Budgeting

(and associated trauma)Managing ‘Big Numbers’, KPI’s and Budgets

Steve Croxford

Director Decision Support

The Sisters of Mercy established the Mater Hospital in

1906 to care for the sick and needy of Brisbane.

As a Catholic not-for-profit ministry of Mercy

Partners, Mater Group is committed to meeting the

healthcare needs of our community through an

integrated approach to our health, education and

research services, which is focused on delivering the highest quality care for our patients

Mater Group comprises:

• Mater Health,

• Mater Education,

• Mater Research,

• Mater Foundation and,

• Holy Cross Laundry

in addition to the Corporate Services and Back Office functions.

Mater Misericordiae Limited

Why Budget?

• Something to manage and measure against

• Reduce the risk of the unexpected

• It helps to set the parameters for activities to be done during the budget period

• Its a control device for regulating spending

• Objective set of criteria against which a manager’s performance can be measured

Why Budget?

Budget Overview

Budget

Engine/ Process

Timeline

Strategy

Forecast

Parameters

Operational Plan & Targets

Accountability

Budget Overview – Continuous cycle

•The budget sets the expectation for financial performance. It will impact behaviour including recruitment and expenditure. Performance is monitored thru various forums against budget.

•Often assumptions are reviewed and the budget is reforecast in year, this will assist the formulation step in the following year.

• Budget is drafted and refined in conjunction with key stakeholders and leadership.

• Modelling and setting assumptions on budget targets, often built on previous experience combined with what is foreseen in the upcoming period.

Formulation Enactment

ExecutionOversight

Strategic Documents

➢ Financial Aspirations document

➢ SIC / R&R capital program

➢ Clinical Services Plan

➢ Back office ratio targets

[Footer]7

Strategic Linkage – Financial Aspiration

• Various targets

– EBITDA growth in Health and Education

– Increase turnover in Research

– Increased funding from Foundation

Strategic Linkage – SIC + R&R

• Rolling 3 year plan of investments

• Capital and Opex

Target BudgetingTop Down

(Board)

Bottom Up(Cost Centre)

orStretch

Too Aggressive ?

Too Conservative?

• Bring it forward

• Business to own it

’

Budget Forecast Tool

▪ Establish/agree specific targets to achieve strategic

➢Develop Budget forecast model to drive process✓ Model “replicates” formal budget build

✓ Determine parameters for formal budget build

✓ Org wide / stream level

[Footer]12

Budget - Key Ingredients

• Budget Project Team

• Sub Exec Group

• Budget Journal

• Budget review process

• Budget Tool

• Forecast Tool

Key Outputs

• Profit and loss

• Capital budget (phased)

• Cash flow

• Balance Sheet (metric driven)

Key Outputs

• Sign off

• Operational plans

Selling the budget – budget pack

Mater Approach to Budgeting

• Activity driven

• Focus on

– Margin

• % & $• Net and EBITDA

– Wages % of revenue

Key issues

▪ Reduce number of activity versions

➢ More formal process

➢ 3 versions (V0, V1, V2)

▪ Improve the review process

➢ More time / more structure (eg Exec full day review)

➢ Include formal sign off of key stages (eg activity)

[Footer]18

2018/19 Budget Build

▪ Additional Tools

➢Activity analysis visualisation

➢Nursing KPI modeller

[Footer]19

New to 18/19 Process –Nursing KPI Modeller

New to 18/19 Process –Activity Visualisation

Key Ratios

• Hrs / activity

• WAU’s / Sep (Acuity)

• ALOS

• Minutes / theatre case

• Theatre cases/sep

Other thoughts

▪ Timetable issues

➢ 4 week business change freeze

[Footer]23

Revenue

• DoH revenue

– Largely a “given”

• Private Revenue

– Volumes

– Rates, Health Fund Negotiation

Workforce

• Circa 70% of cost

• Challenge

– Link to activity

– Hrs / activity

• Wages % Revenue key metric

Workforce

• Nursing largest cost

– Hrs PPD

– Agency %

– RN/EN %

– Overtime %

– Non-productive % productive

3 Elements of Labour

• Productive

– Normal

– Overtime

• Non Productive

– Sick

– Professional Development

• Leave

– Annual Leave

– Long Service Leave

Workforce

• Budget Tool

– Central loads

• Fixed labour areas

• EA increases

• On costs %

• Agency %, Sick % etc. etc.

• Challenge

– Attempt to summarise/simplify

Patient Supplies/Consumables/Services

• Activity driven

– Per Bed day, per theatre minutes etc.

• Central load

Phasing and Seasonality

• Changing activity and costs through the year

– Patient mix (winter / flu)

– Public holidays

– Sick leave

– Supernumery for grad nurses

– ARL

• Central load

Budgeting Tips

• Characteristics of a good budget?

– Is both top-down and bottom up

– Is driven by metrics (Activity, KPI’s etc.)

– Non financial metrics can drive financial

– Shows control over the discretionary expense

– Isn’t easily achievable

– Takes into account today as well as the future

– Is NOT the be all and end all

• The key is to understand the implications of the decisions that go into a budget

Where to from here

• Medium Term Financial Plan

Other resources

• Rolling forecasts – David Parmenter

• http://davidparmenter.com/files/how-to-implement-quarterly-rolling-planning.pdf

Thank you for your attention.Questions?