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The client faced a unique challenge of moving targets when it came to financial planning and long-term budgeting. The author assigned as a Sr. Solution Architect and subject matter expert designed a tailor-made solution that can also be replicated for other healthcare companies.
Annual operating budgets are typically built bottoms-up by planners at the department and/or division level. This bottoms-up budget building model works perfectly for hospitals since each department can use a unique model based on different services it provides. The customer in question was a long-term Oracle Hyperion user almost since the Essbase/Planning version 9 was released some 15 years ago. As a cancer research institute and a cancer hospital, the client was accustom to building the bottoms-up budget as part of its annual planning process. The Central Finance and Planning Department wanted to implement a driver-based 18-month rolling forecast model that could feed targets to their annual budgeting application as well shorten the time needed to build a bottoms-up budget. The solution needed to be flexible enough to a level where a different driver could be used for each of the departments if applicable. The solution needed to provide a calculated model and also give planners the ability to override the calculated values.
Solution Background: Implementing a driver-based rolling forecast model at a healthcare client posed the following unique set of challenges:
- Ever changing drivers and KPIs based on an evolving healthcare landscape
- Differences in financial planning with various departments and procedures
- Inter-department relationships
- Voluminous level of data and exception handling
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Even though the customer had been using Oracle Hyperion for a long time, utilizing the product capabilities to build a forward-looking model and converting the model to a more strategic model was the key for success.
Some ground rules are intrinsic to any forecast:
- Set a defined period to forecast: In our case, we were building a rolling forecast for an 18-month window
- Continuous Planning: With every subsequent month end close the forecast was recalculated based on actuals.
- What-if scenario analysis: Provision to planners to plan using what-if scenarios like optimistic vs pessimistic cases
- Variances and Trends Analysis: Comparison of the forecast to the actuals or annual operating budget and various trend graphs on the KPIs, drivers and inputs/outputs to the model.
As normally is the case, most organizations have a very formal operational budgeting process. Since annual operating budgets are easier to track and build, organizations tend to focus on building those first. Even though the forecasts give a forward-looking view to the business and the executives, they are harder to plan and build. We utilized some guiding principles that helped us achieve the success of our solution:
- Avoid excessive detail: The purpose of building a forecast is to provide a forward-looking view into the organization. Models for forecast are not intended to be a prediction. The forecast model should provide the analysts a view of the future based on actual performance. So keeping a balance between the amount of detail needed is the key.
- Identify key trends, drivers, and relationships: The purpose of the forecast is to identify main drivers of the business and the relationships between various components of the business to link future to the past and present.
- Use a consistent reporting period: Forecast needs to be evaluated against budget and actual performance. Hence, using a consistent reporting period and evaluating and planning continuously is important.
- Coordinate action plans with business units: Last but not the least, even though the forecast is typically evaluated at higher levels, keeping all the business units in sync and coordinated is important.
The customer’s legacy forecast process included use of Microsoft Excel spreadsheets for various service lines – a decentralized system lacking a robust security model. There wasn’t any consistent reporting model. Auditing in Excel-based models became an issue. The model in Excel was at a much higher level and lacked the granularity that planners preferred. This was due to the restrictions posed by Excel data limitations.
The entire implementation of the project took about 20 weeks and we designed the solution on their existing on-premise Oracle Hyperion 11.1.2.4 infrastructure. The following foundational features of the product came out of the box:
- Centralized planning system
- Standardized reporting capabilities using Oracle Business Intelligence Enterprise Edition (OBIEE), Financial Reporting (FR) and Smart View
- High performing Calculation engine to Calculated driver-based planning with complex calculations and “what if” scenario analysis
- Centralized Security model
- Version capabilities
- Data forms for consistent and time-saving data entry
- Planning auditing capabilities
Get the details of the solution design that supports rolling forecasts, target-setting at higher levels, and bottom-up annual operating budgets. Gain a greater understanding of best practices and dimension design (entities, measures, attributes) to enable flexible user input and efficient calculations at our session!
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