August 27, 2003
In a management environment characterized by a host of difficult financial challenges, today's chief financial officers (CFOs) must fulfill many critical roles. They successfully add real value to their organizations by providing dependable strategic leadership, a consistent financial perspective, and active contribution to critical management decisions. In the May issue of HFMA's Executive Insights newsletter, an article by Ken Kaufman of Kaufman, Hall & Associates described the seven interrelated hats worn by "value-added" CFOs. Here is an overview of those roles:
Chief financial planner
The importance of the CFO's role in financial planning cannot be overemphasized. A solid financial plan, authored by the CEO and CFO, provides the backbone for a healthcare organization, linking the organization's strategic mission and vision to measurable financial goals. A well-developed financial plan helps the organization determine the critical relationship between strategy and financial capability and achieve operating results that ensure financial equilibrium.
Chief allocator of capital
The CEO is responsible for establishing a "vision" for strategic capital investment that sets forth what the organization wishes to accomplish given its healthcare mission, but the actual process of allocating that capital should be the province of the CFO. The most important financial decision made each year by the senior management team and ratified by the board is how much capital to spend and on which initiatives the dollars will be spent.
Chief of capital structure and debt management
Expense management will always be important, but for the CFO, expense management should start with interest-rate management, debt management, and the overall management of sophisticated capital structures. Over time, capital-structure and cost-of-capital decisions can affect a hospital balance sheet by millions of dollars. "Plain vanilla" finance--such as when an A-rating organization borrows money at a fixed interest rate for 30 years and then forgets about it--is a thing of the past. Today's transactions require daily attention to interest costs, manipulating the capital structure when opportunities emerge to lower all-in capital costs.
Chief accounting officer
Finance in the world following Enron, WorldCom, and Tyco means that the CFO is first and foremost the chief accounting officer. Financial leaders must act on the fact that organizational credibility depends on the accuracy of financial statements. Although major audit firms have tightened standards, significant accounting decision points remain for the CFO, including recognition of loss on investments, pension accounting, accounting for acquisitions and divestitures, and accounting for derivative transactions.
Chief credit officer
CFOs must be the guardian of their institution's credit quality, because an organization's long-term competitive position today substantially depends on its ability to raise affordable capital in the debt markets. This, in turn, is highly dependent on the organization's credit rating and overall creditworthiness. It is often up to the CFO to resist the short-term temptations to sacrifice strong balance sheets and A-category bond ratings for incremental debt capacity and additional strategic investment.
Chief of the "heavy finance" department
Just as hospitals are full of clinical experts, CFOs must ensure that their finance departments are fully staffed with "heavy finance" experts who enable the finance department to demonstrate consistently exceptional performance. The finance department should be a recognized player in all critical strategic and financial decisions.
Chief defender of the hospital's financial integrity
Management must avoid significant financial defeats that harm the organization's financial integrity. The mantra of the management team should be "anticipation, attention, analysis, and action." The CEO, CFO, and other key executives, working as a team, should examine each element of the organization's strategy and each capital investment to anticipate negative outcomes, evaluate overall risk and performance, and take action to ensure that any harm inflicted by a bad idea is limited to a single "bump in the road."
The CFO's job is a difficult one, given that the financial requirements of healthcare organizations are increasing, while healthcare financial resources are decreasing. CFOs that excel in this environment know that "minor" healthcare finance decisions are a thing of the past and that financial performance is the currency of an effective competitor.
SOURCE:
Excerpted from "Value-Added Financial Management: The New CFO Job Description," by Ken Kaufman, Executive Insights, May 2003. Ken Kaufman is a founder and the managing partner of Kaufman, Hall & Associates.
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ADDITIONAL RESOURCES:
- Black Ink Archive - Leadership Articles
- HFMA CFO Forum
If you have questions or comments about HFMA Wants You to Know, contact editor Laura Noble.
HFMA Wants You to Know ISSN: 1540-0697. Volume II, Issue 18. Copyright 2003, Healthcare Financial Management Association. All rights reserved.