‘incremental cost’ and when it
is required to be employed, as depicted in Fig - 2 : involves a decrease in total cost, it is called ‘decremented cost’
and is used to assess the profitability of an option out of many
Fig - 2 alternatives available.
Out-of-Pocket Cost
4
Out-of- pocket cost are the cash expenditures which would be
No. of Nurses required

3 incurred or saved, based on a decision. Let us assume that a

hospital decides to shut down its own MRI centre and decides
2
to out-source it to a nearby existing private MRI centre. The
hospital management should ideally take into consideration the
1
cost of electricity, salary of its own operators, rent for premises
that the hospital would be saving if it decides to out-source.
10 20 30 40 50 60 However, the initial cost of the MRI machine (sunk cost) and
depreciation of the machinery would not be considered in this
Number of Inpatients
case.

Shut Down Costs Opportunity Cost

Opportunity cost can be described as the cost of foregoing
Shut down costs are the fixed costs that are incurred by the
an opportunity in favour of another alterative. For example,
organisation even when it is shut down and no production /
if a building originally planned and constructed for a PHC is
service is produced /rendered. For example, even if a MRI centre
used as a community centre, the planners must consider the
is temporarily shut down for a period of one month due to any
‘opportunity cost’ of not providing primary health care to an
reason, it would still have to pay the rent for the premises,
entire village, the disease burden and morbidity/mortality
insurance for the equipment etc.
resulting from the lack of primary health centre (PHC) in the
Sunk Costs area.
Sunk costs are the costs incurred in the past due to past
decisions, which can not be reversed or recovered by any The Concept of Marginal Cost
subsequent decisions. For example let us assume that a hospital The “traditional” Costing Technique (also called “Absorption”
invests an amount of Rs. 10 lac in an X Ray machine with the or “full cost” method) is a method of ascertaining the cost of a
expectation of earning an income of Rs. 9 lac over a period product or service (to the manufacture / provider) by identifying
of next 10 years. However, immediately after procurement of and taking into account both the variable costs (direct labour
the machine, it was realized that the machine should not have & materials etc) (which are directly attributed to each unit
been bought in the first place and it can be immediately re-sold of finished product) and the fixed costs, (which are allocated
for Rs. 9.5 lac. When the hospital administrators have to take a proportionately to different products produced during the given
decision whether to sell the machine or not, the original cost of time period). A certain amount of ‘profit’ is added to this total
Rs. 10 lac would not be considered since it is ‘sunk cost’. Hence cost (variable cost + fixed cost) to arrive at the ‘price’ (fixed

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cost + variable cost + profit) of a product/service. However, knowledge of budgeting and health care financing. It must be
absorption costing technique has the disadvantages that prices realized that a budget for health care establishment has to be
are assumed to be dependent only on costs, only past costs also prepared and approved in advance, has to be based on the
are considered which may not be appropriate for deciding the long term strategy, has to focus on future and is expressed in
price currently and demand is not taken into consideration monetary term. Advantages of budgeting are as in Box - 1.
which fixes the price of a commodity/service (in other words
the amount that the community members are wiling to spend Box - 1 : Advantages of budgeting
on that item) in a community. In order to overcome these
Every healthcare professional should also be aware of
disadvantages, ‘marginal costing technique’ is adopted.
advantages of budgeting, which are as under:-
Marginal cost can be defined as “the amount at any given
(a) Budgets are effective means of communicating the
volume of output by which aggregate costs are changed if the
future organizational plans to all people, in monetary
volume of output is increased or decreased by one unit”. This
and financial terms.
would entail an increase (or decrease) in the cost when the
output increases (or decreases) by a single unit. Ordinarily, (b) A pre-decided and approved budget serves as an effective
marginal cost is considered to be equal to the increase/decrease benchmark for monitoring the ongoing operations.
in total variable cost only because within the existing capacity, (c) Budgeting reduces wastage and losses by identifying
increase or decrease of a single unit of output would have a wasteful expenditures well in advance and rectifying
negligible or no impact on the fixed cost and any change in them.
cost would only be due to variable cost such as direct labour &
(d) Budgets, when drawn up through participation,
material used to produce that single unit.
encourage, and develop team spirit and collective
Break Even Analysis responsibility towards excellence.
Break Even Analysis is an important financial tool to determine (e) Budgets form the basis for assessing the performance
the level of production (output) where the total cost to producer of senior managers in any organisation.
equals the total revenue from sales. This is important for any
organisation because it would indicate the probable profit at Types of Budgets
any given level of output. Thus, break even analysis is used by
Budgets are broadly classified on the basis of time, function
financial expects to establish the relationship between cost of
and flexibility, as under :
production incurred by the producer, volume of production and
profit and sales volume. Time-based Budgets
(i) Long term budgets which are financial estimates and
Break Even Point (BEP)
planning for more than five year duration.
BEP refers to the level of output where the revenue from the (ii) Short term budgets which pertain to financial planning for
business would exactly equal its expenditure (cost to the up to one year duration.
producer). Thus, when the output reaches the BEP, it is a point (iii) Current budgets pertain to very short term periods.
of ‘No profit, No loss’. If the production is now increased to (iv) Rolling (Progressive) budgets wherein some duration of
beyond this level, profit would be accrued and if the production advance budget will always remain. In this scheme after
level is reduced beyond this BEP, loss shall be incurred. a quarter passes, the financial figures for that period are
Budgeting dropped and a new budget is prepared for the next 12
month period.
The word ‘budget’ derives its origin from a leather ‘pouch’ Function-based budgets
or leather bag in which the Chancellor of exchequer of Great
(i) Sales (Revenue) budgets are the basis for developing most
Britain carried the government’s statement of anticipated
other budgets, especially in commercial and profit-based
financial needs & available resources, to be presented to the
organisations. Sales budgets are developed based on the
Parliament. A ‘budget’ is thus the anticipated receipts and
anticipated sales volume that are to be achieved in a given
available resources of an organisation during the given year,
time period.
and is the basis of all financial decisions during the year.
(ii) Production (Expenditure) budgets are based on the expected
A budget can be defined as a statement of future plans described expenditure under various heads such as materials
in quantitative and monetary terms, for a specific period of requirement, material procurement, labour, overheads and
time, which is usually one year in case of financial budgets. research.
It can also be defined as a financial statement, prepared and (iii) Capital based (Planned) budgets have to be drawn up for
approved by the management in advance for a period of time, earmarking financial resources for new proposed projects,
which determines all future actions of the organisation. such as setting up of a new ICU or a Cobalt Therapy Unit
Like any other organisation, a systematic approach to financial for a hospital.
planning is required to manage any heath care establishment (iv) Operation budgets (Non-Plan budgets) are the financial
and budget is an important tool in the hands of a trained health outlays for routine and operational running of an
professional. Financing in health care sector is presently in its organisation, and are generally short term in nature.
nascent stage in India and it is imperative that all health care (v) Cash budgets are financial plans which indicate the
professionals and those associated with health have a sound expected cash inflow and cash outflow over a given period

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 of time, in an organisation. These are comparisons of Box - 2 : Procedure for Budgeting
income in cash and cash disbursement undertaken by
an organisation and are helpful by preventing unwanted Financial & service Actual performance
accumulation of large amounts of cash, determining objectives identified recorded
future cash requirements and providing better control over
liquidity of an organisation during the budget period. Budget prepared by Comparisons made
(vi) Research budgets are financial plans for undertaking budget centre
Variations investigated
research and development activities & allocation of financial
Financial plans presented
resources for innovation, developing new products and
to budget committee
services. Unlike budgets allocated for fixed costs, research Remedial action initiated
budgets reflects the mindset of a top management and
Master budget
may be increased or decreased depending on the policies (based on financial plans) Feedback
of top management. prepared & approved
(vii) Master budget is an amalgamation of all organizational
budgets and indicates in detail the planned working of all All departments informed
departments in financial terms. The master or the final
budget may be presented in the form of a balance sheet, Feedback
fund flow statement or a profit & loss statement at the end
of the budget period. Incremental budgets have been often described as “an elephant
Flexibility-based budgets with muscles of a mouse and brains of an amoeba” since it
(i) Fixed budgets are prepared in advance based on a standard does not promote operational efficiency due to following major
level of output or activity and do not change mid-way with disadvantages :-
a change in level of output. Let us assume that a budget (i) Wasteful expenditures of previous years are again included
for a PHC has been drawn up to provide primary health for drawing up financial outlays of the next year.
services to a population of five lakh people in that area. This (ii) Alternative better options for achieving the same objectives
kind of fixed budget will then be unable to accommodate are not even considered since it is assumed that previous
any changes if it is realized that the population is seven year’s actions are still essential and most cost-effective.
lakh instead of five lakh and hence performance of the (iii) Main problem areas, wasteful expenditures and priorities
health care facilities can not be accurately measured since are not ascertained before drawing up the budget.
the actual services rendered will not match the budgeted (iv) Decisions taken regarding the amount of financial outlays
quantum of services to be rendered. for any given year are arbitrary and not based on any
(ii) Flexible budgets are the financial outlays which are justifiable reasoning.
planned in such a way that they can change with the level (v) There is no linkage between inputs and outputs and it is
of output/activity. In this, the fixed cost and variable costs assumed that cost efficiency of all past activities would
are taken into account and a flexible budget drawn up. remain same in future years.
Let us assume that a hospital has to draw out a financial (vi) Administrators of various departments often tend to
budget for maintaining an ICU, assuming the following : inflate their proposed individual budgets, since no detailed
Fixed cost for maintaining the ICU = Rs 5,00,000 per month justification is sought along with the proposal.
Thus, it is seen that to maintain an ICU of 10 beds, it would Performance budgeting (Program budgeting) : It is defined
need Rs 15, 00,000/- whereas to maintain an ICU with 5 beds, as “the process of analyzing, identifying, simplifying and
the hospital would need Rs 10,00,000/-. crystallizing specific performance objectives of a job to be
Flexible budgets are better indicators of actual performance achieved over a period of time”. Developed and adopted in 1949
since the actual and proposed levels of activity are matched in USA, it lays more stress on precise detailment of a job to be
beforehand while preparing the financial outlay and finances done or services to be rendered. A performance budget thus
are allocated accordingly. Procedure for budgeting is outlined presents the actual operations undertaken by an organisation,
in Box - 2. department-wise, in terms of functions, activities, projects
and programs. In order to undertake performance budgeting,
Approaches to Budgeting
it is essential that objectives should be clearly defined and
Incremental approach : It is a process of budgeting where financially feasible & activity classification should be done
the previous year’s expenditure is applied to the next year logically into distinct department. Such budgeting procedure is
with additional components of increased salaries and cost better than the traditional system; it involves the evaluation of
of materials. Though widely followed for most public health actual performance of the organisation in terms of departmental
expenditures being simple to understand, incremental budgeting and organizational objectives, provides a definite direction to
however assumes that all activities carried out in the last year efforts of every employee and is a useful control tool for higher
are essential, were most cost-effectively carried out and still managers. It is upto the departmental head usually to prepare
remain more important than the new proposed activities. Thus the periodic performance reports (required for performance
under this scheme, only the increment over the previous year’s budgeting) which compare the budgeted actual performance (in
budget is actually justified for the present duration. terms of output, production or services rendered) with the aim
to detect any deviations at the earliest possible.

