A REPORT ON THE POSTION OF CASTLE NURSING HOME PLC

Executive Summary: This report is commissioned to examine the current position of Castle
Nursing Home PLC, since it is evident that the top-line and bottom-line have been adversely affected. The report draws attention to the existing status of Castle Nursing Home. The strategy to grow and re-organize has resulted in the need to streamline its operations, so as to retain its focus, quality of services and reputation among the public. Further investigation into the organizations financial statements, proves the company is going through a rough patch but has chances of improvement. This report also provides clear insights as to what strategies the organization can use, to help improve the existing conditions.

Key Words: Operations, Quality Improvement Techniques, Competitive Advantage, Systems
Approach, Capital Investment, Investment Appraisal Techniques.

Introduction: Castle Nursing Home PLC is a chain of residences for old age pensioners in
Northern England. Due to its growth, it has become exceedingly tough to maintain consistency in its operations. Various publications highlight that the organization is being engulfed by its disjoint, mismanaged procedures and goes further to state that the organization is losing focus of its reason for existence. Castle Nursing Home now has to undo all the effort taken till date, despite having no clear focus and strategic plans at hand for the future. From the available financial statements, we can observe that the overall turnover as well as the net profit of the organization has reduced. This report frames the present position of the business as well as the strategies the organization can use to help boost the business’s operations as well as its status, for all its residents, staff and shareholders.

Applying Strategies into Castle Nursing Home:
As mentioned earlier, Castle Nursing Home is planning to undo the effort put in till date and restart from scratch. For this, Castle Nursing Home can adopt certain strategies such as:          Understanding the role and importance of operations to the organization. The importance of performance management and undertaking performance appraisal. Importance of using quality improvement techniques to increase its quality of services to gain a competitive advantage. Understanding the importance of information and the various types of information systems that could assist the management. The significance of viewing the organization in terms of systems approach. The use of quantitative techniques to help decision-making. The pros and cons to cash-flow forecasting. Importance of a break-even analysis and marginal costing in decision-making. Use of capital investment decisions and Investment appraisal techniques.

Now that we have identified opportunities for Castle Nursing Home, let us see how it can implement these. Joseph G .Monks defines operations management as the process by which resources flow into an organization, get pooled and transformed to add value in accordance with the various rules as defined by the management. As seen, the weakness of Castle Nursing Home lies mainly in its operations. To streamline this, Castle Nursing Home can adopt operations management. Operations concentrates on five main areas: Capacity

ISO 14001 (Environment Management Standards). 1997a). Develop policies and procedures that support quality. ISO 9004 Quality Management Systems: Guidance for Performance Management. which alters resources within the challenging environment. This knowledge leads to action which ends in results. Examine all costs incurred. TQM is an approach for developing. European Quality Awards and EFQM Business Excellence Model. Meet needs and expectations of customers and Develop a climate of continuous improvement within the organization. Johnson and Scholes define strategy as a long-term plan of action or course taken. Competitive Advantage is the superiority gained by an organization over its competitors in the same market. Information systems convert data into information which in turn get converted into knowledge. For this. Information systems also help by measuring performance targets. it would help:      Cover all functions and include all people within the organization. Competitive advantage can be gained through implementing various quality improvement techniques such as. In order for these to work. This cycle is repetitive in nature and hence determines what information systems need to facilitate (Ward and Peppard. These crucial areas are the foundation for any organization. Some suggestions are:  Higher annual returns. This would provide as a back-up for its future plans including help predict and balance its financial status. the basic requirement is information. These accreditations would help Castle Nursing Home to get recognized for its quality and would also force it to adopt measures of continuous improvement and self-assessment. it could adopt a financial model (which would help build a representation of. . p.  Hygiene with regards to both. Castle Nursing Home could approve of information systems which are aligned with its strategy. Performance Targets are those targets set by the organization to achieve. So basically. operations management is vital for the survival of Castle Nursing Home to enhance productivity. Process (activities that convert input to output).  Retaining of administrative and clinical staff.  Providing services such as spas. Quality Improvement Techniques can transform Castle Nursing Home and help it achieve competitive advantage. operations and environment. to help meet needs and expectations of the stakeholders of the organization. to allow for customer satisfaction. 221). and predict a financial situation) and it can also carry out a sensitivity analysis (which tests the effects of each changing key variable on a plan). sustaining and refining quality on all levels in the organization. These are mainly of five types:  Quality: This refers to the constant conformance to customers’ expectations. If Castle Nursing Home implements these.  By providing value for money. 2002). It is said to be achieved when the organization is applying values or strategies that are not being used by its opponents (Barney 1991 cited by Clulow et al. Total Quality Management (TQM) and Quality Accreditations.  High technology-based medical services. resulting in value addition and hence organizational benefits. information is processed data. Castle Nursing Home can also adopt quality accreditations like ISO 9001 Quality Management System: Requirements. 1987) and “is that which modifies knowledge structure" (Cole C.(ability to meet demands).2003. Speed: This refers to how fast the customer is served. in an economic way. OHSAS 18001 Occupational Health and Safety Standards. Flexibility: Refers to adaptability of the organization to changes. Hence despite being costly. "Information is any input into the system that initiates a change of state" (Vickery B & Vickery A. efficiency and competitive advantage.    Dependability: This means the reliability on delivery times. Quality (accordance to customer expectations).  Lesser rework and waste. Inventory (stock possessed by the business) and Workforce (those who maintain and manage operations).

