“Can We Afford Our Strategic Plan?” --Using the Tools of ... · PDF file–Executives’ Role in Facility Management ... (marketing) • Financial and strategic planning: ... –ID

“Can We Afford Our Strategic Plan?” --Using the Tools of Capital Assessment and Financial Analysis

JOHN H. ZUMBRUNNENPresidentzumBrunnen, Inc. - Atlanta, GA – Charlotte, NC

• University of North Dakota, 1971 - BSME

• US Army Corps of Engineers Construction Engineer, 1972 ETP

• 8 years industrial capital equipment sales and design engineer

• 34 years construction and consulting

• Founded zumBrunnen, Inc. 1989

• Founded FacilityForecast® Software 1998

• Extensive experience:

– Construction inspection/quality control

– Construction administration

– Facility assessment

– Capital replacement budgeting

• Faculty and Author:

– Univ. of N. Texas Coalition for Leadership in Aging Services (CLAS) National Certification Program for Aging Services Professionals (CASP)

– CLAS Author: “Asset Management” classroom and online training

– Industry Publications and White Papers

www.zumbrunnen.com

• Associations or Participation in:

– LeadingAge and States: Florida, North Carolina, South Carolina, Georgia, Illinois, Ohio, Pennsylvania, Texas

– APRA (Association of Professional Reserve Analysts)

– CAI (Community Associations Institute for CIRA) and States: Georgia, North Carolina, South Carolina

– NCAIS and SAIS (Independent Schools)

– NBOA (National Business Officers Association for Independent schools)

JEFFERY A. VRIEZEPartnerCliftonLarsonAllen LLP, Minneapolis, MN

Extensive experience:

- More than 20 years devoted to the health care industry for auditing, forecasting, and tax services

- Third party reimbursement consulting

- Development of spending analysis and projection models

- Provide operational and financial consulting services to nursing homes, senior housing, assisted living facilities and CCRCs

Education/Professional involvement:

- Bachelor’s of science in accounting from Winona State University, Winona, Minnesota

- LeadingAge and States: Minnesota, Iowa

- American Institute of Certified Public Accountants

- Certified Public Accountant in the state of Minnesota

www.zumbrunnen.com

• How facility assessments and capital replacement funding positions you to objectively model and validate a renovation, repositioning or replacement of a building or entire facility

• Evaluate financial strength and capacity to access capital and to model your capital capacity to fund your strategic plan

• Examine philosophies and methodologies financial advisors and engineers use to strategically plan for and to implement new services and capital improvements

Three Learning Objectives

1…

2…3…

13 Questions Common To Facility and Financial Planning

1. Is data current, relevant, complete and objective?2. Is there understanding and consensus on condition of

physical plant and financial strength?3. Are analytical and planning tools commensurate with these

investments?4. What are your key physical and financial drivers?5. What is the average life of these investments?6. Does management and the resident’s perspective align

with this average anticipated life? 7. Are historical operations indicative of future capital needs? 8. Do depreciation schedules reflect actual costs?9. Should replacement reserves also fund future capital

projects?10. How well delineated and quantified are strategic options?11. What are the horizons for each strategic decision? 12. Which strategic initiatives require formation of or access to

capital?13. How far out do we plan?

To Ensure Mission And To Thrive Takes both Physical and Financial Evaluation and Planning

Discuss two financial planning topics; both inner related:

• Facility Planning and Needs - John zumBrunnen

– Executives’ Role in Facility Management

– Reserve Study – The How and Why

• Financial Planning and Needs – Jeff Vrieze

– Understanding your strategic initiatives

– Clarifying key issues required to build financial performance targets

– Driving change throughout the organization

– Preparing a financial analysis of the goals and outcomes

Your Facility Likened to a Car…are You the Passenger or the Driver?

• Set your goals - destination

• Establish your schedule

• Check your resources

Performance and Progress

• Evaluate performance and report

• Monitor your progress

– How far have we come

– When will we arrive

Making Adjustments

• Analyze reports and adjustment as needed

• Prepare for the unexpected –have options

• If the program is not working you may have to shift gears, back up and start over

“What Tools Do Executives Need to Manage a Facility?”

