Putting Your Resources Where Your Priorities Are

Step 4: The outcomes of Steps 1 through 3 are used as a backdrop for identifying strategic issues and implications; setting mission, vision, and value statements; and developing enterprise-wide goals and metrics.

Step 5: Utilizing the goals and metrics developed in Step 4, investment criteria and tools for ranking and selecting potential strategies are developed. Criteria should include not only the traditional financial metrics, but also strategic and mission criteria such as market and community impacts. This is a critical and iterative process that requires continuous input and communication between all constituencies to the strategic financial plan.

Step 6: Preliminary strategies are developed, revised, and prioritized based on the criteria developed in Step 5.

Step 7: Updated financial projections that incorporate the prioritized strategic initiatives are developed to ensure acceptable financial outcomes. Sensitivities are developed to assess the risks of key assumptions and formulate contingencies.

Step 8: Tactical plans are developed to guide the broad-based implementation of strategic initiatives.

Step 9: An integrated strategic financial plan is created that incorporates the strategic vision and initiatives typically associated with a strategic plan with the financial implications and requirements of a financial plan.

It is important to note that, unlike a strategic plan that is often created or modified every three to five years, the strategic financial plan requires annual maintenance. This does not mean that the entire plan needs to be reworked each year, but rather that "tweaks" may be necessary to ensure that fundamental assumptions related to the environment and financial outcomes are on target.

Lessons learned

For most hospitals, developing a strategic financial plan represents a departure from current processes and, as such, may hit a few snags along the way. In an effort to minimize the number and severity of these snags, we offer the following lessons we have learned.

1. The integrated strategic financial planning team should include representatives from all of the major constituencies of the hospital—the board of trustees, hospital management, finance, and physicians.
2. The hospital must allow adequate time for the integrated process. Our experience is that an effective planning process may require nine or more months to complete.
3. The process should be "data-driven" enough to facilitate a common understanding of the current situation and support assumptions about the future, but not so detailed as to create "analysis paralysis."
4. The team must be willing to make the hard decisions and remember that this is not a popularity contest.
5. It is critical that the team understand its capital availability upfront. Capital availability provides the foundation for all of the decisions that follow. Further, the team must ensure that there is consensus on how capital should be allocated between mission, replacement, safety stock, and strategic initiatives.
6. The process outlined should be followed sequentially. There really is a method to this madness!
7. The hospital must recognize that the integrated strategic financial plan is a "living" plan that needs to be followed, updated, and refined on an ongoing basis. This is not an academic exercise.
8. Monitoring the plan may be as important as developing it. The hospital should design metrics and dashboards to monitor progress against the plan and actively use them to ensure success.

The creation and implementation of a strategic financial plan can be an exhausting but invigorating exercise. The extra steps to integrate strategic and financial planning may seem cumbersome at first, but should pay significant dividends in both the short- and long-run.