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Zero Based Budgeting (ZBB) : With both traditional Financial Control in Health Settings
(incremental) budgeting and performance (program) budgeting,
Financial control is as important in health care settings as in
it was increasingly realized that scarce resources were not
any other field. In addition, the issue is complicated by the
being optimally utilized, wasteful expenditures were not being
intangibility and often non-measurability of the product (ie
identified, decision making was often irrational, budgets
health care rendered and the result thereof). Financial control
tended to be over inflated by managers and there was very little
in a health setup would include a proper accounting system
relationship between the expenditure and the results obtained.
for funds, equipment and expendables; laid down standards
Thus, need was felt to further improve the budgeting procedure
of performance against which actual performance would be
with the view to utilize the scarce financial resources in the best
measured and regular audits of performance. Some important
possible manner. Zero Based Budgeting (ZBB) is defined as “the
tools used for exercising financial control are as under :-
planning and budgeting process which requires each manager
to justify the entire budget in detail from ‘scratch’ (‘zero base’) Budgets
thereby making it the responsibility of each manager to justify Budgets are an important tool in the hands of a health manager
why he should spend any money at all during the budget period.” because they lay down the expected standards of performance
Under zero based budgeting, an organisation should not only against which the actual performance is measured to identify
decide about financial allocation to new programs & plans but the variations. Operational control in any organisation can
must also review the existing & old programs, especially which only be exercised when actual performance is compared and
involve a high degree of discretionary costs such as research & evaluated with some pre-decided standards and remedial
development programs, newer vaccine initiates etc. Under ZBB, actions instituted to correct any deviations from the expected
therefore, the proposer of an activity must justify before each & pre-determined standards.
budget that the activity proposed is essential, cost effective and
Hospital Statistics and Cost Control
must detail the output levels expected. No activity or action is
financed simply because it was done in the past and the entire The most important hospital statistic from the point of view
program must be justified each time a budget is being drawn of financial control is ‘patient day’ which is defined as ‘the
up. Advantages and limitations of ZBB are given in Box - 3. number of patients to whom in-patient services have been
provided in a healthcare setup between two successive census’.
Box - 3 : Advantages and limitations of ZBB The performance of the hospital as a whole and that of
individual departments can be ascertained by calculating the
Advantages ‘cost per patient-day’ as under :
Based on cost benefit analysis. No arbitrary decisions are Total expenditure by hospital
Cost per patient day =
taken. Total number of patient-days
Similarly, department-wise or bed-wise cost per patient-day
Allocation of scarce financial resources is strictly based on
can also be worked out, which indicates the performance of the
priority of programs/ actions.
department or a ward.
Links the budgets to organizational objectives & performance Other indicators which may be used as financial control tools
by not financing those activities which though carried out in in a health care set up are :
the past, now do not contribute to the overall objectives or (i) Hospital census : The total number of in-patients occupying
are not carried out cost effectively. beds in the hospital at a particular time.
Complements the concept of ‘Management By Objectives.’ (ii) Bed occupancy : is calculated by patient days divided
(MBO) by bed-days multiplied by 100 and indicates the future
expansion needs of a hospital.
Ensures that only essential projects and activities are (iii) Average length of hospital stay : indicates the average
undertaken by the managers. time spent by a patient in a hospital and when compared
with other similar hospitals, is an indicator of performance
Identifies areas of wasteful expenditure, problem areas and
of that hospital.
key result areas for an organisation.
Financial Statement Analysis and Control
Limitations
They are important tools for financial control in any organisation
Initial planning stage before each budget requires greater and are broadly of the following variety :-
effort and time by all departmental heads. (i) Balance sheet : indicates the financial state on a given date
(which may be the last date of the month) and by showing
Less applicable for those activities which do not have a direct
‘assets’ and ‘liabilities’ the organisation, it shows what the
and tangible cost-benefit relationship such as immunization
organisation owns (assets) and what it has to give to others
programs or public health programs for supplying safe water
(liabilities). In case of a health care establishment, the assets
and sanitation to villages.
may be ‘fixed assets’ (such as buildings, land, furniture,
Identification of decision variables in case of non-tangible ambulances, medical equipment etc) or ‘current assets’ (such as
benefits such as public health programs invariably require cash in bank, hospital bills receivable from patients, medicines
complicated managerial processes. and expendables in current stock etc). On the other hand,

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the liabilities in case of a hospital may be ‘current liabilities’ accounts and records undertaken with a view to ascertain if
(like electricity/telephone/property bills payable), ‘long term they completely and correctly reflect the transactions to which
liabilities’ (such as loan taken from bank initially to set up they relate and to ascertain that the transactions themselves
the hospital/buy equipment) and ‘special funds’ such as funds are supported by the competent authority wherever required”
earmarked for training or disaster management. (Lawrence R Dicksee). Box - 4 lists out the special issues
(ii) Income and expenditure statement : In contrast to involved in audit of a healthcare establishment.
balance sheet (which is the financial state on a given single
day), income and expenditure statement of an organisation is Box - 4 : Special issues involved in audit of a health care
the record of all financial transactions of the organisation over establishment
a given period of time. In case of a health care setup, the inflow It must be remembered that the financial audit of a health
of finances (income) may be in form of payment by the patients care establishment differs from a routine audit of any
for various medical and support services, grants and charity other organisation, primarily since hospital activities are
donations, interest on bank deposits and other investments. On fundamentally different from any other commodity or service
the other hand, expenditures would be in the form of salaries based activity. Hospitals do not produce or sell a commodity, but
of health care providers and ancillary staff, inventory costs, render medical care which is highly personalized and varies from
payment for amenities such as electricity, water, telephones patient to patient. Any auditor therefore should keep in mind the
etc. following aspects while auditing services of a hospital :
●● Essential documents governing the policies of a hospital like
Income statement vs Balance sheet the constitution of the hospital, the rules and regulations
The income statement is a record of all financial transactions regarding employing health care professionals and ancillary
of an organisation over a period of time (which may be taken staff, the policy regarding admission of patient and their
as a year or a month) whereas the balance sheet depicts the treatment etc should be examined in detail.
final assets and liabilities of an organisation at the end of a ●● Comparison of figures of corresponding periods of two years
period of time (which may be on the last day of the month or can not be relied upon to detect internal discrepancies, since
year at a point of time). the services rendered by a hospital are highly unique & not
standardized.
(iii) Cash flow statement : is also a type of financial statement ●● It must be ensured through hospital records (like bed
used for financial control by managers, wherein cash inflow occupancy report, daily admissions/ discharge summary
from the three major activities (operations, investments and etc) that all services rendered have been correctly billed and
financing) are summarized. recorded.
(iv) Funds flow analysis : records the various sources of funds ●● Transactions must be recorded and completed promptly
available to an organisation and the usage of these funds over because after a patient is discharged from the hospital, the
a given period of time. For the survival of any organisation, it charges against services not recorded remain un-recovered.
is important to be able to finance the various operations and ●● Procedures for recording and taking ‘on charge’ any gifts,
assets through appropriate sources and hence the importance grants and donations to the hospital should be in place and
of identifying and recording all possible sources from where should be followed.
funds are obtained. ●● Authority to allow discounts to patients should not be vested
with the people concerned with billing and all discounts
(v) Liquidity ratios : are a form of financial analysis which should be properly recorded.
indicates the utilization of cash and the ready availability of
cash for future payments in an organisation. Current ratio is a Audit can thus be said to be financial tool undertaken to
ratio of current assets to current liabilities and indicates proper check the arithmetic accuracy of account records, check the
management of cash (current ratio of more than one) or possible relevant supporting documents like vouchers, sanction noting,
shortage of cash for payments in the near future (current ratio invoices, bills etc.; check the balance sheets prepared by
less than one). The current ratio can be made more accurate verifying all entries and assets & liabilities recorded with the
by excluding the inventories (which are not considered ‘liquid’ aim to appraise the management of any discrepancies noted.
or easily available in terms of cash) so as to provide the Quick Even though audit is carried out for ensuring completeness,
Ratio (Acid test ratio) correctness and honesty in financial transactions, an auditor’s
Current assets - Inventories ultimate aim remains to detect clerical errors in accounts by
Quick ratio =
Current liabilities checking the past records of accounts. Audits are based entirely
on past documents and the actual circumstances under which
The Concept of Audit the financial documents had taken place are not known to the
Auditing is a financial process undertaken as a verification auditors.
process based on past records, assessed against a set of
predetermined rules, regulations and standards. Thus, audit is Summary
undertaken to ascertain that all financial transactions during Accounting is defined as the “art of recording, classifying and
a given past period were undertaken as per the rules and summarizing in a significant manner and in terms of money,
regulations. Auditing has been defined as “An examination of transactions and events which are financial in nature, and

