Richard Douglas, the new director of finance of the NHS, will face five major challenges when he takes up office in May.

Financial difficulties
Despite last year's historic £19bn increase in NHS funding over four years, the service is facing huge difficulties in drawing up budgets for the financial year starting in April.

An eleventh hour £140m increase to local service budgets at the beginning of February, which combined with last November's general allocations and will see health authorities receive an average cash increase of 8.91%, has done little to calm the service's rising concerns.

Managers claim ministers have underestimated the real cost of NHS inflation - covering the rising costs of pay, pensions and new drugs and treatments - leaving too little to deliver the raft of targets and priorities included in the NHS plan.

Historic deficits
The service is on course to break even in 2000/01. But this only means it has spent what it was allocated this year and the NHS still carries accumulated deficits of an estimated £700m. Given the financial pressures already identified for next year, solving this historic problem is daunting.

Private finance initiative
The department has already given the green light to 38 major hospital developments, most of which are funded under the private finance initiative. But delivering the NHS plan's promise of 100 new hospital schemes between 2000 and 2010 will remain a tough challenge.

Staffing
The NHS finance function itself faces major change. The NHS is already investigating running core financial services, such as payroll and accounts payable, from as few as 10 shared service centres across the country. This could lead to significant staff reductions. All finance staff will need to develop or enhance skills such as performance management to stay relevant to the NHS.

New structures
Quietly, NHS services are being restructured with the introduction of new primary care trusts (PCTs). These have responsibility for developing GP services, commissioning hospital care and running community health services. Ensuring financial control is maintained in the face of such a major reconfiguration will be crucial, particularly if ministers' ambitions for PCTs to take on the commissioning of social services are to be realised.