Financial Transparency: There’s Nothing to Hide

January 16, 2007

One of the joys of my job is meeting top leaders in health care and other industries who are on the cutting edge in managing their organizations. I never stop learning.

Today’s senior leaders in health care often find themselves constantly walking up a down escalator when it comes to budgets and finances. They may have a fantastic fiscal year only to find themselves in a hole the first day of a new fiscal year. Below is an example of a system I recently visited:  

  • Medicare and Medicaid impact will mean $30 million less in collections if the same amount of care is provided. The patients keep coming but not the reimbursement. 
  • Pay raises kick in – a $6 million cost increase.
  • The projected increase in charity care is $8 million.

The hospital will have to improve its operation $44 million to have the same results this year as last, which is still a small margin.

I have found that many managers do not understand how the organization can be okay one day and then face such a fiscal challenge the next day or the next budget cycle.  In our work, we have found that most managers and staff do not have adequate knowledge and understanding on the financial condition of the organization, how health care finances work, and the pressure the organization is under. I believe one reason may be that we generally have strong top leadership in health care. For many years, a few senior leaders through excellent strategy, tough negotiations, and tight controls could keep the situation from getting to an unmanageable point.  They would prevent staff from noticing the financial issues beyond the toughness of receiving an FTE at times, tighter purchasing requests, small staff reductions, and our annual budget pain.

The days of a few senior leaders being able to pull, push, drive, or will an organization to success are over. Today, we need all leaders and frontline staff on board, or enough to reach our tipping point, to be successful.  I have found that key steps are transparency of data and education of all leaders and staff to understand the organization’s financial position. For example, very few people realize that the cost of pay increases each year to retain staff puts more pressure to perform operationally. Yes, we must pay market salaries to attract and retain staff, but we must also improve operations to make the additional payments. Each year an organization must be that much better just to stay even.   

Years ago a plant operations employee told me that he appreciated seeing the organization’s monthly financials. He felt included and could get a good idea of potential overtime based on the financials. I find leaders who see and understand the financials and the impacts are better communicators and leaders. It also takes the “we/they” out of conversations because the leaders know what is going on within the organization.

We encourage organizations to share monthly financials and implement educational sessions so all leaders and staff know and understand organizational issues. Personnel should understand all key areas, including financial performance beyond the sharing of results at monthly departmental meetings. Owners know the data. The transparency of financials creates ownership behavior that we all seek from the workforce.

Senior Leaders:

  1. Do all leaders understand the financial pressures, the financial performances, and steps needed to be taken and why? Recently, I was at a fairly good organization that polled the leaders on their understanding of finances. It was quite a wake up call.
  2. Do you have a system in place where leaders clearly understand and have the ability to take the information to their staff in a constructive way?
  3. Do you have a way to verify it is being done? I follow the late President Reagan’s philosophy: trust and verify.

Leaders:

  1. Have you taken ownership to learn your organization’s financial operations, pressures, and next steps?
  2. Do you have the skill set to communicate the financials, next steps, and why certain actions are necessary in a non blaming way to staff?
  3. Are you comfortable asking senior leaders for information and education so you can do a better job?
  4. When you share information with staff, do you create the culture in which you expect staff to contribute with ideas and solutions and follow guidelines that demonstrate behavior to improve operations?

Staff:

  1. Do you provide ideas and solutions to improve financial performance?
  2. Do you take time to read and listen to information on financial operations?
  3. Do you role model for other staff stewardship of resources?

Help Us to Help Others:

If your organization has a system in place that works well to teach and cascade information, please send us your tactics and strategies.  We will give your organization full credit as the source.

We are all in this together.

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8 Responses to “Financial Transparency: There’s Nothing to Hide”

  1. Greg Zobell Says:

    A helpful, brief and clear primer that can serve as a helpful guide for helping every employee understand the money making model of an organization follows:

    “Every Business is the Same Inside” from the book What the CEO wants You to Know by Ram Charan.

    • Business acumen requires understanding the building blocks money making.
    • Money making in business has three basic parts: cash generation, return on assets (a combination of margin and velocity), and growth. True businesspeople understand them individually as well as the relationships between them.
    • Cash generation, margin, velocity, return on assets, growth, and customers: Everything else about business emanates from this nucleus.
    • Cut through to the nucleus of the business. If your business shows deterioration in one or more of the basic components of money making, use common sense to fix it. If you do so, you are on your way to thinking and acting like a true businessperson and a successful CEO!
    • Cash generation is the difference between all the cash flows into the business and all the cash that flows out of the business in a given time period.
    • Cash gives you the ability to stay in business. It is a company’s oxygen supply. Lack of cash, decreasing cash, or consumption of cash spells trouble, even if the other elements of money making—such as profit margin and asset velocity—look good.
    • Everyone in a company must be aware that his actions use or generate cash.
    • Find out the tangible assets (the things you have invested in that you can see and touch). A person with great business acumen will wonder how much money you are able to make with those assets. What kind of money is being returned to you through their use? In short, what is your return on assets? Are you making enough of a return on those assets?
    • The word velocity describes the idea of speed, turnover, or movement. Think of raw materials moving through a factory and becoming finished products, and think of those finished products moving off the shelf to the customer. That’s velocity.
    • Things must move through a business to the customer—the faster, the better.
    • The faster the velocity, the higher the return. In fact, return on assets is nothing more than profit margin multiplied by asset velocity
    • Growth is vital to prosperity. Every person, every company, and every national economy must grow.
    • What happens when the growth rate is low or even negative? If the company as a whole or your business unit lags behind competitors, your personal progress will suffer. If the company’s sales are flat for five or six years, people will not have the opportunity to be promoted and move forward. Top managers will begin to cut costs, cut the number of employees, cut layers. They’ll start reining in R&D and advertising, good people will leave, and eventually the company will go into a death spiral. People will suffer. In today’s world, no growth means lagging behind in a world that grows every day. If you don’t grow, competitors will eventually overtake you.
    • Growth for its own sake doesn’t do any good. Growth has to be profitable and sustainable.
    • Bankruptcy is often the sad end of misguided expansion plans.
    • Don’t use size as a measure of success. Pushing for more sales dollars isn’t necessarily good business. You have to know how and why you’re growing in a way that can continue.
    • CEOs with business acumen have the same close connection with customers and strong conviction that the business cannot thrive without satisfying them. It’s universal.
    • The best CEOs know that focusing solely on money making at the expense of customers is shortsighted.
    • You have to earn customer loyalty every time you come in contact with the customer. Customers need a simple reason to buy from you. You have to give them something they really need or want. You can find out what they need—from them. It’s common sense. You would be surprised how often this common sense of business is lacking.