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interpreting the result there of”. ‘Cost’ can be described as the Financial control is important in health care settings as in
amount of expenditure (actual or notional) incurred on a thing. any other field. Financial control in a health setup would
The elements of a cost are Fixed costs (remain constant and do include a proper accounting system for funds, equipment
not depend of the amount of output); Variable costs (directly and expendables; laid down standards of performance
dependent on the quantity of output); Semi variable costs (vary against which actual performance would be measured and
with the quantum of output but not in direct proportion); Step regular audits of performance. Some important tools used for
costs (remains fixed for a range of time period or for certain exercising financial control are Budgets, Hospital statistics
quantum of output and then steps up to the next level of and cost control (like Cost per patient day, Hospital census,
cost.); Shut down costs (fixed costs that are incurred by the Bed occupancy, Average length of hospital stay), Financial
organisation even when it is shut down and no production / Statement Analysis and Control (like Balance sheet, Income
service is produced /rendered); Sunk costs (incurred in the past and expenditure statement, Cash flow statement, Funds flow
due to past decisions, which can not be reversed or recovered analysis, Liquidity ratios). Auditing is a financial process
by any subsequent decisions); Controllable cost (influenced undertaken as a verification process based on past records,
by the intervention of any member of the organization); assessed against a set of predetermined rules, regulations and
Uncontrollable costs (can not be controlled by the initiative standards. The financial audit of a health care establishment
of an individual); Differential cost (indicates the difference in differs from a routine audit of any other organisation, primarily
total cost involved between two or more alternatives); Out-of- since hospital activities are fundamentally different from any
pocket cost (incurred or saved, based on a decision) Opportunity other commodity or service based activity and render medical
cost (the cost of foregoing an opportunity in favour of another care which is highly personalized and varies from patient to
alterative). patient.
Marginal cost can be defined as “the amount at any given Study Exercises
volume of output by which aggregate costs are changed if the
volume of output is increased or decreased by one unit”. This Short Notes : (1) Types of costs (2) Break Even Analysis
would entail an increase (or decrease) in the cost when the (3) Medical Audit (4) Tools for financial control in Health care
output increases (or decreases) by a single unit. Ordinarily, setting.
marginal cost is considered to be equal to the increase/decrease MCQs
in total variable cost only. 1. The cost incurred in the past due to past decisions, which
Break Even Analysis is an important financial tool to determine can not be reversed or recovered by any subsequent
the level of production (output) where the total cost to producer decisions is (a) Semi variable costs (b) Step costs (c) Sunk
equals the total revenue from sales. It is used by financial costs (d) Uncontrollable cost.
expects to establish the relationship between cost of production 2. The process of analyzing, identifying, simplifying and
incurred by the producer, volume of production and profit crystallizing specific performance objectives of a job to be
and sales volume. Break Even Point (BEP) refers to the level achieved over a period of time is (a) Incremental approach of
of output where the revenue from the business would exactly budgeting (b) Program budgeting (c) Zero based budgeting
equal its expenditure (cost to the producer). Thus, when the (d) Flexible budgeting.
output reaches the BEP, it is a point of ‘No profit, No loss’. 3. The planning and budgeting process which requires
each manager to justify the entire budget in detail from
A budget can be defined as a statement of future plans described
‘scratch’ is (a) Incremental approach of budgeting (b)
in quantitative and monetary terms, for a specific period of
Program budgeting (c) Zero based budgeting (d) Flexible
time, which is usually one year in case of financial budgets.
budgeting.
It can also be defined as a financial statement, prepared and
4. The record of all financial transactions of the organisation
approved by the management in advance for a period of time,
over a given period of time is (a) Balance sheet (b) Income
which determines all future actions of the organisation. Like
and expenditure statement (c) Cash flow statement
any other organisation, a systematic approach to financial
(d) Funds flow analysis.
planning is required to manage any heath care establishment
5. A financial process undertaken as a verification
and budget is an important tool in the hands of a trained health
process based on past records, assessed against a set
professional. Budgets are broadly classified as Time-based
of predetermined rules, regulations and standards is
Budgets (Long term, Short term, Current, Rolling/Progressive
(a) Budgeting (b) Accounting (c) Auditing (d) Analysis.
budgets ); Function-based budgets (Sales /Revenue, Production
/Expenditure, Capital based/Planned, Operation/Non-Plan Answers : (1) c; (2) b; (3) c; (4) b; (5) c.
budgets, Cash, Research, Master Budgets); Flexibility-based
budgets (Fixed and Flexible). The approaches to Budgeting
are Incremental approach, Performance budgeting (Program
budgeting) and Zero Based Budgeting (ZBB).

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 63 Logistics Management Fig. - 1

}
Factors for vendor rating Identification of need
Anuj Bhatnagar
- financial capacity
- production capacity
Logistics Management - value of business
- reputation Selection of the correct sources
Logistics management is defined as “the systematic and - other customers of supply (Vendor rating)
scientific process of planning, implementing and controlling - service facilities
the efficient and effective flow and storage of resources (goods - specifications
& services) from point of origin to the point of consumption
in order to meet the customer’s requirements”. Logistics Analysis of bids
management in a health care set up becomes essential to
ensure procurement and provisioning of vital medical supplies Price negotiations
at the correct cost, consistency in quality, low storage cost
and high turnover of items. In addition, logistics management Issue of purchase order
also ensures proper forecasting & standardization of medical Inventory actions
supplies and assists the manager in deciding whether ‘to make’
or ‘to buy’ a facility such as MRI facility to the patients.
to submit its rates in writing) and Global tenders (in case of
One of the important components of logistics management is
large purchases tenders are often invited from within India and
materials management which aims to “coordinate, supervise
abroad). All govt and public sector undertakings should follow
and execute the tasks of flow of materials to, through and out
the following steps in the tendering system while undertaking
of an organisation”. It thus ensures a continuous supply of
purchases :
good quality material at the lowest possible price, at the same
time keeping the inventory level to minimum so that working 1. Specifications of the item to be purchased are established
capital is not blocked in inventory but without compromising carefully.
the operations due to shortage of inventory. 2. A vendor list is identified which should have as many
vendors as possible.
Logistics Management in a Health Care Setup 3. Competitive bids are invited from vendors through an open
Any healthcare establishment is heavily dependent on material, advertisement, which should also mention the technical
equipments and medicines and hence logistics management specifications of the item, modalities of payment and any
assumes great importance since availability of the right other terms & conditions.
item, at right time, right place and in the hands of the right 4. Bids received are opened in front of representatives of
person can often make the difference between life and death vendors on a pre-notified date and time.
in a hospital. Broadly, Logistics and materials management 5. Comparative statement is drawn up of the quality, price &
involve a large number of activities, which are more sensitive support services of those bids which meet the qualifying
in a hospital because each activity influences & is influenced requirements.
by other activities. These are listed below and are explained 6. Bids are evaluated. Contract is awarded to lowest
subsequently : responsible bidder, who meets the specifications which are
(a) Tendering, procurement & inspection pre-determined.
(b) Storage, standardization, codification & classification 7. Price negotiation with the selected vendor.
(c) Materials accounting & physical distribution 8. Issue of purchase order.
(d) Transportation 9. Supply of items within the stipulated time frame.
(e) Security of materials 10. Inventory action (including inspection and issue to
(f) Condemnation and disposal of stores concerned department)
(a) Tendering, procurement & inspection : Any organisation Types of purchase processes
has to resort to purchasing of goods or services (process of actual (1) Rate contract is the purchase system wherein the rate of
buying of materials for services) to ensure an uninterrupted an item is determined through a tender system, without
flow of materials, a minimum inventory investment and to buy specifying the quantity to be purchased. Under running
materials / services at a reasonable cost . contract system, the minimum quantity to be purchased is
Broadly, the steps involved in purchasing are summarized as specified. Followed by all Govt./ PSU through DG S&D, the
in Fig-1. system reduces the lead time for the organisation, since
purchases are made at pre-determined rates (centrally
Concept of Tenders : Tender buying is resorted to by all govt./
carried out by the DG S&D).
public sector organisations wherein enquiries are floated to
(2) Blanket ordering is a contract with a vendor to periodically
various short-listed vendors, for purchases to be done. Tenders
supply low cost items only on receipt of an authorized
may be Open tenders (through advertisement in media) Limited
release order from the organisation.
tenders (where bids are called for only from reputed / pre-
(3) Cash purchases (Imprest purchases) are the purchases
qualified parties); Simple tenders (where only one firm is asked
made from the open market on strictly need basis and are

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 usually confined to urgently required but low priced items, Table - 3
required in small quantities.
(4) System contracting is a form of purchasing which does not Class Sub group I Sub group II Code
involve maintenance of any stocks and inventory by the Ibuprofen IP-400 08/4 IP400-08/4
organisation and where authorized individuals from the
organisation can draw low priced materials needed in high (iv) Other Systems : These include the “Brisch system”, which
quantity directly from a supplier’s store. is a complex and detailed system wherein a 7-digit unique
(5) Reciprocal purchases involve a policy where two contracting number is allotted to each item based on its position
parties purchase their specialized items from each other on and value; “Kodak system” which is based on numerical
a mutual basis. system and grouping done based on purchase category of
Storage, Standardization, Codification & Classification the particular item, with 10-digits. Thus, the code allotted
(a) The storage system : The main function of a storage system to an item may be depicted as 301-1234-123.
is to receive material, check it for quality and quantity, prepare Accounting of Stores
the receipt vouchers, accept the inspected and passed material, Accounting of materials : It is essential that in order to demand
undertake documentation for payment of bills, store the the optimal material, the stock held with the stores must be
accepted material properly and safely, issue required material accurately known and maintained. This is important to prevent
to various departments on requisition from them, prepare issue over-ordering of material and is absolutely essential to avoid
vouchers and account for them. Broadly any storage system in ‘stock- outs’, both of which are detrimental to functioning of
an organisation consists of the following sub- systems which an organisation. Thus, in order to continuously keep a track
work together to cater to the existing demands and also the of the material available in stock, the following systems are
further growth potential of an organisation : adopted :-
(i) Receipt system (i) Bin Cards show the daily receipt, issue and balance in hand
(ii) Maintenance & upkeep system in the form of cards attached to each bin / shelf containing
(iii) Issue system the particular item. Bin cards can also be suitably and
(b) Codification of goods : One of the basic requirements of effectively modified to indicate the maximum / minimum
an efficient stocking and logistics management system is an permissible stocks and the re-order levels.
effective and scientific system of coding the items, to ensure (ii) Stock identification cards are identification cards for
quick tracing & retrieval and early identification of dead / each item, with details such as material code number,
duplicate stocks. In a health care setting, this task is more description, ledger folio number etc, kept next to the bin/
complicated since detailed characteristics and nature of large rack in order to identify the item completely.
number of drugs available are required to be known for their (iii) Material requisition slip is a requisition for the type and
coding and classification. Ideally, all health care stores should quantity of material required by any department from issue
be classified in broad categories (such as pharmacy, X-rays, counter. When maintained properly it accurately indicates
chemicals, laboratory items, waste disposal, ancillary items the exact quantity and type of material issued to various
etc) and then grouped and sub-grouped logically according to departments for various purposes.
functions and usage. Various systems presently in vogue for (iv) Material received note is a document through which the
codification are described as under : material received from a supplier is taken on ledger charge.
(i) Alphabetical system (Table - 1) Subsequently the accounts department, based on this
document makes the payment to the suppliers.
Table - 1 (v) Stores ledger is a complete record of materials indicating
the details such as suppliers’ details, price of the item,
Class Group Code
invoice / bill number and stock levels.
Iron(I), (vi) Material return note : Surplus material lying with various
Patient bed (PB) PB-I-H
Hydraulic(H) departments are returned to the stores through a ‘material
return note’ which enables the stores to take this surplus
(ii) Numerical system (Table - 2) material on ledger charge once again and to adjust their
stock levels.
Table - 2
(vii) Material transfer note : Surplus material lying with
Generic one department may be transferred directly to another
Family
Class System name with Condition department in need of the same material through such a
of drug
strength note, by informing the stores.
Musculo- Concept of Flow of Goods and Stores Accounting
Drug Ibuprofen IP Tablet
skeletal New (1) Flow of goods (issue of stock) is of utmost importance in any
(01) 400mg (08/4) (1)
(38) health care setup since the problems of obsolete items, expired
In this example, the Code would be : 01-38-08/4-1-1. medicines and old stocks are faced by every store keeper in a
hospital. Such avoidable wastages not only increase the cost
(iii) Combined alphabetical and numerical system (Table - 3) of managing a hospital but may also occasionally result in a
fatality due to issue of expired and out of date medicine to a

