Cadieux explains that in the past they would look to their projects, such as capital improvements, and say, "We need to grow." Now, their financial forecast gives them the ability to project whether growth is the correct course of action, given other indicators. "In a lot of ways the forecasting model has changed how we operate," he notes.
The financial forecast can also be a messenger. The process often reveals risks that would otherwise go unnoticed, thereby allowing financial leaders to determine how to insulate the facility from possible strife. As Cadieux and his team at Children's Hospital went through the collapse of the variable-rate bond market, the financial forecast model helped devise an exit strategy and allowed the staff to review different scenarios for such a plan, which was executed in the summer of 2008.
"Then, because of our high rating, we were able to go to local banks and capital markets, demonstrate our results, and explain any variances. We were able to secure a $250 million line of credit in a month and save on capital cost by exiting the auction-rate security market quicker than some of our peers," Cadieux explains.
As hospitals come out of the recession and press onward to a still uncertain market, generating more accurate and useful long-range financial forecasts will become an even greater priority. And while financial forecasts are still far from being 100% accurate, if done correctly, they can provide the warning needed to help facilities weather future storms.
Our sources offer these tips for creating a more accurate financial forecast:
Utilize the five-year strategy. Base the focus of your financial forecast on the five-year strategy, concentrating your research on the areas where you'd like to see or expect the most growth to occur.
Get technical. There are numerous predictive technologies on the market that can help you run best- and worst-case scenarios.
There is no I in team. When it comes to forecasting, assemble a team of key department heads to offer their predictions and assess the "conclusions" your team makes.
Be proactive. Predictive models need to be tracked and updated just like any other financial spreadsheet. At least once during the year, you should compare where you are against the model. If there are any large deviations between what was predicted and what is transpiring, it's time to reassemble the team and review what went wrong.
Use the forecast. Financial forecasts can be used in a variety of ways: to inform budget decisions, to bring your teams up to speed on changes in the economic environment, or even as a type of benchmark. Use the document often to reap the most benefits.