Planning vs. Dynamic Realities
First the good news.
Health systems and similar institutions have come a long way with their planning processes. While not always smooth, there is an integration between operational strategy and financial planning for many health systems. And moreover, this work is done regularly, often annually. Even further, many have adopted quarterly iterations to mute the base-year differentials of actual versus planned with the passage of time. Sure, many health systems may have taken a year off with distractions of COVID, but many still recognize the value of these processes and returning to form.
In the course of this planning work the largest question, aside from setting budgets, is the allocation of capital in a balanced way. Finding target limits of capital allocation along with financial performance measures can be configured to preserve the financial profile supporting a credit rating.
The issue then, is the internal and environmental pressures that erode the many assumptions developing these plans. There is no expectation that a plan will be carried out perfectly as predicted, yet many organizations are less equipped for handling any shortcomings or disruptions to the plan. Moreover, a key ingredient missing in the planning process for many organizations is the tight unification of strategy for the formation and positioning of their financial resources. It’s these resources that often buffer the risks inherent in running a healthcare company, university, or other complex non-profit institute.
Consider the gaps still present in the executive decision-making process. Whereas business strategy is well covered, less sophistication exists for assessing and managing risks and promoting agility for coping. Likewise, there are teams of internal and external advisors willing to help in various pockets of specialties for financial resources, yet few are able to understand the complete picture and speak to the holistic management of financial capacities.
In the end management and governance will be judged by the results, not the plan. Enabling the best results amid an often chaotic environment requires a purposeful approach for promoting agility in both management actions and balance sheet support. A wholesale substitute approach for planning is not needed. Management must preserve the good practices yet not anchor in an assumption that they are at peak performance. When tested by dynamic realities, a complementary set of tools are required to stay ‘on-path’ within an organization’s capacities.