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critical patient. The following are some of the methods followed (b) Inventory carrying cost are the hidden costs and pertain
for flow of goods and stores accounting :- to maintenance of a large inventory/stock, which lies
(a) First In, First Out (FIFO) : Material from the oldest stock idle and which blocks the finances of the organisation.
is issued first with the view to turnover the stock. Special efforts are required by a manager to identify these
carrying costs, since they are often hidden and not easily
(b) Last In, First Out (LIFO) : Materials which are received
decipherable. Some such inventory carrying cost are the
last are issued first in this case, but it usually results in poor
(i) Cost of borrowed money which is the interest paid to
inventory management and hence is generally not recommended
a financier or the interest lost which could have been
in health care establishments.
earned, had a large amount of money not been used for
(c) Specific cost method : Provides the most realistic valuation purchasing the stock presently held as inventory; (ii) Cost
of inventory stock and physical stock-taking of stores can of space : which needs to be hired for storage; (iii) Cost of
be done any time of the year. Under this method, values of additional manpower : by incurring additional expenditure
the material charged off / taken on charge are identical to on salaries etc of manpower required to manage the
the material issued / received and hence is the most suitable stocks; (iv) Cost of obsolescence : All materials, especially
method of maintaining stocks in commercial organisations. hospital supplies, become obsolete, leading to financial
(d) Average cost method : Average cost of each item issued loss; (v) Cost of deterioration : Supplies when stored for
from stores/ received at stores is assessed and this value is taken a very long time tend to deteriorate with time, especially
for maintaining the cost of inventory held by the organisation. crucial hospital supplies like injections, medicines and
Though easy to follow, this method often leads to inaccurate intravenous medicines etc; and; (vi) Cost of pilferage : A
values of inventory in the organisation. large and unmanageable inventory is bound to lead to
pilferage and loss to the organisation.
Inventory Control (c) Ordering Costs are costs incurred by an organisation in
Inventory may be defined as “usable but idle resource having placing an order for some material with a supplier. In
an economic value”. It can also be described in financial terms case of large orders and government orders, the ordering
as the sum total value of raw materials; semi processed and costs can be substantial if we also include the salaries and
finished goods at any given time. When we deal with tangible time of personnel involved in the purchase procedures,
items such as materials, it is called ‘stock’. The basic issue besides the ancillary like paper, stationery etc. At times, a
involved in inventory management is to ensure that adequate professional expert may also have to be called from abroad
amount of raw materials are available to meet the demand of or the manager may be required to visit a foreign country
the organisation, while at the same time ensuring that too much to place an order, in which case the ordering cost would
inventory is not accumulated and also that there are no ‘stock- also include the travel cost etc.
outs’ in the organisation. Thus, a well managed organisation (d) Shortage costs are the ‘direct’ and ‘indirect’ costs paid by
would necessarily have a higher inventory turn-over rate and an organisation for not having a particular item in ready
lesser cash would be blocked as inventory/stocks. In order to stock. The impact of this shortage would depend on the
manage any organisation without affecting its outputs, some criticality of that item and its importance for functioning
amount of ‘inventory’ is necessary so that raw materials are of the organisation. In a hospital set up, let us assume
available in correct quantity at correct time. Similarly, in a that there is a sudden shortage of life saving drugs like
health care establishment some inventory of essential drugs Digoxin. The direct cost of this shortage would be in form
and supplies has to be maintained to ensure that health care to of the expenditure incurred by the hospital in procuring
patients does not suffer. these drugs urgently from the open market at a premium.
In any hospital, high quantities of inventory in form of large The ‘indirect cost’ would be in the form of adverse publicity,
number of costly drugs and supplies would be detrimental suspended healthcare in form of refusal of admissions and
to profitability and smooth running of the hospital due to may be a few avoidable deaths due to shortage of those
blocking of cash in form of idle stores, requirement of large critical drugs.
storage space for medical stores, substantial handling and Types of Inventory Control
transportation charges, pilferage and cost of expired medical Pareto, a German economist found that in any given city,
stores. The ultimate aim of inventory control in a healthcare 20% of the people controlled 80% of the income & 80% of the
setting is to ensure that adequate and optimal essential items other people controlled only 20% of the finances of the city.
are properly stored, controlled, are easily retrievable and This ‘Pareto’s law’ also forms the basis for inventory control,
distributed to points of uses so that patient care does not suffer wherein it is theorized that a few items in the inventory will
due to lack of these essential medical supplies. account for a large proportion of total cost whereas bulk of the
Some Important Economic Terms in Inventory items will account for only a small percentage of the cost or
Control importance of total inventory. Thus, basic principle of inventory
(a) Purchase cost is the actual cost paid for the purchase of control is based on the effort to closely control costly / critical
materials & stores, and the aim should be to reduce this as items in inventory all the time, while other, less important /
far as possible without compromising on the quality and less costly items could enjoy less stringent controls. Various
quantity of items purchased. selective inventory control measures are as under :-

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(a) ABC : Inventory control based on annual total cost of items
Table - 4
and not on unit cost of an item. This type of inventory
control is described in detail subsequently. Annual
% of
(b) VED : Based on criticality and importance of consumables, S. consum- Cumulative
Name of drug /Item total
items are classified as Vital (V), Essential (E) and Desirable No. ption cost (Rs)
cost
(D). cost (Rs)
(c) HML : Items are classified based on cost of individual item 01 Inj Ciprofloxacin 9000 9000 9%
as High cost (H), Medium cost (M) and Low cost (L). This
02 Tab Ciprofloxacin 8500 17500 17.5 %
classification does not depend on consumption of items.
(d) SDE system is based on the ease of availability of items 03 Inj Dexamethasone 8300 25800 25.8 %
and items are classified as Scarce (S), Difficult to obtain 04 Inj Ampicillin 8000 33800 33.8 %
(D) and Easy to obtain (E).
.....
(e) GOLF system is based on the source of supply & include
Governmental sources (G), Ordinary (O), Local (L) and 10 Inj Streptokinase 5000 70000 70%
Foreign (F). .....
(f) FSN : Items are classified based on the rate of issue from
30 Oint Soframycin 1000 90000 90%
the stores into Fast- moving (F), Slow moving (S) and Non-
moving (N) items. .....
(g) SOS is the classification of items based on Seasonal (S) 100 Gauze 100 100000 100%
and Off-seasonal (OS) availability.
(h) XYZ is the classification based on the value of stocks of
items held. Fig. - 2
An ideal inventory control mechanism would ensure the optimal 100%
Percentage of number of inventory costs
quantity of resources at all times at all places where they
90%
are required for smooth & unhindered operations and would
prevent stock- outs and under-stocking. At the same time, a
70%
good inventory control system would also prevent over-stocking
and blockage of vital finances in form of idle stocked stores. In
a health care setup, a good inventory control systems would
improve the service delivery and enhance patient satisfaction,
reduce the operating (functional) costs of the hospital, increase
efficiency and liquidity (cash availability), thereby improving
the return on investment (ROI).
A B C
ABC Analysis
ABC Analysis is based on the principle that generally a small 10% 30% 100%
proportion of items account for a large proportion of cost and Percentage of number of inventory items
vice versa (Pareto’s Law) and under this system, inventory
items are classified based on the total annual cost of the
different items. It is usually seen that 10% of the stores would
cost 70% of the total resources (Group A items); 20% of the It is thus derived that group A items, which are the costliest
items would cost around 20% of total resources (Group B items) should be kept under strict control and should be monitored
and remaining 70% of items would cost only 10% of the total closely for turnover and expiry. If such costly items accumulate
resources (Group C items). in large quantities in a hospital, they would block scarce
finances and lead to high cost of operating the hospital. ABC
Steps Involved in ABC Analysis in a Hospital
analysis of inventory leads to certain benefits in form of
(a) Consumption cost of each medicine/ item is worked out for guidance to the manager about level of control for each type of
the whole year. item, which are summarized in Table - 5.
(b) The medical store items are arranged in descending value
of their annual cost, the most expensive being at the top VED Analysis
and item which is least costly being placed at the bottom. VED analysis is based on the ‘criticality’ and importance of
(c) The cumulative cost is then calculated and a table is an item and not merely on the annual cost of consumption of
prepared (Table - 4) . items. Often it is seen, especially in health care settings that a
(d) From Table - 4 above it is seen that about 10 % of items would medicine of low cost and low consumption is critical in saving
cost 70 % of total annual cost. These are termed as group ‘A’ lives and the hospital can not ignore such drugs simply because
items. The next 20 % items would cost 20 % of total annual cost they fall in group ‘C’ category (if classified as per their annual
and these are termed as group ‘B’ items. The rest of 70 % items cost). For example, Inj Rabipur or Anti snake venom may be
account for only 10 % of the total annual cost of all hospital items used only once or twice in a month and thus have very low
and these are the group ‘C’ items. Same is depicted in Fig - 2. annual cost and usage, but these drugs are vital & life saving
drugs and have to be available in every hospital at all times.

