part v: plan, monitor and control financial operations chapter 12: comparative data, forecasts,...
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Part V: Plan, Monitor and Control Financial Operations
CHAPTER 12:
COMPARATIVE DATA, FORECASTS, & BENCHMARKING
Using Comparative Data
Managers use comparative data to set common ground for planning, control and decision-making purposes.
Common Sizing
Common sizing puts data on the same relative basis.
Common Sizing: Example
Common sizing converts numbers to percentages so that comparative analysis can be preformed. The worksheet below shows the assets of two hospitals.
Same Year for All Three Hospitals
Hospital 1 Hospital 2 Hospital 3
Current Liabilities
Long-term debt
Total liabilities
$100,000
400,000
$500,000
20%
80%
100%
$500,000
1,500,000
$2,000,000
25%
75%
100%
$400,000
100,000
$500,000
80%
20%
100%
Common Sizing: Practice
Same Year for both Hospitals
Hospital A Hospital B
Current Assets
Property, Plant & Equipment
Other Assets
Total Assets
$ 2,000,000
7,500,000
500,000
$10,000,000
$ 8,000,000
30,000,000
2,000,000
$40,000,000
20%
75%
5%
100%
20%
75%
5%
100%
Common Sizing: AssignmentMetropolis Health System Statement of Revenue and Expenses for the years ended
March 31, 2000 and 1999
Year 2 Year 1
Revenue
Net patient service revenue
Other revenue
Total Operating Revenue
Expenses
Nursing services
Other professional services
General services
Support services
Depreciation
Amortization
Interest
Provision for doubtful accounts
Total Expenses
Income from Operations
Nonoperating
Unrestricted gifts and memorials
Interest income
Nonoperating Gains Net
Revenue and Gains in Excess of Expenses and Losses
$34,000,000
1,100,000
35,100,000
5,025,000
13,100,000
3,200,000
8,300,000
1,900,000
50,000
325,000
1,500,000
33,400,000
1,700,000
20,000
80,000
100,000
1,800,000
$33,600,000
1,000,000
34,600,000
5,450,000
12,950,000
3,220,000
8,340,000
1,800,000
50,000
350,000
1,600,000
33,760,000
840,000
70,000
40,000
110,000
950,000
Metropolis Health System Statement of Revenue and Expenses for the years ended
March 31, 200_ and 200_
Year 2 Percent Year 1 Percent
Revenue
Net patient service revenue
Other revenue
Total Operating Revenue
Expenses
Nursing services
Other professional services
General services
Support services
Depreciation
Amortization
Interest
Provision for doubtful accounts
Total Expenses
Income from Operations
Nonoperating
Unrestricted gifts and memorials
Interest income
Nonoperating Gains Net
Revenue and Gains in Excess of Expenses and Losses
$34,000,000
1,100,000
35,100,000
5,025,000
13,100,000
3,200,000
8,300,000
1,900,000
50,000
325,000
1,500,000
33,400,000
1,700,000
20,000
80,000
100,000
1,800,000
96.87%
3.13%
100.00%
14.32%
37.32%
9.12%
23.65%
5.41%
0.14%
0.93%
4.27%
95.16%
4.84%
0.06%
0.23%
0.28%
5.13%
$33,600,000
1,000,000
34,600,000
5,450,000
12,950,000
3,220,000
8,340,000
1,800,000
50,000
350,000
1,600,000
33,760,000
840,000
70,000
40,000
110,000
950,000
97.11%
2.89%
100.00%
15.75%
37.43%
9.31%
24.10%
5.20%
0.14%
1.01%
4.62%
97.57%
2.43%
0.20%
0.12%
0.32%
2.75%
Trend Analysis
Trend analysis compares figures over several time periods.
Trend Analysis: Example
Trend Analysis for Liabilities
Hospital 1
Year1 Year 2 Difference
Current Liabilities
Long-term debt
Total liabilities
$100,000
400,000
$500,000
20%
80%
100%
$500,000
1,500,000
$2,000,000
25%
75%
100%
$50,000
50,000
$100,000
50.0%
12.5%
Trend analysis allows comparison of figures over time.
