Last month, I touched on the subject of the changing role of the modern finance director. This month, I'd like to take a look at this issue for FDs in the public sector – and discuss how a new attitude to financing can help them facilitate the shift to a more forward-thinking approach within their organisation.

As the FD of a provider of asset finance to the private and public sectors, I am always astonished about the persistence of the “ownership culture”. Economists have for many years advocated ownership of appreciating assets (property being the classic example), but the ‘rental’ or leasing of depreciating ones (items such as vehicles, equipment and technology).  Accounting rules may influence this partly, but they are increasingly designed to assist a rational evaluation of the (real) risks and rewards of ownership.

Typically, the private sector is much better at acquiring its equipment more efficiently – this is partly due to policy measures set for public sector financial managers; but, especially in the NHS, I believe it is also due to using narrower metrics and financial techniques driven by their environment.

We recently published a piece of research looking at healthcare financing in Europe. One of the most compelling findings of this report was that healthcare systems throughout Europe were not making the most efficient use of available financing tools.

In the UK, the outcome was that a startling £1.7bn was tied-up – or “frozen” – in the healthcare sector in 2006, because assets had been purchased rather than financed. What’s more, this figure represents an increase of 28 per cent over the previous year, mainly because spending on medical technology is on the rise but this has not been matched by similar growth in usage of asset finance.

Managers need to recognise the risks of having capital tied-up in rapidly depreciating assets. If investments are going to remain affordable in the future, public health directors need to adopt broader evaluation techniques and more efficient and innovative financing methods.

Internal costs of funds used for comparison should mirror external capital market rates reflecting liquidity unless the internal rates are fixed for the duration of the contract. Political initiatives providing short term cash facilities should not replace longer term evaluations over replacement and upgrade cycles. Capital deployed in line with an all-embracing asset finance plan can result in a much more transparent and accurate visibility for healthcare managers of the true cost of the asset over time. Indeed some financial institutions have recently changed their approach to this sector which indicates the current climate is changing and continued engagement from both sides is necessary.

Critical business technology tends to advance in sudden leaps, and can often become obsolete within 12-18 months. Using leasing, FDs can acquire the new equipment and technology that they urgently need in a cash-flow friendly and affordable manner – reaping the immediate benefits of increased productivity and efficiency bought about by the most up-to-date equipment.

Many FDs in the public and private sector already have a diverse financial toolkit at their disposal – we now need to encourage others to take full advantage of the full range of financial techniques available.

*Steve Mason is finance director of Siemens Financial Services

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