part v: plan, monitor and control financial...

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 HospitalsHospital 1 Hospital 2 Hospital 3

Current LiabilitiesLong-term debtTotal liabilities

$100,000400,000

$500,000

20%80%

100%

$500,0001,500,000

$2,000,000

25%75%

100%

$400,000100,000

$500,000

80%20%

100%

Common Sizing: Practice

Same Year for both HospitalsHospital A Hospital B

Current AssetsProperty, Plant & EquipmentOther AssetsTotal Assets

$ 2,000,0007,500,000

500,000$10,000,000

$ 8,000,00030,000,0002,000,000

$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 1999Year 2 Year 1

RevenueNet patient service revenueOther revenue

Total Operating RevenueExpenses

Nursing servicesOther professional servicesGeneral servicesSupport servicesDepreciationAmortizationInterestProvision for doubtful accounts

Total ExpensesIncome from OperationsNonoperating

Unrestricted gifts and memorialsInterest income

Nonoperating Gains NetRevenue and Gains in Excess of Expenses and Losses

$34,000,0001,100,000

35,100,000

5,025,00013,100,000

3,200,0008,300,0001,900,000

50,000325,000

1,500,00033,400,000

1,700,000

20,00080,000

100,0001,800,000

$33,600,0001,000,000

34,600,000

5,450,00012,950,000

3,220,0008,340,0001,800,000

50,000350,000

1,600,00033,760,000

840,000

70,00040,000

110,000950,000

Metropolis Health System Statement of Revenue and Expenses for the years endedMarch 31, 200_ and 200_

Year 2 Percent Year 1 Percent







$34,000,0001,100,000

35,100,000

5,025,00013,100,000

3,200,0008,300,0001,900,000

50,000325,000

1,500,00033,400,000

1,700,000

20,00080,000

100,0001,800,000

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%

$33,600,0001,000,000

34,600,000

5,450,00012,950,000

3,220,0008,340,0001,800,000

50,000350,000

1,600,00033,760,000

840,000

70,00040,000

110,000950,000

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 LiabilitiesHospital 1

Year1 Year 2 DifferenceCurrent LiabilitiesLong-term debtTotal liabilities

$100,000400,000

$500,000

20%80%

100%

$500,0001,500,000

$2,000,000

25%75%

100%

$50,00050,000

$100,000

50.0%12.5%

Trend analysis allows comparison of figures over time.

Trend Analysis: Practice

Hospital AYear 2

$ 2,000,0007,500,000

500,000$10,000,000

$1,600,0006,000,000

400,000$8,000,000


Year 1 Year 225%25%25%

$ 400,0001,500,000

100,000$2,000,000

100,0007,500,000

500,000$10,000,000

$1,600,0006,000,000

400,000$8,000,000


DifferenceYear 1

Hospital A

Trend Analysis: AssignmentMetropolis Health System Statement of Revenue and Expenses for the years ended

March 31, 2000 and 1999Year 2 Year 1







$34,000,0001,100,000

35,100,000

5,025,00013,100,000

3,200,0008,300,0001,900,000

50,000325,000

1,500,00033,400,000

1,700,000

20,00080,000

100,0001,800,000

$33,600,0001,000,000

34,600,000

5,450,00012,950,000

3,220,0008,340,0001,800,000

50,000350,000

1,600,00033,760,000

840,000

70,00040,000

110,000950,000

Metropolis Health System Statement of Revenue and Expenses for the years endedMarch 31, 200_ and 200_

Year 2 Year 1 Difference Percent







$34,000,0001,100,000

35,100,000

5,025,00013,100,000

3,200,0008,300,0001,900,000

50,000325,000

1,500,00033,400,000

1,700,000

20,00080,000

100,0001,800,000

$33,600,0001,000,000

34,600,000

5,450,00012,950,000

3,220,0008,340,0001,800,000

50,000350,000

1,600,00033,760,000

840,000

70,00040,000

110,000950,000

$400,000100,000500,000

($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

ProblemsCapacity ProblemsLabor 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 MeasuresAdjusted 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; orAnalyzing 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 36.37RWS 10 30.30LD 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: SolutionTotal 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.

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