Return on Investment. This can help Castle Nursing Home produce a balanced valuation of the performance by measuring both financial and non-financial performances. this aspect to maximize constituents’ satisfaction. Internal business processes – It impacts the quality of product and service and identifies which internal business processes must run in excellence to satisfy customers. These could be both external as well as internal in nature and can be based on price. speed (how fast the customer receives medical attention in an emergency).  Infrastructure. Feedback measures should also be measured for effectiveness. technology used.It defines whether the company’s financial strategy is yielding profitability and decreased costs. quality.It is a means to prioritize requirements and highlights the important parts in the functions of an organization that needs attention. quality can be set as the main target. some of the critical success factors could be:  Structure. The organizations operational success can be measured through cause-and-effect linkages into the daily operations of an organization (Huselid. while at the same time profiting employees in terms of acknowledgment. smoothness of operations. there is a need for performance appraisal. Financial Results and so on. & Beatty. These can be achieved using various methods.  . receiving response. After setting performance targets. The four aspects of a balanced scorecard are:  Financial perspective . ensure competitive a competitive advantage to the organization (Rockart 1979. This would include aspects such as care given. Some examples are: Process Alignment. Number of activities per function. Other targets can be based on cost (such as incentives based on training programs undergone by the employees. dependability (reliability on the information collected and provided to residents or those concerned) and flexibility (ability to adapt to disturbances such as failure in machines used). Learning Opportunities and so on.  Innovation. behavior of personnel and so on. Some examples are: Cash-Flows. reliability. and nutrition. catering for work needs and offering career guidance (Lansbury. maintenance costs and so on). 85). services. Critical Success Factors CSF are those areas in an organization. so that the organizational aims and objectives are achieved. which if accepted as satisfactory. After this.  Balanced Scorecard: The Balanced Scorecard has been viewed as one of the most strategic tools applicable. Performance appraisal has been defined as the process of recognizing. Customers – Addresses how the organization must appear to customers to fulfill the organizations mission.    To obtain a healthy contribution from this approach. hygiene of surrounding. In Castle Nursing Home. Becker. the key performance areas must be clearly defined and action should be implemented accordingly to achieve the necessary results. p. 1988). the mission and vision must be clearly stated. services. support internal processes and customer satisfaction. Some examples are: Job Satisfaction. For Castle Nursing Home. and so on. and so on. Cost: Is about providing value for money. Some examples in this category are: Customer Retention Rate. For Castle Nursing Home. assessing and evolving the work performance of personnel in the organization.  Benchmarking Benchmarking can help Castle Nursing Home by setting benchmarks for the organization against which it could measure itself. 2005). Learning and Growth: This perspective enables the other three perspectives and defines what the staff must do to achieve the mission. Customer Satisfaction Rate. Employee Turnover. Employ technology. accessibility. Customer Percentage of market and so on. medicinal facilities.

rather than the parts themselves. CIMA defines marginal costing as the system in which variable costs are noted to cost units and fixed costs are charged in full to aggregate contribution. Enhanced decisions can be made is Castle Nursing Home could adopt into its operations. a few KPI’s could be:  Patient’s Confidence. clothing. There are various pros and cons to cash flow forecasting.  Respect. Inflation. Break-Even Analysis helps by allowing Castle Nursing Home to guide short term decision-making and the effect it has on cost. This is where break-even analysis steps in. it must be able to predict a company’s future financial liquidity. Avoids dangers of overtrading but enhance steady growth. Helps decide whether business is ready to make another financial commitment. Castle Nursing can utilize the following quantitative techniques:  Economic Order Quantity (EOQ). etc. Senior Management Support. On applying systems approach.  Consistent delivery. an opposing perspective and even view the organization as a whole.  Pros: Cons: - Helps anticipate downturns. Decision-making with relation to finance and consequently all areas of the organization can be enhanced by integrating the concepts of marginal costing and break-even analysis into the financial streams of the organization.  Consistent delivery. This is known as cash flow forecasting. CSF’s are achieved with the help of various Key Performance Indicators (KPI’s). a multiple perspective. For Castle Nursing Home. Credit Terms.      Financial Base. Policies and Procedures. Time-Consuming. In order to apply this into the workflow of the organization without disturbing the daily operations. volume and profit. Systems’ thinking is a way of understanding the relationships among a system's parts. Inspires lenders and bankers that we might have to approach them. Inconsistencies in performance can be identified. These are the contributions of the systems approach to Castle Nursing Home. . Based on assumptions.). predicted and remedied. Sales Forecast. Business Process Re-engineering. Castle Nursing Home must realize the importance of systems approach. Castle Nursing Home needs to implement the systems approach in order to understand various interrelations within the organization. sustainability of any organization comes from focusing on key factors such as their stakeholders and their financial base.  Inaccurate. As we all know. and so on). Choosing an appropriate information system would assist strategic decision-making and hence allow the organization to obtain a competitive edge. the organization will then be able to view the problem from a causeeffect perspective. This is due to the fact that. Governemtn Costs. Change Management. but can be thought of every time Castle Nursing Home wishes to purchase inventory (food.  Involvement of patients. It may not be used for every inventory situation. It provides presentation of cost data in such a way that true cost-volume-profit relationship is revealed. In order for Castle Nursing Home to regain its financial stability. It also helps to prepare for surpluses and well as deficits. Castle Nursing Home would be able to locate where the problems are situated and then solve these problems based on a holistic approach to the problem. Unforeseen Factors (Unmet sales figures. EOQ is basically the stock level at which holding cost and ordering costs are at minimum. This would help Castle Nursing Home to reduce its overall costs. the use of various quantitative techniques. pharmaceuticals. Information Systems can also be implemented in Castle Nursing Home in order to help with decisionmaking. Decision-Making Models.

