Do you have the right toolbox for your organization?
When my daughters went away to college, I gave each of them a small toolbox to keep in their dorm rooms. The box contained a small hammer, two screwdrivers, a pair of pliers, some materials to hang pictures, a level, and a tape measure. Not much, but enough for the basics. My toolbox, if you want to call it that, takes up most of the garage and includes nine saws, from a radial arm saw to a fine-tooth, handheld scroll saw. Every tool has its specific use and will come in handy depending on what task I'm performing. My toolbox is ideal for me, just as the toolbox that I provided for my daughters is perfect for their tasks.
When you look at the toolbox that you use in your role as a financial executive for your organization, is it a small toolbox or half a garage? I find that successful healthcare organizations are the ones that have spent the resources to develop a comprehensive toolbox that many on the team use. Not all toolboxes are the same; one size does not fit all. When you move from year to year or from organization to organization, take the time to rethink the tools that you need to be successful at that specific time and place.
Giving someone a list of my tools wouldn't be helpful because their needs could be very different from mine. It would be more useful to develop broad types of tools and then explore what they do and why we need them. The three broad types of tools that will be critical to your organization's success are those that address control, planning, and monitoring.
Adhere to Regulations by Knowing Your Systems and Processes
In any healthcare organization, from the smallest single-physician office to a large publicly held international corporation, control is a major responsibility of the CFO and his or her team. Control is an active verb, and it requires active participation from the finance team. The team must know each of the systems of the organization and ensure that the control points-cash, purchasing, and payroll, to name a few-are not missed. My first job as a hospital controller taught me this lesson the hard way. By completing the bank reconciliation myself, rather than having the accountant do it, I found that the accountant had been "lapping deposits" and had a permanent loan from the hospital. Years later, when I took over as the CFO of a large organization, we found that the bank accounts had not been reconciled in several years. It took the internal audit department seven months to reconcile the main bank account. During this process, we found several hundred thousand dollars that had not been accounted for.
Every at-risk process in an organization must be controlled by active participation of the CFO and the team. It seems so simple, but in practice, many organizations do not perform the basic control processes that are required to ensure success.
Recently, a number of high-profile CFOs have been sent to jail because the control process failed. Public companies now have Sarbanes-Oxley legislation that requires a higher standard in the arena of internal control; not-for-profit organizations have the same level of exposure, just not the same legal requirement
Develop a Strategy and Enact It in a Timely WayPlanning is perhaps the most useful tool that is misused by organizations.
If an organization does not have a vision of the future, it will never know when it achieves its goals. The very first time that you went to a store by yourself, you learned that you planned what you wanted or needed and how much it was going to cost. Unfortunately, many healthcare organizations do not use the regular planning cycle to understand what they need and want, what it will cost, or how to get there.
On the far extreme, some organizations spend all of their time planning and very little time actually running the organization. The balance comes when the CFO team and the other members of the executive group, together with governance, spend quality time on the organization's long-term vision and the short-term operating plan (including an operating budget, a capital budget, and a cash flow budget), and then work hard to execute according to the operating plan.
I have worked with several large university-based healthcare organizations over the past few years, and most of them have disciplined planning processes that require cost center-level operating plans for the next two years. Many of these organizations use a "fund balance" concept that requires each account or cost center to have a positive fund balance at the end of the year. What makes these organizations effective is that the planning process requires that line managers understand the purpose, vision, and operations of each cost center and what it will take to achieve the required operating results. The planning process is used to make decisions about what to do and how to get there. In a university setting, the line managers have one opportunity each year to make decisions about the faculty, as once the renewal letter is sent, it is hard to change.
When an organization builds an operating plan around a vision and set of assumptions that are wrong, the result is chaos. What might happen in healthcare systems if we used the planning process to make hard decisions about every cost center in a realistic way? We might start asking hard questions about how we plan to spend our funding. In this regard, healthcare organizations could benefit from taking a cue from the planning practices of academic medical centers.
Keep an Eye on Internal Processes and Course-Correct Quickly
An organization that puts its operating plan on a shelf in the CFO's office is destined to fail. Monitoring against an operating plan can be hard work, and it should cause an operating team to make changes over the course of the planning cycle. Each part of the operating plan needs to be monitored, from the volume projection to the free cash flow. Effective organizations have learned to monitor items that are leading indicators of what is happening in the organization in real time. Flash reports that monitor key statistics are effective tools to use in real time. Knowing before the end of a reporting period that a variance against operating plans is occurring can allow line managers the opportunity to make minor changes that will significantly improve the state of the organization overall.
Understanding the revenue cycle so that one can forecast cash flow based on actual billing volume is important for your organization. Most of the major consulting firms that specialize in the revenue cycle track every variable in the cycle. Your organization can do the same thing. Several years ago, I was serving as the interim CFO for a midsize system. The prior CFO was weak in the revenue cycle and did not monitor anything except days in accounts receivable, and the result was A/R days over 90. In about four months, the finance team was able to drop the net days in A/R to the low 60s just by monitoring and making changes in each of the key areas of the revenue cycle.
The list of items that can and should be monitored is endless. The classic line, "What gets monitored, gets changed," is always true, but the real mark of any successful management team is finding the balance between spending time monitoring processes and using that information to drive change in the organization.
Get the Right Tools
The key to finding success in your organization is equipping both yourself and your team with the right tools to effectively control, plan, and monitor processes moving forward. Having a garage full of redundant tools that are not specific to the task at hand will waste your time, just as not having enough tools will end in frustration and existing problems going unnoticed. Developing a custom toolbox that can zero in on your organization's opportunities that can also be seized in real time will result in operations that are constantly course-correcting, leading to sustainable, long-term success.
Ken Fisher, FHFMA, is a director, Navigant Consulting's Healthcare Practice, Tampa, Fla., and a member of HFMA's North Carolina Chapter (firstname.lastname@example.org).
Publication Date: Sunday, April 01, 2007