• 336 •
 even if they are not available for a long time. In addition
Table - 5
this category would also include least costly medical stores
Activity Group A Group B Group C which need not be kept under strict control.
Monitoring Very strict Strict Moderate
Summary
Safety stock Low Medium High Logistics management is defined as “the systematic and
to be kept scientific process of planning, implementing and controlling
Level of control Tight Moderate Low the efficient and effective flow and storage of resources (goods
for issue & services) from point of origin to the point of consumption
Estimates of Very Moderately May be low in order to meet the customer’s requirements”. Logistics
requirements accurate accurate management in a health care set up becomes essential to
ensure procurement and provisioning of vital medical supplies
Frequency of Most Less Least at the correct cost, consistency in quality, low storage cost
purchase frequent frequent frequent and high turnover of items. Any healthcare establishment is
Turnover Maximum Medium Least heavily dependent on material, equipment and medicines and
turnover turnover hence logistics management assumes great importance since
availability of the right item, at right time, right place and in
Management Top level Middle Lower level
the hands of the right person can often make the difference
involvement level
between life and death in a hospital.
VED analysis of inventory classifies various items into three Broadly, Logistics Management in a health care establishment
categories of Vital (V), Essential (E) and Desirable (D). would encompass the activities like Tendering, procurement
(a) Vital items (V) are items like Oxygen which are vital for & inspection; Storage, standardization, codification &
functioning of a health care establishment and whose classification; Materials accounting & physical distribution;
shortage will have serious adverse effects on routine Transportation; Security of materials; Condemnation and
functioning of the organisation. Such vital items should disposal of stores. The process of Tendering and Procurement
be monitored by top management, irrespective of their cost involves Vendor rating, Analysis of bids, Price negotiations,
and their availability should be ensured with sufficient Issue of purchase order and Purchasing. The storage system is
stocks available in medical stores. to receive material, check it for quality and quantity, prepare
(b) Essential items (E) are the items whose shortage or non– the receipt vouchers, accept the inspected and passed material,
availability can only be afforded for a short time (such undertake documentation for payment of bills, store the
as intravenous sets & IV fluids in a hospital) and if their accepted material properly and safely, issue required material
shortage continues for anything more than the shortest to various departments on requisition from them, prepare
time, the functioning would be affected seriously and issue vouchers and account for them. Codification of goods
adversely. is to ensure quick tracing & retrieval and early identification
(c) Desirable items(D) are those items whose shortage would of dead / duplicate stocks. It is done by various methods like
not affect the routine functioning of an organisation even Alphabetical system, Numerical system, Combined alphabetical
if the shortage is for a long time (such as Vit E capsules or and numerical system, Brisch system, Kodak system etc.
sun screen lotions in a hospital’s medical store). Accounting of materials is essential that in order to demand
As highlighted earlier, hospital and medical stores can not be the optimal material, the stock held with the stores must be
only classified on the basis of their annual cost and annual accurately known and maintained. This is important to prevent
consumption, since some items may be vital life saving stores over-ordering of material and is absolutely essential to avoid
even though they are of low cost and low usage. If a hospital ‘stock- outs’, both of which are detrimental to functioning of
inventory is classified only by ‘ABC system’ based on cost and an organisation.
usage, such vital drugs would invariably fall in group ‘C’ and Inventory may be defined as “usable but idle resource having
would be given least importance. Thus it is felt that in a hospital an economic value”. It can also be described in financial
setting, a combination of ABC analysis (based on annual cost) terms as the sum total value of raw materials; semi processed
and VED analysis (based on the criticality of the item) is to be and finished goods at any given time. In any hospital, high
adopted, as under : quantities of inventory in form of large number of costly drugs
(a) Category I contains all the vital and costly items, whose and supplies would be detrimental to profitability and smooth
shortage may adversely affect the functioning of the hospital running of the hospital due to blocking of cash in form of idle
or whose over stocking /pilferage may lead to financial stores, requirement of large storage space for medical stores,
loss to the hospital. These items such as Inj Rabipur, Anti substantial handling and transportation charges, pilferage and
snake venom or costly medicines and vaccines should be cost of expired medical stores. The ultimate aim of inventory
monitored by a senior manager himself. control in a healthcare setting is to ensure that adequate and
(b) Category II items are essential but are less costly and can optimal essential items are properly stored, controlled, are
have lesser stringent controls. easily retrievable and distributed to points of uses so that
(c) Category III items are the stores and medicines which are patient care does not suffer due to lack of these essential
desirable but would not affect the functioning of the hospital medical supplies. Various selective inventory control measures

• 337 •
are ABC (Inventory control based on annual total cost of items Study Exercises
and not on unit cost of an item); VED (Based on criticality
Short Notes : (1) Tendering and procurement of medical stores.
and importance of consumables, items are classified as Vital,
(2) ABC Analysis (3) VED analysis.
Essential and Desirable); HML (Items are classified based on
cost of individual item as High cost, Medium cost, and Low MCQs
cost); SDE system (based on the ease of availability of items 1. The analysis which is based on the principle that generally
and items are classified as Scarce, Difficult to obtain and Easy a small proportion of items account for a large proportion
to obtain); GOLF system (based on the source of supply & of cost and vice versa is a) ABC analysis b) VED analysis c)
include Governmental sources, Ordinary, Local and Foreign); HML d) SOS.
FSN (based on the rate of issue from the stores into Fast- 2. The analysis which is based on the ‘criticality’ and
moving, Slow moving, and Non-moving items); SOS (based importance of an item and not merely on the annual cost
on Seasonal and Off-seasonal availability); XYZ (based on the of consumption of items is a) ABC analysis b) VED analysis
value of stocks of items held). ABC Analysis is based on the c) HML d) SOS.
principle that generally a small proportion of items account for 3. A contract with a vendor to periodically supply low cost
a large proportion of cost and vice versa (Pareto’s Law). VED items only on receipt of an authorized release order from
analysis is based on the ‘criticality’ and importance of an item the organization is called a) Rate contract b) Blanket
and not merely on the annual cost of consumption of items. ordering c) Cash purchases d) System contracting.
Answers : (1) a; (2) b; (3) b.

Path Method (CPM) and Project Evaluation & Review Technique

64 Modern Management Techniques (PERT), which are discussed subsequently.
Critical Path Method (CPM) : Here, it is assumed that durations
Anuj Bhatnagar of individual activities in a project are known with certainty.
The method thus helps to determine the earliest possible start
It has been increasingly realized that with increasing time & latest possible start time for each activity. CPM also
complexities of activities and projects being planned and identifies the critical activities, which are critical because if any
undertaken, the conventional methods of management are no of these activities are delayed by even a short period, the entire
longer adequate to meet the demand of today’s projects. With project will be delayed. CPM requires greater planning but this
larger and complicated organisations with their own unique is justified by concentrating on critical path only and avoiding
organisational and structural issues a need has been felt for expense on strict supervision & control on non-critical activities
better, more effective and innovative managerial methods, or on whole project. Besides ascertaining the time schedule of
some of which are discussed in this chapter. a project, CPM is also the standard method of communicating
project plans, progress and costs.
Network Analysis Project Evaluation & Review Technique (PERT) : PERT
Network analysis is a means of planning and controlling involves planning, monitoring and controlling of projects
processes. In this, a project is broken up into small operations where time taken for each activity in the project is not known.
which are arranged into logical sequence. Thereafter, the order It uses probability to estimate the timings of various activities
in which these actions are to be performed is decided and a in the project and linear programming for maximizing the
network diagram shows the relationship between the various achievement of objectives. PERT is classically used in long-term
operations involved. Thus, any network analysis indicates projects like construction of hospitals, ships, roadways and
the relationship between various operations involved and buildings, in planning & launching of new health programs,
also points out which activities are to be completed before the products & services, in publication of books etc where exact
others are begun. For example, the simple process of making time for each phase is not known with certainty. PERT uses
tea and snacks may be interlinked with each other by common probabilistic and linear programming methods to assist a
resource (gas stove). Also the activity of serving tea can not be manager in planning schedules & costs, determining time &
completed till the time the activity of preparing tea has been cost status, forecasting skill requirements, predicting schedule
completed. This is a highly simplified example of network slippages & cost overruns, developing alternate time cost plans
analysis, which indicates interdependence between two or & committing resources to various tasks. Under PERT, three
more activities and the time-schedule between such activities time-estimates are made, as under :
in a large project. Time management of a project, an important (a) Most Likely Time is the time taken most frequently in
managerial control technique, can be done through Critical completing a particular activity.

• 338 •
(b) Optimistic Time is time in which an activity can be motivation. The term MBO was first used by Peter Drucker
completed, if all goes as per the pre-determined plan. more than 25 years ago in a very broad sense as an approach
(c) Pessimistic Time is the time taken to complete an activity to or philosophy of management. John Humble of United
under most adverse conditions. This is thus the longest Kingdom described MBO as “a system which integrates an
possible time taken to complete a project. organisation’s need to achieve its objectives with the managers’
From the above estimates, expected time for completion of an need to contribute and develop himself”. Thus, MBO can be
activity is computed as : defined as a managerial approach which uses objectives as a
focal point to improve managerial performance & effectiveness
Optimistic Time + (4 X Most Likely Time)
at individual and organisational levels. The important feature
Expected Time for + Pessimistic Time
= of MBO which distinguishes it from other planning and control
an activity 6
processes is the emphasis on results (objectives) rather than on
Unlike in CPM (where time taken for completion of each activities & processes. In MBO, the emphasis is on outputs and
activity is known & certain), PERT is used when time taken for not on inputs. MBO, being based on behavioural approach to
various activities is uncertain and hence time of completion of management, is based on concepts as under :
the entire project itself is also uncertain. Hence the expected (a) Emphasis on results rather than activities.
time of completion & variance of project completion time are (b) Defining objectives (expected results) for specific
estimated. The expected completion time can be estimated as positions.
in case of length of critical path in CPM method, by replacing (c) Participatory or Joint objective setting.
activity times by the expected time of various activities. An (d) Identification of Key Result Areas (KRAs)
illustration of critical path method is shown in Box - 1. (e) Establishing a Periodic Review System.
MBO also emphasizes the concept of “means-ends” sequence.
Box - 1 : Critical Path Method : An illustration Results at one echelon in an organisation are the means to
Let us depict a project by breaking it up into individual results at the next higher level and results for a given span of
activities (A to G) as under :- time are the means to results for a longer time-span (Shown
as in Fig - 1). MBO leaves detailed methods & actions to the
C, 2 2 D, 2 5 concerned managers by focusing on attaining objectives, and
G, 2 therefore, results in better delegation, decision-making & job
satisfaction at all levels.
1 A, 4 4 E, 7 6 F, 3 7
Fig. 1 : Means - Ends Process (Cascading Process)
B1, 1
Organisation Long term objectives
B, 2 3
Organisation (Short-term)
Let us assume that activities A, B, B1, C, D, E, F & G take 4, 2, 1,
2, 2, 7, 3 & 2 weeks respectively in the entire project of Step No KRAs Corporate Objectives Action Plans
1 to 7. Here we see that A, B & C can be started simultaneously
since they do not have any preceding activity. Activities A, E & F Departments / Units
for steps 1, 4, 6 & 7 take a total of 14 weeks (4+7+3). This is the
critical path since any delay in this sequence will result in delay KRAs Objectives Action Plans
for entire project. For the sequence 1-2-5-6 (6 weeks), we have a
lead time of 5 weeks since sequence 1-4-6 will take minimum of Individual Managers
11 weeks. Similarly sequence 1-3-4 (3 weeks) has a lead time of
KRAs Objectives Action Plans
1 week over activity A which will take minimum of 4 weeks.
This way, CPM not only helps in planning & sequencing of
activities, it also indicates the critical activities (which when The MBO Process
delayed, will lead to delay in entire project), thereby concentrating There are broadly four steps involved in MBO process, as
on strict control & supervision of such critical activities. under:
CPM is an effective managerial control technique where time (a) Identifying the Key Result Areas (KRAs) : KRAs delineate
taken for various activities are known with certainty. However, the broad areas on which the organisation must focus its
very often, for long projects, esp in Research & Development, attention. They are based on the concept that a smaller part of
time duration for various activities can not be predicted. Here, manager’s activities yield larger proportion of his results. Here,
we use the Project Evaluation & Review Technique (PERT) it is worthwhile to mention the 20 : 80 concept, which implies
that 20% of a manager’s activities/efforts/time (which are thus
Management by Objectives (MBO) critical & important) account for 80% of his results/output and
as much as 80% of his activities/efforts/time (which are thus
MBO is a modern managerial tool by which managers can not important) lead to only 20% of results/output. KRAs help to
improve their performance and their overall effectiveness. identify those 20% activities/efforts/time which will yield 80%
The concept of MBO can be, in a way, considered an extension of the results/output, thereby focusing on them and improving
of normal management functions of planning, control &