But does not take into account the time value of money and is unreliable if net income varies and is hence not so common in practice. value of the firm increases. they must consider where to invest capital. This is because this method has advantages over all others as:  It considers all the cash flows. It is the company’s ability to meet the short term obligations.1.  Payback Period: Payback Period is defined as the time period taken to get back the initial investment. has multiple values in cases of unconventional cash flows and does not give regard to scale of investment with mutually exclusive projects. But it can also prove to be fatal because:  It does not measure profitability.2.  Takes into account opportunity costs. For this. where the ideal is said to be 2:1. in the long term assets. This could be due to lack of checking in its operating cash flow. it is expressed only in relative terms. We can see from available data that the sales of the company have reduced. Castle Nursing Home. The following are the trends can be examined:  The Reduction in Sales despite the Increase in Cost of Sales. This method would be useful to Castle Nursing Home as its two main advantages are:  Easiest to calculate  Considers the risk factor. Acid-Test Ratio:  . This has resulted in a reduced gross profit. it needs to intelligently invest its current funds.    Analysis of the Financial Statements Provided: From the financial statements (Trading profit and loss and Balance Sheet) of Castle Nursing Home it is possible to seek findings and assume the future trend of the company.In order for Castle Nursing Home to make the most efficient decisions. In 2011.  It is a true measure of profitability. possessed a current ratio of 2. Net Present Value (NPV): NPV has been defined as the difference between the present value of cash inflow and outflow of an investment. in anticipation of an expected flow of benefits over a series of years. Internal Rate of Return (IRR): IRR is the rate of return that sets the NPV at zero. there are various techniques to conduct investment appraisal. It can be measured by calculating current assets to current liabilities.  When choosing a project with higher NPV.  Ignores time value of money  Ignores long-term returns and future cash flows after payback period. in order to obtain future benefits and returns. problems with inventory management and even excessive cash burn rate. The sales have taken a dive despite the increase in cost of sales.  Measures profitability of an investment. Even though IRR takes into account cash flows and time value of money. cost of capital and interest rates. but by 2011 it went down to 1. This can be accomplished with the help of analyzing financial ratios.  It is possible to adjust the discount rate for different periods. Accounting Rate of Return (ARR): ARR compares the profit earned from the project to the initial investment required for the project.  It considers time value of money. which hence allows for calculation of risk of investment. Castle Nursing Home could use this method to decide on its investments in expansion and dissolving of nursing homes. Capital Investment Decisions can be defined as the firms decision to invest its current funds most efficiently.  Current Ratio: The current ratio is a measure of the company’s liquidity.  NPV’s of individual projects can just simply be added to calculate value of the firm. which shows that the company might be active in promoting itself but is not receiving the response accordingly.

The report is concluded with an analysis of the financial statements of the company in order to evaluate the possibilities of problem areas within the company. we can see that the current ratio is comparatively higher. Castle Nursing Home possessed a quick ratio of 1. understand the use of information systems and various quantitative techniques for decision-making. evaluate the need for implementing quality improvement techniques. but by 2011. This shows that the company is either unable to control production costs and inventory or that prices are set too low.The acid-test ratio is a measure of the company’s liquidity. It is a more refined version of current ratio and excludes inventory. the need to adopt systems approach and the need for cash flows and investment evaluation decisions. The company could implement various operations management techniques. evaluate the importance of performance targets and its evaluation.2. Conclusion: From the above report. The ideal ratio is termed to be 1:1. This could be due to the fact that the company is struggling to maintain sales or collect receivables.   On comparing the difference of current ratio and quick ratio. Castle Nursing Home had a gross profit margin of 26. . In 2010. it went down to 0. This report also provides solutions to the various problems faced. this implies that the company relies on inventory. Due to this it needs to refine and streamline its operations. we have seen the current position of Castle Nursing Home and can easily notice that it is on a downward spiral. Gross Profit Margin: Gross Profit Margin is defined as the percentage of company’s revenue available to cover expenses to give a profit.05% in 2011. It can be assessed by calculating the current assets less inventories to current liabilities.65.67%. In 2010. which has reduced to 21.