I think most healthcare entities are now moving to a more frequent budget cycle and if academic, they probably have to do a semi-annual legislative budget. They probably also at a minimum re-forecast based on updated actuals once a quarter.
Is their value though to gathering actuals daily or weekly and adjusting tactical plans based on current month trends? In today’s rapidly 
evolving healthcare environment, provider organizations must be able to identify financial performance gaps continuously and quickly change course when needed. As we discussed in my blog: The Role of Finance Within the Hospital has been Elevated, this requires a partnership with operations to ensure that the correct metrics are correlated within the budget process. Agility is also influenced by the mechanism the hospital uses for budgeting and whether they use a rolling forecast to replace or supplement the annual budget process.
What is a rolling forecast? The rolling forecast is usually a quarterly budget with a two to three year horizon that keeps a close eye on the organization trajectory. Typically the forecast budget is not prepared at the department level but may instead focus on divisions or even at a hospital level. Global budget drivers and assumptions will typically be the same as the annual budget but those unique to a department or division may not be line items. The forecast is built using historical trends, current conditions and future assumptions for budget drivers. Some forecasts may be primarily driven by revenue drivers with expenses flowing from ratios defined to the model.
The forecast feedback process fosters the partnership between finance and operations to allow the organization to course correct sooner and reinforce the cause and effect relationships that impact reality. Some organizations use the rolling forecast process in conjunction with the annual budget and others have moved to using the forecast only.
Benefits of replacing the annual process with a rolling forecast may include:
- Spending fewer resources on budget preparation and variance analysis.
- Reinforces a culture of continuous performance management.
- Allows a longer ramp-up time for course correction.
- Supports the organization’s economic model (3-5 year macro level plan) used for capital allocation decisions, margin targets, M&A modeling and other purposes.
The rolling forecast should be tailored to meet your organization’s needs and based on my experience; the forecast should be a continuous learning process and more flexible to make necessary changes when needed from both a process and a technology perspective.
Perficient is a large healthcare systems integrator with deep healthcare domain expertise and we are a platinum Oracle partner having implemented over 450 projects leveraging the Oracle Enterprise Performance Management platform. Stop by our booth at #OOW14 from September 29th – October 1st at the Healthcare Solutions Pavilion in Industry Central (Marriott Hotel Atrium Lobby booth HMH-003) and at the Perficient Main Booth #2221: Moscone South Exhibition Hall Level 1.
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