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Financial Modeling

Managers in successful organizations acknowledge that we live in a complex world where many variables must be considered when making major decisions. We assist our clients with these decisions by building Excel-based computer models that allow managers to run multiple what-if scenarios.  What will happen if we redesign our service delivery model to significantly increase the use of group therapy and reduce individual therapy?Ø  How do we know if this new capitation contract will allow us to cover our costs?Ø  How long will it take for a new obstetrics program to break-even, if ever?Ø This work can be described as the need to balance Demand with Capacity and Revenue with Expense.

We use a ten-step process to support this type of decision-making:

1. Project Clinical Demand
2. Determine Make or Buy of Services; Estimate Staff Capacity
3. Balance Service Demand with Staff Capacity
4. Project Revenues generated from the Clinical Design
5. Determine Risk Reserve
6. Estimate Direct Service Expense
7. Determine Make or Buy of Administrative Infrastructure and Estimate Admin. Cost
8. Balance Revenue and Expense
9. Develop Alternative Scenarios
10. Make Go/No-Go Decision

At a minimum we project low, medium, and high scenarios using key variables such as penetration rates, case mix, payor mix and co-payment collection rates. We often use probability modeling software to forecast the statistical likelihood of financial success.