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effectiveness. Once KRAs have been correctly identified, it is be performed and the specific time when each activity will be
easy to concentrate on important aspects and give lower priority performed. The four broad steps essential in all action plans
to less important activities, thereby conserving vital resources. are:
A KRA is an area where results are important, where success (i) Choice of strategies which are essential for achieving
would lead to significant gains and where failure would be objectives.
disastrous. Although the emphasis is on objectives in MBO, (ii) Fixing the responsibility for achieving each objective.
it is even more important to identify KRAs. There are several (iii) Resource allocation for achieving the objectives.
ways to identify KRAs, including data analysis and brain (iv) Scheduling specific activities in specific sequence for
storming, wherein all possible KRAs are listed and a short list maximum utilization of resources.
is thereafter selected. The process of identifying KRAs by the Activities (series of acts) have to be done in a particular
top management consists of the following broad steps :- sequence for attaining the objectives. Thus, all activities have
(i) SWOT Analysis : Analysis of Strengths, Weaknesses, to be arranged sequentially in most logical manner & each
Opportunities and Threats. activity has to be completed within a stipulated time frame.
(ii) Brainstorming exercise to identify all possible KRAs. This is called scheduling, which converts plans into action
(iii) Discussion, analysis & classification to arrive at an agreed plans. An example of Action Plan is given below. Let us assume
list of KRAs. that as the District Health Officer, you, after SWOT analysis and
(iv) Establishment of specific objectives in each KRA. brain storming session with your peers and colleagues, have
(v) Preparation of Action Plans, including assignment of identified two of your KRAs as “upgradation of infrastructure”
responsibilities for results to be achieved. at all hospitals/PHCs and “printing of new health education
(b) Setting up Objectives : Having identified KRAs, the next material on HIV/AIDS prevention” for the district. With these
step is to set up objectives within these KRAs, which have to KRAs, an action plan would be drawn out as in Box - 2.
be measurable and quantifiable. The broad organisational (d) Performance Review : Performance review, in the MBO
objectives define the purpose & mission of the organisation and process, focuses on performance appraisal, improvement,
generally answer the question “what is our business?” Long- future corrective action, frequency of reviews & self appraisal.
term and short-term objectives emanate from organisational The main purpose of performance review in MBO process is to
objectives. Strategic objectives are related to choice of product, provide corrective feedback to the concerned person. A system
technology or market. Choice of objectives (statement of of Performance Review under MBO is shown in Fig - 2 :
expected result) is the starting point for management process
in MBO. Hence under MBO, all inputs and processes are Fig - 2 : Performance review under MBO
modified to meet the requirements of objectives. No doubt
that activities are essential to obtain results, but it is well Desired Implement Plan Analyse
known that all activities do not contribute to achievement of Performance corrective corrective deviation
action action
objectives. In addition, objectives should be stated in terms of
expected results and not merely in terms of planning activities
or activities. It is well established that specific, quantifiable,
Actual Compare Identify
measurable and concrete objectives result in higher levels of Performance Performance with deviation
performance as compared to when managers are merely told objective
to perform their best. An objective is a statement of expected
results, which provides guidelines for decisions and actions at
lower level & provides standards against which performance
Advantages & Disadvantages of MBO are shown in Box-3
is assessed.
Any objective thus, should have the following Box - 3 : Advantages & Disadvantages of MBO
four elements, which are also determinants of Advantages
improved performance, viz., Quantity, Quality,
Cost and Time. Objectives are successful as ●● Greater role clarity, job satisfaction and better measurement of
guidelines only if they are quantifiable & performance.
measurable. If you can not count, can not ● ● No wastage of scarce resources.
describe, can not measure what you want, you ● ● Single-minded dedication to achievement of objectives.
probably do not know what you want, and hence ● ● Motivating factor & weeds out non-performers.
can not use it as an objective in your plan of ● ● Increases productivity through role clarity & increasing job satisfaction.
action. ● ● Provides objective appraisal method.
●● Strengthens superior-subordinate relationship.
(c) Action Planning : Action plans are the means ●● Based on concept of participation
to convert objectives into reality. Objectives
describe what is to be achieved, whereas action Disadvantages
plans describe how these objectives are to be ●● Problem of joint setting of objectives among unequals in the
achieved. Every objective has to be achieved organisation.
only through converting them into specific ●● MBO may not always percolate to the lowest level in the organisation
action plans, which specify what activities will ●● Difficult to implement in situation of change.

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 Box - 2 : Action Plan
KRA’s Objectives Action Plans
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Timing of rooms ----------------------------------------------- --------------------------------------
in PHC’s
Upgradation of Est. of LAN at all PHCs ---------------------- --------------------------------------
infrastructure and district hospitals
Est. of computer -------------- -----------------------------------------------
room at all PHCs
Release of funds ---------------------- ----------------------
Printing of new
health education Designing, printing -------------- ----------------------
material on HIV and distribution of
AIDS prevention health education
material

Legend : Where Planning Phase is depicted by ------ & Execution of activities by ------

Total Quality Management (TQM) service. Under TQM, improvement is viewed as an incremental
change over the previously existing level of quality rather than
Quality can be defined as “the totality of features and
any major breakthrough in the manufacturing process.
characteristics of a product / service which have the ability
to satisfy the clients felt / implied needs”. Total Quality Various TQM Methods and their Role in Management
Management (TQM) as a management tool, focuses on TQM methods are aimed at bringing about a change in the
continuous improvement of procedures and processes organisational culture wherein customer satisfaction is the
involved in any activity or any services. The entire focus in over-riding concern in the mind of each and every member
TQM is to continuously improve the way things are done in of the organisation, irrespective of the importance or status
an organisation, for which each member of the organisation of his or her job. The introduction of TQM in an organisation
must know what is the right thing to do, how to do these invariably begins with setting up of teams to solve problems
right things and how to measure the current level of quality and by educating and training team members.
and improvement in this level. The basic principles of TQM, Some important TQM methods are as under
on which all activities in TQM are carried out are described as
(i) Acceptable Quality Level (AQL) provides a set of pre-
under :
determined rules and standards for acceptance or rejection
(a) Satisfy the consumer : TQM involves satisfying the felt of a product, so that each item inspected for its ‘quality’
or perceived needs of the customer, which tend to change with is classified as acceptable or unacceptable. This is used
time and circumstances. Managers need to be sensitive to these to ensure that the supplier provides at least the minimum
changes in expectations of clients since being able to always quality mutually agreed upon by both the customer and
satisfy the customer in an integral part of TQM. the supplier of the product/services.
(b) Management based on facts : Every manager needs to (ii) Affinity diagrams provide some type of relationship
have access to correct facts about the product or services being to groups within an organisation. Such methods are
offered by the organisation. Based on these facts, improvements useful when a team attempts to translate the customer
can be initiated in the product / services. TQM also involves requirements into an organisational structure, which
apprising the client of the correct facts about the product. requires to highlight the associations rather than only the
(c) People-centric management : It has been seen that people logical sequence & connections of client needs.
tend to take responsibility for their actions and are willing to (iii) Arrow diagram is used to depict the time required to solve a
improve upon the processes once they understand what to do problem in the organisation. This can be used for planning
and how to do. By themselves, mere procedures, standards and routine daily projects where depiction of time required for
technology can not ensure quality without the commitment completing each step is essential.
of people involved in producing the product / rendering the (iv) Benchmarking provides comparison with pre-determined
service. By involving the stakeholders, especially the workers, standard of quality of product/service, thereby focusing on
commitment to quality (and customer satisfaction) can be overall mission of the organisation and is a process which
enhanced significantly. compares the performance (quality) with that of others,
thereby ensuring better performance through comparison.
(d) Ongoing improvement : TQM is not a short term or (v) Consensus reaching is a way of examining alternatives so
one-time activity which would end once the target has been that an organisation can collectively reach a conclusion
achieved. It is an ongoing process which aims to improve the which is acceptable to all members of the organisation.
every day routine procedures & processes involved in product /

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(vi) Contingency planning is the process of planning for through small routine procedures and facilities provided by a
unforeseen circumstances to ensure least wastage of hospital. Quality can be described as “doing the right thing the
resources and to avoid ‘fire-fighting’ at the last moment. first time and doing it better the next time”. Quality in health
(vii) Cost benefit analysis involves the analysis of real cost and care has to be patient-centric and should meet the expectations
benefit involved in the project. It is used to assess if the of a patient (client) in the most cost-effective manner. The
solution is practical and achievable in terms of the cost need and importance of quality in health care settings imply
incurred by the organisation. that Total Quality Management (TQM) in health care has vast
(viii) Criteria testing is the process of listing the various criteria scope.
and evaluating an alternative course of action against
these pre-determined & pre-decided criteria. Summary
(ix) Deming Wheel (PDCA) is a graphical representation With larger and complicated organisations with their own
of essential requirements to satisfy a customer’s unique organisational and structural issues a need has been
requirements, namely, plan (P), do (D), check (C) & action felt for better, more effective and innovative managerial
(A). Such a managerial tool is used extensively to develop methods, some of which are Network Analysis, Management
new products & services based on the felt needs of the By Objectives (MBO) and Total Quality Management (TQM).
clients. Network analysis is a means of planning and controlling
(x) Error proofing (pokayoke) is the managerial process of processes. In this, a project is broken up into small operations
designing and conducting an operation in such a manner so which are arranged into logical sequence. Thereafter, the
as to eliminate specific errors which cause major disruption order in which these actions are to be performed is decided
of process / services, thereby causing dissatisfaction to and a network diagram shows the relationship between the
customers. various operations involved. Time management of a project,
(xi) Force analysis is used while developing the contingency an important managerial control technique, can be done
plan for identifying the various issues (forces) and through Critical Path Method (CPM) and Project Evaluation &
problems and their effect on the organisation. Review Technique (PERT). In CPM it is assumed that durations
(xii) Gannt Charts are graphical representation of the essential of individual activities in a project are known with certainty.
steps for completing a project. Thus the entire project is The method thus helps to determine the earliest possible start
broken down into smaller component steps and a graph time & latest possible start time for each activity. CPM also
is created to depict the time scheduling of each step (as identifies the critical activities, which are critical because
shown under “action plan” earlier under MBO). Gannt if any of these activities are delayed by even a short period,
charts make it easier to identify the various steps involved the entire project will be delayed. PERT involves planning,
and also easily indicate (visually) when the deadline for monitoring and controlling of projects where time taken for
particular step in the project has been missed. each activity in the project is not known. It uses probability
(xiii) Kaizen (change for the better) is a Japanese concept which to estimate the timings of various activities in the project
implies an on-going and continuous improvement in all and linear programming for maximizing the achievement
activities in an organisation and at all levels. It is a people- of objectives. It is classically used in long-term projects and
centric concept which depends on their commitment and uses probabilistic and linear programming methods to assist
participation for effective implementation, which may be a manager in planning schedules & costs, determining time &
for products or for services. Quality circles & suggestion cost status, forecasting skill requirements, predicting schedule
schemes in organisations are important methods to slippages & cost overruns, developing alternate time cost plans
implement the concept of Kaizen. & committing resources to various tasks.
(xiv) Pareto analysis (proposed by Wilfredo Pareto) is used Management By Objectives (MBO) is a modern managerial
extensively and effectively to identify the important tool by which managers can improve their performance and
causes for poor performance (or quality) which need to be their overall effectiveness. It is a system which integrates an
addressed on priority. This is also called the 80/20 rule organisation’s need to achieve its objectives with the managers’
which states that 80% of the problems are caused by 20% need to contribute and develop himself. It can be defined as a
of the activities and hence the organisation should ideally managerial approach which uses objectives as a focal point to
concentrate on these 20% activities which determine the improve managerial performance & effectiveness at individual
large proportion of problems in manufacturing a product and organisational levels. The important feature of MBO which
or delivery of a service. distinguishes it from other planning and control processes is
(xv) Quality Circles (QC) are small groups of individuals who the emphasis on results (objectives) rather than on activities
regularly meet voluntarily during duty time and attempt to & processes. It also emphasizes the concept of “means-ends”
solve problems faced by the workers in the organisation. sequence. There are broadly four steps involved in MBO
QCs provide a direction and aim to individuals to identify process which are (a) Identifying the Key Result Areas (KRAs),
their own problems and solve them. which in turn include SWOT Analysis, Brainstorming exercises,
Quality assurance in health care is rendered difficult due to Discussion, analysis & classification, Establishment of specific
the fact that the output (health care) is most often intangible, objectives in each KRA, Preparation of Action Plans, including
highly personalized and can not be standardized in most cases. assignment of responsibilities for results to be achieved;
However, it must be remembered that patients perceive quality (b) Setting up Objectives within these KRAs, which have to be
of health care provided not only by the end result, but also measurable and quantifiable. Any objective should have the