Trend Analysis: Practice
Hospital A
Year 2
$ 2,000,000
7,500,000
500,000
$10,000,000
$1,600,000
6,000,000
400,000
$8,000,000
Current Assets
Property, Plant & Equipment
Other Assets
Total Assets
Year 1 Year 2
25%
25%
25%
$ 400,000
1,500,000
100,000
$2,000,000
$ 2,000,000
7,500,000
500,000
$10,000,000
$1,600,000
6,000,000
400,000
$8,000,000
Current Assets
Property, Plant & Equipment
Other Assets
Total Assets
DifferenceYear 1
Hospital A
Trend Analysis: AssignmentMetropolis Health System Statement of Revenue and Expenses for the years ended
March 31, 2000 and 1999
Year 2 Year 1
Revenue
Net patient service revenue
Other revenue
Total Operating Revenue
Expenses
Nursing services
Other professional services
General services
Support services
Depreciation
Amortization
Interest
Provision for doubtful accounts
Total Expenses
Income from Operations
Nonoperating
Unrestricted gifts and memorials
Interest income
Nonoperating Gains Net
Revenue and Gains in Excess of Expenses and Losses
$34,000,000
1,100,000
35,100,000
5,025,000
13,100,000
3,200,000
8,300,000
1,900,000
50,000
325,000
1,500,000
33,400,000
1,700,000
20,000
80,000
100,000
1,800,000
$33,600,000
1,000,000
34,600,000
5,450,000
12,950,000
3,220,000
8,340,000
1,800,000
50,000
350,000
1,600,000
33,760,000
840,000
70,000
40,000
110,000
950,000
Metropolis Health System Statement of Revenue and Expenses for the years ended
March 31, 200_ and 200_
Year 2 Year 1 Difference Percent
Revenue
Net patient service revenue
Other revenue
Total Operating Revenue
Expenses
Nursing services
Other professional services
General services
Support services
Depreciation
Amortization
Interest
Provision for doubtful accounts
Total Expenses
Income from Operations
Nonoperating
Unrestricted gifts and memorials
Interest income
Nonoperating Gains Net
Revenue and Gains in Excess of Expenses and Losses
$34,000,000
1,100,000
35,100,000
5,025,000
13,100,000
3,200,000
8,300,000
1,900,000
50,000
325,000
1,500,000
33,400,000
1,700,000
20,000
80,000
100,000
1,800,000
$33,600,000
1,000,000
34,600,000
5,450,000
12,950,000
3,220,000
8,340,000
1,800,000
50,000
350,000
1,600,000
33,760,000
840,000
70,000
40,000
110,000
950,000
$400,000
100,000
500,000
($425,000)
150,000
(20,000)
(40,000)
100,000
0
(25,000)
(100,000)
(360,000)
$860,000
($50,000)
40,000
(10,000)
$850,000
1.19%
10.00%
1.45%
-7.80%
1.16%
-0.62%
-0.48%
5.56%
0.00%
-7.14%
102.38%
-1.07%
102.38%
-71.43%
100.00%
-9.09%
89.47%
Horizontal Analysis
Comparative Analysis of Operating Data
Refer to examples in this chapter.
Usually involves converted $ to %.
Called “horizontal analysis” because computation of the % is across, or horizontal.
Comparative Analysis of Operating Data
Vertical Analysis
Refer to examples in the chapter.
Usually involves converted $ to %.
Called “vertical analysis” because computation of the % is up and down, or vertical.
Forecasting Results
Short Range — Next year
Intermediate Range — 5 years from today
Long Range — The next decade and beyond
Managers can use three levels of forecasts:
Forecasting Results
Assumptions are the basis of the numbers in your forecast. Example:
Computing a staff requirement of 3 lab technicians requires an assumption.