  2. Maribeth T. Says:

    We recently completed two hour training for 75 of our frontline leaders on meeting productivity standards. This group included Charge nurses, supervisors and leads in all areas of the hospital. The content included how matrixes were built, what the impact of a few hours of OT or training per employee adds up to in one day, month, year, ways to talk with staff and model best practices. We found that some of the frontline leaders had never been exposed to the actual budget calculations and were really surprised at the impact they could make. Some of the discussion included little things like educating their staff about not clocking in early/late, how to avoid not taking lunch by developing buddy systems on the units, sending staff home just 30-60 minutes early when they could, etc. A lot of brainstorming occurred in the sessions. We know that this transparent approach will help us to be successful. MT

  3. juan c. garcia Says:

    The last line says it all.”We are all in this together”.Teamwork,teamwork,teamwork.That is why everyone at all levels must be well informed about all aspects of the organization.
    Excellent article.

  4. Len Godfrey Says:

    I have asked our leadership to form a financial review team made up of key managers, coders, IT Leader, Directors and CFO. This group would educate one another to better understand,review and update each departments coding and billing system.
    This has not yet been initiated in our hospital, even though others have also recommended this review team. We should meet at least once a month.
    I agree that staff satisfaction is very important, but managers and directors can not be happy in their jobs if they are getting pressure from above to fix financial problems, yet not get the communication, tools and support to do so.

  5. Chris Shaver Says:

    Quint, this month’s blog Financial Transparency and last months, Tips for Communicating with Sr Leaders were excellent and well timed for our organization. Transparency is the “buzz” word as well as the mantra for us all. The best, most meaningful relationships are based on honesty. I have no best practices to offer–just thank you for relevant, reaffirming blogs that let us know we are on the right journey.

  6. Ed Todd Says:

    I worked in a severly stressed manufacturing entity in the 80’s and like the use of “velocity” in Greg’s post Velocity could also describe how fast the cash is bleeding out of your company. It also needs to be coupled with veracity (old school for “truthiness”). Few staff and line folks knoew what to believe from the companies management, because they saw positions cut and little perks (No more free coffe in the break room!)taken away because we needed to save costs, but the first spreadsheet the Controler had me develop for use in his office did the “flash report” before the books were even closed for the month, so the “C suite” types knew what their management incentive program payouts were looking like. I’m not trying to invoke a cynical cloud by sharing that story, but I do believe that entities need to be prepared for the fallout that openess can bring – if they have not aligned everyones performance expectations and rewards to the corporate strategy.

    In our healthcare context, velocity takes on other interesting imagery. From the obvious (I need an IV started, stat.) to the unappreciated (moving suppiles and instrumnet trays tied to a surgeons preference into an OR where another procedure just finished.). And veracity – well it could invoke a lawsuit.

    We all need to embrace transparency, create shared ownership of goals, and share the tangilbe ($) and intangible (security,stability) fruits of good stewardship. The education needed at all levels of our organizations to accomplish that will take a true commiment – so education isn’t one of the first thisgs cut (again! at some orgaizations) as soon a dip in revenue occurs.

  7. BG Porter Says:

    In our work with organizations, the Studer Group will sometimes see senior leaders assume that leaders and staff know more about finance and how finance in the organization works, so the opportunity to raise the level of transparency is overlooked.

    For example, a finance leader may feel very comfortable with day to day financial concepts and terms that seem second nature to them. So they may not recommend training and education about this with the broader leadership – say all of middle management.

    But the reality may be that financial operations are as foreign to a clinical leader as medical procedural terms might be to a non clinician.

    We coach to not make assumptions about what a leader might know or not know.

    Without fail, transparency, education about “how it works” creates an “aha” in the organization and raises the level of ownership for results.

  8. Moe Says:

    I love reading all comments, esp Ed Todd,,,
    Transparency in a hospital setting should not just be financial….
    Floor staff, as well as managers need to understand financial aspects and all qualified/licenced “leaders”, should have to participate once a month in an 12 hour shift, patient care module, just as the worker bee’s do…
    the transparency goes both ways…..


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