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four elements, which are Quantity, Quality, Cost and Time. Study Exercises
(c)Action Planning: Action plans are the means to convert
Long Questions : (1) Enumerate some modern management
objectives into reality. The four broad steps essential in all
techniques. Describe Network Analysis. (2) Enumerate some
action plans are choosing strategies, fixing the responsibility,
modern management techniques. Describe Management by
allocation of resources and scheduling specific activities
Objective.
in specific sequence. (d)Performance Review: It focuses on
performance appraisal, improvement, future corrective action, Short Notes : (1) Critical Path Method (CPM) (2) Project
frequency of reviews & self appraisal. Evaluation & Review Technique (PERT) (3) Management By
Objectives (MBO) (4) Total Quality Management (TQM).
Total Quality Management (TQM) focuses on continuous
improvement of procedures and processes involved in any MCQs
activity or any services. The basic principles of TQM, on which 1. Planning, monitoring and controlling of projects where
all activities in TQM are carried out, are Satisfy the consumer, time taken for each activity in the project is not known is
Management based on facts, People-centric management (a) CPM (b) PERT (c) MBO (d) TQM.
and Ongoing improvement. Some important TQM methods 2. Emphasis is on results rather than on activities & processes
are Acceptable quality level (AQL), Affinity diagrams, Arrow in (a) CPM (b) PERT (c) MBO (d) TQM.
diagram, Benchmarking, Consensus reaching, Contingency 3. Identifying the Key Result Areas (KRAs) is first step in
planning, Cost benefit analysis, Criteria testing, Deming Wheel (a)CPM (b) PERT (c) MBO (d) TQM.
(PDCA), Quality Circles (QC) etc. 4. Cost benefit analysis is an example of (a) CPM (b) PERT
(c) MBO (d) TQM.
Answers : (1) b; (2) c; (3) c; (4) d.

Step 3 - Resource analysis : Data on available resources

Planning and Evaluation of Health
65 Services / Programmes
(health manpower, money and material) is obtained and
analysed.
Data for steps – 2 and 3 is either obtained as a secondary
RajVir Bhalwar data, from various sources as already described in detail in the
chapter on sources of data in epidemiology or else obtained as
Today the importance of planning and evaluation needs no primary data by a survey, as per details given in a subsequent
further emphasis. What is relevant to note, at this point is that chapter.
epidemiology is central to the successful execution of these key Step 4 - SWOT Analysis : The Strengths (S), Weaknesses (W),
managerial functions. The reason is simple – the indispensable Opportunities (O) and Threats (T) are identified in context of
requirement for any planning or evaluation process is “valid the proposed programme. S and W are permanent phenomena
and reliable data” and epidemiology is the science which deals that exist within the organization or community; O and T are
with valid and reliable data collection, collation, analysis and temporary, often fleeting, phenomena that exist in the external
interpretation (1). environment. For example, in a proposed programme for
The Planning Process prevention and control of HIV in our country, the organizational
and constitutional philosophy and political will of the country
Planning is a very scientific and systematic process which
to prevent HIV / AIDS is a “strength” which should be utilized
essentially visualizes as to where we are at present (present
to the maximum. At the same time, the common social
situation or baseline), where do we want to go (the future or
tendency not to encourage talking about sexual health is a
“outcome”), why do we want to go there (logic) and how do we
weakness pitched against us, and we need to either neutralise
get there (process). It consists of a series of steps and we need
it or circumvent it. The fact that recently funds have been made
accurate data at each of these steps (2).
available for developing health educational material and that
Step 1 - Laying down the premises (scope) : This defines the new Mayor of the city is strongly in favour of educating
the general perimeters or “boundaries”, in terms of place, time, the public as well as high risk groups for HIV / AIDS, is an
population and disease condition(s), within which the health opportunity and we should grab this opportunity. However,
program being planned, will be restricted to (3). if there has been some recent resistance and objection from
Step 2 - Situational analysis : Relevant Demographic (age, parents against sex education of children, it is a threat and we
sex, population distribution etc.), socio-economic (literacy, need to either negotiate it or else bypass it.
occupation, economic status etc.) and disease data (mortality Step 5 - Ensure Community participation : Identify the
and morbidity) is obtained and analysed. community leaders, peers and voluntary groups and involve

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Step 13 - Undertake a “Pilot Run” : This is another very Summary Box: Steps in Planning The Health Programme
important step. Do a small scale trial run of your procedures
and rectify any defects that are observed. ●● Laying down the premises (scope)
●● Situational analysis
Step 14 - Conduct the Programme : Launch the programme
●● Resource analysis
in a full fledged manner. Ensure that you or your dependable
●● SWOT analysis
deputies are there always at the sites where the services are
●● Enunciation of the “Community Needs”
being delivered. Make it a point to regularly obtain and analyze
●● Setting the Priorities
data on various aspects as the programme progresses, making
●● Identify the “High Risk” Groups
changes if required.
●● Enunciate the Goal (Aim), Objectives, Indicators and
Step 15 - Evaluate the programme : Evaluation is the process Targets of the Programme
of assessing the extent to which our results are commensurate ●● Choose a Strategy
with our pre-decided objectives. Evaluation should be a ●● Draw an Action Plan
continuous process as the programme progresses (concurrent ●● Work out where are your high risk persons are located
evaluation) and not simply an exercise to be undertaken at the and how will you address accessibility and coverage
end of the programme (terminal evaluation). For evaluation, ●● Ensure Community participation
we again need valid and reliable data in the same way that ●● Organise the manpower, material, and finances
we obtained in the planning stage. Broadly, evaluation is ●● Undertake a “Pilot Run
undertaken for six different facets, as follows : ●● Conduct the Programme
●● Evaluation of Relevance : This evaluates whether we ●● Evaluate the programme
need to continue it as such or in some modified manner - Relevance
(concurrent evaluation) or, at the end when we do terminal
- Adequacy
evaluation, to find out whether the programme was
required at all. This requires obtaining and reviewing the - Process
data / intelligence about situational analysis, resources - Efficacy, Effectiveness and Efficiency
and community needs.
●● Evaluation of Adequacy : Whether the required amount Summary
of manpower, equipment, expendables, logistics, other
Planning is a very scientific and systematic process which
type of material and finances have been provided? Have
essentially visualizes the present situation or baseline, the
they been suitably placed?
future or “outcome”, the logic of doing so and the process
●● Evaluation of Process : How are / were the services/
therein. It consists of a series of steps, each of which necessitates
activities undertaken? What has been the quality of accurate data. The first step in planning & evaluation of a
services? Were the services accessible to or provided to all health programme involves laying down the premises or scope
the beneficiaries or only few segments? For example, are of the programme i.e., the general perimeters or “boundaries”,
the targeted number of children being vaccinated, have within which the health program being planned, will be
some areas been left out, the scheduled number of patients restricted to. Thereafter, a Situational analysis is undertaken,
being seen and the planned number of health education in which relevant demographic, socio-economic and disease
sessions being taken, and so on? data is obtained and analysed.
●● Evaluation of Efficacy, Effectiveness and Efficiency: The next step would be an analysis of resources available;
Efficacy answers the question “can the programme or health manpower, money and material is assessed at this
procedure work” (maybe in ideal or controlled situations); step. After this, we proceed to perform a SWOT analysis,
Effectiveness addresses the question “Does it work” (i.e., wherein Strengths, Weaknesses, Opportunities & Threats are
in the real life situations); Efficiency answers the issue “Is assessed. S and W are permanent phenomena that exist within
it the most economical way (in terms of time or money)”. the organization or community; O and T are temporary, often
For example the conventional combination regime of flitting, phenomena that exist in the external environment.
Streptomycin, INH and Thioacetazone may still give good Ensuring community participation and enunciation of the
results for curing pulmonary tuberculosis if we were to “Community Needs” (vis-à-vis the “professionally assessed
treat patients admitted into the sanitoria for 18 months needs”) would be the next step in the process. Setting the
(i.e., is efficacious), but in the real domiciliary settings, Priorities i.e. addressing the most important requirements
bring about only about 30% cure (is not effective), while given the available (and expected) resources, would be the next
MDT would cure 70 to 80% patients in real life domiciliary step. An epidemiological method for according priorities is to
settings (is effective). Finally, comparison between the total consider Importance of disease, Effectiveness of Interventions
costs of the two regimen (drugs, duration of treatment, and Cost of interventions and give marks (as numerals 1, 2 or
requirement of doctors, paramedics and hospital buildings, 3) to each heading.
commuted cost of reduction in human suffering due to The next step would be identification of “High Risk” Groups i.e.
earlier cure, etc) vis-à-vis the overall cure rate may finally those persons, who due to some characteristics, have a much
indicate that short term MDT may be more “efficient”. We higher chance of being affected by the disease or it’s adverse
have already had a detailed discussion on these aspects consequences- this would differ according to the health issue
in the chapter on studies on economic evaluation, in this being addressed. Subsequently, we proceed to enunciate the
section.

