Across industries, common challenges in business and financial planning include inaccurate forecasts and inefficient processes. While inaccurate forecasts do not inspire confidence in the CFO’s or controller’s abilities, the bigger challenge in the health care industry is that the reimbursement system is getting tighter, which means that decision support capabilities need to improve.
Forecasting strategies and systems evolve
Those looking to upgrade their forecasting capabilities can begin by building a robust template that can serve as the backbone of the system. Although this is a manual and intensive approach at the beginning of the process, once the assumptions are plugged in to the formula-driven system, the data can be updated quickly.
Ernst & Young LLP has collaborated with various health providers across the country to improve their FP&A organizations. While some organizations are looking to improve systems from the idea of finance as a facilitator to using finance as a strategic enabler, those at the top end of the spectrum want to position finance as a strategic advisor, with predictive models and real-time reporting dashboards. Getting there isn’t just about finding the right software and technology investments, but also improving communication.
Another trend across the country is that organizations are shifting to service line budgets, rather than asset-based or entity-based models. As this thinking has shifted, some CFOs have inquired about rebuilding the systems from scratch, to establish a new approach, but there is no need to revamp the entire system all at once, advised Natasha Hunerlach, Partner, Ernst & Young LLP. Instead, she suggests CFOs and FP&A leaders work to improve the template they are currently using by bringing in more stakeholders to take part in the conversation. “The improvement comes from better buy-in, better participation and a better culture, that is, at the end of the day, enabled by a certain template or approach.”
Communication also comes into play when working with a large affiliation, such as a health system with many hospitals. Hunerlach recalled working with a client where each hospital in the system had an FP&A process, a budget and a forecast, but the individual CFOs and FP&A leaders didn’t believe that those forecasts could be consolidated. By helping the stakeholders establish a common set of well-defined goals, expectations and terminology, the client ultimately succeeded in its goal to provide a systemwide view.
The future of scenario planning and forecasting
Many health care settings are facing similar challenges as they work to improve their FP&A functions. Systems of the future will allow opportunities for interconnected planning, scenario planning and rolling forecasts with advanced analytics and predictive modeling. These functions will require CFOs and FP&A leaders to move beyond siloed spreadsheets and to establish common data standards and systems that improve timeliness and quality of forecasts and reduce the amount of iterations and manual effort. As thinking evolves and needs change, advanced planning tools will give key players across the enterprise the data and forecasting frameworks they need to guide decisions going forward.