Healthcare finance leaders as chief storytellers

The first image that comes to mind when you hear the term "storyteller" is probably something like a family gathered around a campfire listening intently to a patriarch entertaining the group with an urban legend. What probably doesn't come to mind is the image of the finance leader of a healthcare provider organization giving the executive team a factual account of the short-term and long-term financial ramifications of various business strategies. However, given today's dynamic business environment, this is exactly how the finance role is evolving.

Increasingly, the finance function is being called upon to translate financial and operational data into a narrative that shows the potential impact of strategies being formulated and the actual impact of strategies that have been implemented. Unlike campfire tales designed to entertain, the storylines finance tells must educate and inform. This type of storytelling is very difficult to do.

STORYTELLING CHALLENGES

You can't tell a story without characters, description, and plot. Similarly, organizations often lack the data, technology, and integrated modeling capabilities to support finance in its ability to convey a compelling narrative. Challenges exist in three key areas:

• Lack of a trusted data source – In healthcare provider organizations, the key drivers and metrics used to evaluate performance are often stored in a variety of databases rather than consolidated into a single trusted source.
• Fragmented models and processes – Financial planning models are often not well integrated, or integration is very time- and resource-intensive. Incorporating the effects of market changes or capital-intensive initiatives into a consolidated view of financials is often manual, time-intensive and error-prone.
• Ineffective feedback loops – All too often, reporting is a one-directional push of statistics and numbers. Presented in this way, the information rarely provides any context to why variances exist, resulting in information that isn't as actionable as it should be.

STORYTELLING TOOLS

The financial story uses information to inform both strategic and tactical decision-making on a continual basis. Rigid annual planning cycles are being replaced by monthly and quarterly operational reviews. Organizations are also leveraging new tools and processes designed to support finance in this expanded role--tools and processes that make the organization more responsive to change, focus financial resources and executive attention, and allow course correction when the storyline needs to change.

Following are four key components of the finance "story" that require support from these new tools and processes.

STRATEGIZE – What do we want to achieve?

In support of strategy formulation, finance plays a vital role in helping other leaders to understand the organization's current financial picture, and to show the financial ramifications of proposed strategies. When effective in this role, finance isn't leading the team to a single conclusion. Rather, scenarios are used to highlight alternative views of the future; are compared side-by-side; and highlight the incremental change, risks, and trade-offs of various strategies impact across the income statement, balance sheet, and cash flows.

PLAN – How do we get there?

Finance also plays a pivotal role translating how long-term strategies influence setting targets for operating margin and capital spend. By aligning targets and constraints with assumptions from the strategic financial plan, organizations are able to develop more detailed operating budgets and capital plans. By framing clear points of integration, finance can provide transparency to operational leaders on how strategy is affecting operational plans; in turn, this can help reduce the number of iterations that go into these planning cycles.

MONITOR – What's happening now? Are we on track?

Being able to continuously monitor performance related to assumptions and targets is vital to being able to change course as needed. To answer the question "What's happening now?" effective management reporting needs to go beyond identifying statistical outliers. To be effective, a feedback loop is needed that captures commentary from operational managers about why variance exist (for example, one-time occurrences, systemic changes to business) and provides timely and contextual feedback to key stakeholders.

As part of this monitoring function, finance must also answer the question "Are we on track?" With tools such as rolling forecasts, finance can develop a picture of how actual trends may project differently from established assumptions and targets, determining whether those changes are material and how they could affect future strategy.

ANALYZE – What areas can we improve?

Identifying opportunities for improvement is also becoming part of the finance narrative. Increasingly, finance plays the role of data steward, including benchmarking tools and cost accounting capabilities that help perform cost-of-care analysis and identify cost-reduction opportunities. Developing these capabilities helps finance to quantify operational effectiveness and incorporate this information as part of ongoing financial forecasting.

A HAPPY ENDING

As industry change continues in healthcare, finance must effectively tell the story of the organization's financial performance. New tools and supporting processes are needed to support an increased sophistication of analysis and modeling needed to guide and inform both strategic and tactical planning. Strategic and financial planning then become an integrated part of an accurate, informative, and educational ongoing storyline for executive and operational leaders.

Jay Spence is vice president of solutions marketing with Kaufman Hall's Software Division.