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them fully in the planning process. intends to achieve. Objectives, on the other hand, are specific
Step 6 - Enunciation of the “Community Needs” : We now statements, through which the overall goal would be achieved.
carefully evaluate our findings of situational, resource and Objectives are thus specific, quantifiable and usually relate to a
SWOT analyses and decide as to what are the major issues time-plan. Indicators are parameters and targets are numerical
(within the boundaries defined by our scope) which need to quantities written in conjunction with the indicators, which
be addressed and which can be feasibly addressed by us. We actually quantify the end points which the objectives are to
should also work out an optimum trade-off between ‘normative” achieve. For example in a program directed towards healthy
or ‘professionally assessed needs” (what we, as Doctors or lifestyle, the statement “to bring about healthy improvement in
public health care managers, feel that the community requires) various aspects of lifestyle and a reduction of lifestyle diseases
and the “felt needs” of the community (what the community so that they are no more a significant health problem” is the
members feel is their need). By way of community participation, broad goal or aim. The statement “To ensure that by 31 Dec
educate and convince the community if, in your perception, 2008, at least 80% of the adults undertake 45 minutes of brisk
their felt needs are unscientific or cannot be addressed within walk, daily, on at least 5 days a week” is an objective, in which
the resources (4 - 7). “community members who are undertaking regular aerobic
exercise as per defined criteria of 45 min a day on at least 5
Step 7 - Setting the Priorities : On the basis of our adjudged
days a week” is an indicator and “80% achievement by 31 Dec
community needs and the resources, work out the “priority”
2008” is the qualifying target.
areas within the proposed programme, which are the
most important requirements and we, given our available One of the most crucial steps in planning process is to
(and expected) resources, can feasibly address them. An intelligently enunciate the goal, objectives, indicators and
epidemiological method for according priorities is to consider targets. A lot of thought process and expert evaluation should
the following three headings and give marks (as numerals 1, go in at this stage. They should be realistically set, should be
2 or 3) to each heading as per following description. Disease do-able, neither too ambitious nor too under-achieving.
which gets the highest score (max possible will be a score of 9) Step 10 - Choose a Strategy and Draw an Action Plan : With
would get the highest priority while the lowest scoring disease the background of the enunciated goal, objectives, targets
(minimum possible score will be 3) gets lowest priority. and indicators, and duly considering the resources (step -
●● Importance of disease (based on mortality, morbidity, 3), select out as to what overall strategy you will use in the
suffering, cost of treatment and loss of productivity): proposed programme. For instance, in a proposed programme
3 marks if high importance, 2 if moderate, 1 if low for prevention of HIV, the strategy could be to only have health
importance. educational efforts, or else it could be a comprehensive strategy
●● Effectiveness of Interventions : 3 marks if interventions of combination of health education, blood safety, diagnosis
known to be very effective, 2 if moderately effective, 1 if and treatment, surveillance and PPTCT. Obviously the choice of
low or non effective. strategy will be strongly guided by the programme objectives
●● Cost of interventions : 3 marks if cost is low, 2 if moderate and your available / expected resources. If you do not have lot
cost and 1 if cost is high (Intervention could be a treatment of resources, naturally you would select a strategy of limited
or preventive modality). activities which are likely to give you the best results. Now,
Step 8 - Identify the “High Risk” Groups : High Risk groups having decided the strategy, write down a detailed action plan
are those persons, who due to some characteristics, have a much as to how the programme will be executed, as has been already
higher chance of being affected by the disease or it’s adverse explained in the previous chapter. Do ensure that a “time-line”
consequences. It is important, at this stage, to identify who are has been given for each objective, target and indicator, giving
the high risk persons, based on our situational analysis and the date of each end point.
identification of community needs, so that extra efforts may be Step 11 - Address the Issues of Accessibility and Coverage
directed towards them. Young children, women of child bearing : Get detailed spot maps of your areas and work out the
age, the elderly, people living in slums or inaccessible area aspects of population distribution, roads, communications and
are some of the usual examples of high risk groups. However, transportation. Do remember that very often, those who would
it depends on the disease or condition being addressed. For benefit most from your programme, are also the ones who are
example, in an educational programme to obtain favourable living far off, do not have access to your services, are often
change in sexual lifestyle, truck drivers may be identified as thought to be not really in need of the proposed preventive or
high risk group. The importance of identifying these groups curative services. Hence at this point, work out where are your
lies in the fact that while we shall direct our activities to all high risk persons located and how will you ensure that they are
members of the community but more focused and elaborate covered adequately.
(targeted) actions will be directed towards these special Step 12 - Organise the manpower, material, and finances :
groups. Consequently, large amount of benefit will occur from Place the required manpower, equipment, material and other
the programme if these groups are addressed. logistics at the required places. If some more resources are
Step 9 - Enunciate the Goal (Aim), Objectives, Indicators expected, make a plan as to where they will be relocated and
and Targets of the Programme : Once the community needs how. Make out detailed, written “operations manual” including
have been identified within the context of the proposed the operative procedures for each activity, i.e. “who will do what
programme, we enunciate the Aim or the Goal. This is a broad to whom and in what manner”. Ensure that your personnel
statement of the overall end-point which the programme have been centrally trained and tested for undertaking the
procedures.

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Goal (Aim), Objectives, Indicators and Targets of the Programme. of marks that would be given if interventions known to be
They should be realistically set, should be do-able, neither too very effective is (a) 1 (b) 2 (c) 3 (d) 4.
ambitious nor too under-achieving. 6. What the community members feel are their needs,
Thereafter, the Strategy to be followed will have to be chosen- are known as (a) Felt needs (b) Assessed needs
the choice of strategy will be strongly guided by the programme (c) Professionally assessed needs (d) Minimum needs.
objectives and your available / expected resources. After this 7. The conventional combination regime of Streptomycin,
is done, we proceed to draw an Action plan as to how the INH and Thioacetazone may give pretty good results for
programme will be executed, giving a time-frame for each curing pulmonary tuberculosis if we were to treat patients
activity. The next action would be to work out where the high admitted into the sanitoria for 18 months (say 90% cure),
risk persons are located and how the issues of accessibility and but in the real domiciliary settings, bring about only
coverage are to be addressed- this may be achieved by getting about 30% cure. This means that the regimen is (a) Both
detailed spot maps of the relevant areas and working out the efficacious and effective (b) Efficacious but not effective
aspects of population distribution, roads, communications (c) Effective but not efficacious (d) Neither efficacious nor
and transportation. At this point, a vital component would be effective.
to ensure community participation, without which the entire 8. Broadly, evaluation of a health care programme is
programme will be laid to waste. undertaken for how many different facets? (a) 4 (b) 5 (c) 6
(d) 7.
Organizing the manpower, material, and finances forms the
9. During preparation of which particular document in the
next step, wherein a detailed “Operations Manual” needs to
process of planning a health programme, it is to incorporate
be prepared, that would indicate who would do what, to whom
a time line i.e. a time frame for each objective, target and
and in what manner. Subsequently, a “Pilot Run” needs to
indicator, giving the date of each end point : (a) Operation
undertaken. Thereafter, the programme is launched in full
manual (b) High-risk group register (c) Pilot run (d) Action
swing – a pertinent point at this juncture would be to regularly
plan.
obtain and analyze data on various aspects as the programme
10. The maximum possible score that can be given to a
progresses, making changes if required.
disease/ health event in according of priorities for purposes
The final step in this series of events would be to Evaluate the of planning and evaluation is (a) 09 (b) 10 (c) 11 (d) 12.
programme-this is done on various parameters, which include 11. All of the following subset of data is analysed while
Relevance i.e. whether we need to conduct the program at all; doing a situational analysis, except (a) Demographic data
this can be done by concurrent or terminal evaluation. The next (b) Socio- economic data (c) Disease data (d) Resource
parameter to be assessed for would be Adequacy i.e. to assess data.
whether the required resources have been provided and suitably 12. “Threats” are permanent, mostly long-lasting, phenomena
placed. Thereafter, the process itself would be assessed- quality, that exist in the external environment. Yes/ No.
accessibility etc. The final parameters to be evaluated in 13. A broad statement of the overall end-point which the
conduct of a health care programme would be Efficacy (can the programme intends to achieve is known as (a) Target
programme work in ideal / controlled settings), Effectiveness (b) Indicator (c) Aim (d) Objective.
(does it work in real-life situations) and Efficiency (is this the 14. All of the following headings are taken into consideration
most economical way- in terms of time or money). for according priorities (through scoring system) in
Study Exercises conduct of a health care programme, except (a) Importance
of disease (b) Effectiveness of interventions (c) Cost of
Long Question : Epidemiology is an essential requirement at
interventions (d) High risk groups.
each step of planning and evaluating. Critically analyse this
statement. Answers : (1) d; (2) Yes; (3) b-d-a-e-c; (4) a;
(5) c; (6) a; (7) b; (8) c; (9) d; (10) a; (11) d;
Short Notes : (1) SWOT analysis (2) Aim, objectives, targets (12) No; (13) c; (14) d
and indicators (3) Planning cycle (4) Parameters on which
evaluation is undertaken. References
Exercises and MCQs 1. Alan Dever GE. Mangerial Epidemiology. Jones and Bantlett publishers
Sandburry, Mass, USA,Ist Ed 2006.
1. The first step in the process of planning a health programme 2. The Nature and purpose of Planning In : Koontz H, O’Donnell C, Weihrich H.
would be (a) SWOT analysis (b) resource analysis (c) Essentials of Management. Tata McGraw Hill Publishing Co. New Delhi 3rd
Situational Analysis (d) Laying down the premises Ed 1982. Chapter 4 : 61-88.
(scope). 3. Bammer G. Scoping Public Health Problems. In : Penecteon D, Guest C,
Melzer D, Muir-Gray JA eds : Oxford Handbook of Public Health Practice.
2. Strengths are permanent phenomena that exist within the Oxford Universi6ty Press, Oxford. 2nd Edition 2006 : 5-11.
organization or community. Yes/ No. 4. Murray SA. Experience with rapid appraisal in Primary Care : Involving the
3. Arrange the following steps in planning a health Public in Assessing Health needs, Orienting Staff and educating Medical
Students. BMJ 1999; 3 : 440-4.
programme, in the sequential & ideal order :
5. Wright J. Health needs assessment in Practice. London, BMJ Books Ist Ed
(a) Setting priorities (b) SWOT analysis (c) Evaluation 1998.
of the programme (d) Enunciation of community needs 6. Donaldson C, Mooney G. Needs assessment, priority setting and contracts for
(e) Identifying of “high-risk” groups. health care : an economic view. BMJ 1991; 303 : 1529-30.
4. Specific statements, through which the overall goal would 7. Quigley R, Cavanagh S, Harrison D, Taylor L. Clarifying approaches to health
needs assessment, integrated impact Assessment, Health equity audit and
be achieved, are known as (a) Objectives (b) Targets race equality impact assessment (Available at http : //www.public health.
(c) Aims (d) Indicators. nice.org.uk/page.aspx?o =505665) 2004.
5. In estimating the effectiveness of interventions, the number

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