Bye-Bye to Annual Budgeting?
A riddle: What's the one document that costs an organization millions of dollars to create, takes months to complete, and is usually out of sync with financial reality from the moment it's approved by the board? Naturally, it's your annual budget. Could healthcare CFOs go budget-free? ThedaCare, an integrated community health system based in Appleton, WI, with five hospitals, 27 clinics, and 6,200 employees, switched to a rolling forecast, and it's making a difference.
ThedaCare CFO Tim A. Olson, BBA, MBA, and Brian Burmeister, PT, MPA, senior vice president of physician services, presented their budget-free approach for financial operations at the American Medical Group Association annual conference in San Diego earlier this month. Olson says the sheer size and inflexibility of the budget process made the document less useful as the organization grew over the years, so in January 2011 he eliminated the traditional annual budget.
"The budget didn't connect tightly to our priorities," he says. "Plus it had an inaccuracy rate of anywhere from 2% to 169%."
Moreover, like most budgets, ThedaCare's was extremely labor-intensive. Creating the budget took 10,000 hours, required 88,000 data points, and cost $500,000, Olson says. Then the monthly management of the document took another 10,000 hours and another $500,000. Despite this effort, the budget wasn't connected to daily management, and as an annual batch process, it did not adjust for varying levels of demand.
"This document took a lot of work, but we didn't necessarily see any value in it. So we set a course to see if there was a better model," Olson says.