1. Strategic Financial Planning
Phase 4
Strategic Financial Planning

2. Strategic Planning
Strategic planning proves that in business an organization appears to be concerned with two (2) basic decision outcomes.
First, a statement of mission or goals or both is required to provide guidance to the organization.
Second, a set of programs or activities to which the organization will commit resources during the planning period is defined.

3. Financial Planning
Financial planning is fashioned by the definition of programs and services and then assesses the financial feasibility of those programs and services.
Three (3) points concerning the integration of strategic and financial planning should be emphasized:

4. Financial Planning Point # 1
First, both strategic planning and financial planning are the primary responsibility of the board of trustees (board of directors).
This does not exclude top management from the process, because they should be active and participating members of the board.

5. Financial Planning Point # 2
Second, strategic planning should precede financial planning.
In some situations the board may make strategic decisions based on the availability of funding.
Although this may be fiscally conservative, it often can inhibit creative thinking.

6. Financial Planning Point # 3
Third, the board should play an active, not a passive, role in the financial planning process.
The board should not await word concerning the financial feasibility of its desired programs and services.
It should actively provide guidelines for management or its consultants (or both) to use in developing the financial plan.

7. Financial Planning Point # 3 (cont’d)
Specifically, the board should establish key financial policy targets in the following three (3) major areas:
1. Growth rate in assets
2. Debt policy
3. Profitability objective (return on equity)

8. Developing the Financial Plan
Four steps are involved in the development of a financial plan:
Assess financial position and prior growth patterns.
Define growth needs in total assets for the planning period.
Define acceptable level of debt for both current and long-term categories.
Assess reasonableness of required growth rate in equity.

9. Valuation of an Organization
Cash flow
Discounted Cash Flow (DCF)
Ratio analysis
How can a healthcare organization maximize its value?
Purple cow?

10. Development of Outline
I. Cover Page
II. Introduction (1st two (2) paragraphs) of Phase 4 IP and Phase 5 IP Key Assignment Draft Scenario
III. Question 1: What are the key financial policy targets for which the board is responsible for? List and explain each.
IV. Question 2: How does the financial planning and strategic planning of the new for-profit status align with the financial and strategic plans of the existing community hospital status?

11. Outline (cont’d)
V. Question 3: Explain how management control is used in conjunction with the financial plan. With the takeover, would the ABC Community Hospital CFO need to consult with XYZ Healthcare System executives for the decision making?
VI. Question 4: A financial plan may be thought of as a bridge between two balance sheets. What are the major categories of assumptions that must be specified to project a future balance sheet, given the current balance sheets from the ABC Community Hospital and now XYZ Healthcare System?
VII. Question 5: Compare and contrast the kinds of decisions that are made in the Cancer Center capital investment decision analysis for the for-profit and non- profit healthcare facilities using the four stages of capital decision making process.

12. Outline (cont’d)
VIII. Question 6: What information is needed by the CFO to evaluate the Cancer Center capital investment project?
IX. Question 7: Who, internally from the healthcare system and externally, should be involved in the capital investment decision process to determine the feasibility of the Cancer Center?
X. References

13. Outline Template I. Cover Page II. Introduction
III. Question1: Summary Title
IV. Question 2: Summary Title
V. Question 3: Summary Title
VI. Question 4: Summary Title
VII. Question 5: Summary Title
VIII. Question 6: Summary Title
IX. Question 7: Summary Title
X. References

14. Phase 4 IP Criteria Task Type: Individual Project
Deliverable Length: 6–7 pages (including cover and reference pages)
Points Possible: 150
Due Date: 3/17/ :59:59 PM

15. Phase 4 IP Scenario / Introduction
Established in 1987, ABC Community Hospital not-for-profit is an acute care hospital located in an east coast Metropolitan area. With a staff of nearly 200 physicians and specialists, 800 employees and 100 volunteers, they offer a full range of healthcare services. They are accredited by the Joint Commission. The hospital has been profitable for the last 5 years with a profit margin of 3-4%.
In March 2012, XYZ Healthcare System, a private, for-profit health care chain, took over management of the 400-bed ABC Community Hospital. In May 2013, officials began to discuss a proposal to build a new wing devoted to a Cancer Center and ancillary services devoted to the treatment of Cancer. The new wing would have 30 acute care beds, four surgical operating rooms, intensive care unit and extensive support services, including physical therapy and Hospice care. All patient rooms would be private. There are no Cancer Centers within a 200 mile radius of the hospital service area.

16. Phase 4 IP Assignment
The Board of directors is concerned with taking on the additional debt of the Cancer Center.
They have tasked the CFO with developing a financial plan and strategic plan that will outline the impact of the Cancer Center.
They want you to address the following areas:

17. Phase 4 IP Assignment (cont’d)
What are the key financial policy targets for which the board is responsible for? List and explain each.
How does the financial planning and strategic planning of the new for-profit status align with the financial and strategic plans of the existing community hospital status? 
Explain how management control is used in conjunction with the financial plan. With the takeover, would the ABC Community Hospital CFO need to consult with XYZ Healthcare System executives for the decision making?
A financial plan may be thought of as a bridge between two balance sheets. What are the major categories of assumptions that must be specified to project a future balance sheet, given the current balance sheets from the ABC Community Hospital and now XYZ Healthcare System?

18. Questions