Computing the salary and fringe benefits for each of the technicians requires another assumption.
When the salary and fringe benefit dollars are computed for the 3 lab technicians, the resulting figure becomes part of your forecast.
Assumptions affect forecasted results.
Forecasting Results
Assumptions can be determined by
Trend Analysis
Payer Changes
Utilization Changes
Forecasting Results
Managers often have to prepare staffing forecasts
Watch forNon-Controllable Expense
Problems
Capacity Problems
Labor Market Problems
More details are in the chapter.
Forecasting Results
And always remember:
Forecasting is an important part of the budget process.
Other Performance Measures
A variety of performance measures must be in place for the organization.
Many types of such measures are available. Generally different organizations lean toward using one type over another.
Other Performance Measures
Adjusted performance measures over time.
We have previously discussed the advantages of comparative analysis — the comparison of various time periods, one to another. Measures that compare performance over various time periods are especially effective.
Figure 12-2 illustrates measures over time combined with a 2-part case mix adjustment.
Other Performance Measures
Financial Benchmarking
Benchmarking is the continuous process of measuring products, services, and activities against the best levels of performance.
The best levels may be found inside the organization or outside it.
Benchmarking
A financial variable reported in an accounting system.
A financial variable not reported in an accounting system.
A nonfinancial variable.
There are 3 types of benchmarks
Benchmarks are used to measure performance gaps.
Benchmarking
Studying the methods and results of your prime competitors;
Examining the process of noncompetitors with a world-class reputation; or
Analyzing processes within your own organization that are worthwhile to replicate.
How do you benchmark? Three possible methods include:
Financial benchmarking compares financial measure among benchmarking groups. It is the most common type of peer group method used in health care.
Benchmarking
(Statistical benchmarking is another related method.)
See Table 12-6 for an example of financial benchmarking.
Measurement Tools
Pareto analysis is a measurement tool based on the Pareto Principle.
The Pareto Principle is often called the “80/20 Rule.”
For example, “80% of an organization’s problems are caused by 20% of the possible causes.”
Measurement Tools
The analysis quantifies these steps through construction of a Pareto diagram.
Pareto Analysis is an analytical tool that aids managers to improve some steps in a process.
Figure 12-3 and accompanying text explain how to construct and interpret a Pareto diagram.
Pareto Rule: Solution
Num
ber
0
10
20
30
40 100%
36.37
PDB RWS LD CD
Activity Number % PDB 12 36.37 RWS 10 30.30 LD 6 18.18 CD 5 15.15
33 100%
Measurement ToolsReporting by quartiles is an effective way to show ranges of
either financial or statistical results.
Quartiles are based on a quantitative method of computation and can effectively illustrate a variety of performance measures.
Chapter text plus Table 12-6 illustrate how to compute and construct a report using quartiles.
Quartiles: Solution Total Patient Days
1 Sarasota Memorial 110,033 110,033 High/Maximum
2 Naples Community Hospital 80519
3 Southwest Florida Reg. Medical Ctr. 57,984
4 Lee Memorial Hosp-Cleveland 55,305
5 Lee Memorial Hosp-Healthpark 45,510 56,645 Third Quartile
6 Bon Secours-Venice Hospital 43,608
7 Cape Coral Hospital 41,630
8 Columbia Doctors Hosp of Sarasota 38,320
9 Fawcett Memorial Hospital 35,998 35,998 Median
10 St. Joseph Hosp of Port Charlotte 34,697
11 Charlotte Regional Medical Center 25,985
12 Englewood Community Hospital 19,763
13 North Collier Hospital 17,121 17,121 First Quartile
14 Gulf Coast Hospital 14,759
15 Desoto Memorial Hospital 9,313
16 East Pointe Hospital 9,026
17 Hendry Regional Medical Center 4,380 4,380 Low/Minimum
Total 643,951
Performance MeasuresRemember, several types of performance measures will
be in use in the organization.
Familiarity with the use of such measures lets the manager do a better job analyzing performance.