• Strategic Plan and Reserve Study• Set your annual goals / ID projects• Monitor resources with quarterly

and annual budget reports

• Qualified Director of Facilities• Capable utilizing CMMS• Providing quarterly and annual

reports

• CMMS reports • Work order performance• Improvement goals• Expenses• Resident satisfaction• Health & Safety compliance • Staff utilization

Drive or Provide the Service and Repairs??

• “Drivers” do not need to know how to perform services or repairs

• “Drivers” only need to know how to:

– Set the destination

– Monitor progress and performance

– Make adjustments

– Make assignments

• The executive role is that of the “Driver” not the “Passenger”

"What Are The Funding Options To Plan For?"

• Goal-setting to accomplish Mission must consider:

– Projected life-term for the facility

– A reserve-funding plan

– Setting limits on debt (debt capacity)

• 4 reserve funding options to consider/include:

1. Maintain and repair facility for life-term

2. Renovate or reposition

3. Replacement of a building

4. Or any combination of the above

• Minimum funding plan requires:

– Fund to maintain facility for life-term as set by Goals

• Recommended funding plan:

– Combination of 1 + 2

Fundamental Components of a Reserve Study and Funding Plan

• Condition Assessment Inspection IDs:– Repairs, deferred maintenance, life safety, code– Standard life cycle replacement expenses

• Recommended Improvements:– Improved function and marketability– Reduce operating costs (LEED & ASTM)

• Short-term Budget– Address and prioritize immediate repairs

• Life-term Replacement Budget – All items included regardless of remaining life

• Replacement Reserve Funding Plan– Establish funding plan to meet business model– Look long-term – worst case – include longest RUL items

• Vary Report Parameters– Adjust: Inflation, reporting term, interest rates– Filters: Unit cost, item classification, building, department, revenue stream– Analysis: FCI, per unit (resident, bed, etc.) and per SF– Collective purchasing and unit cost master contract opportunities

“Not to Worry… We Fund Depreciation!”

What do Adam and Jamie have to say about this myth - confirmed or busted?

• Asset lists incomplete• Depreciation terms vary from actual life• Exclude renovations and repositioning • Do not include non-depreciable expenses, either

the operating or capital budgets– Major repairs– Paint and wallpaper – Preventive maintenance– Testing & inspection for major systems or

equipment– Consultants– Environmental issues: abatements and clean up– Overhaul, major tune ups, upgrades– Energy audit upgrades and changes

Reserve Studies are More Than Just a Budget

Benefits: Assessments - Complete & Objective Data: • Lower operating costs – identify:

– Hidden and latent repairs

– Inherent design and construction issues

– Improvement to efficiencies

– Improvements for curb-side appeal (marketing)

• Financial and strategic planning:

– Repair, renovate, reposition or replace

• Reporting to Boards, Agencies, Other Benefactors

• Validate:

– Projects, fee increases and use for capital campaigns

• Fund reserves per your business model and Strategic Plan

– Do not under reserve or over reserve

• Identify other work and future capital projects:

– ID replacements/repairs to include with project or refinance

Other Uses of a Reserve Study

Owner and Investment Banker:• Attract best financing terms• Smooth and timely closing• Covenants are met• Accreditation

Investors:• Bring to par before or shortly after

transaction:– Funded by Borrower, or– Escrowed

• Capital budget for term of loan + 2 years– Typically for analysis purposes only– Some will escrow income for reserves

• Sufficient funding for the long-term

“How Do We Get Comprehensive and Accurate Data?”

Reserve Study Based on Goals• Accurate data based on:

– Comprehensive assessment of facilities– Senior level engineering consultants, +20 yrs.

minimum• Assess:

– Each site improvement– Each building– All systems and equipment

• Interview – Review – Consensus and ownership

• Develop Short-term Budget– Immediate repairs

• Develop Life-term Budget– All assets regardless of remaining life

• Develop Reserve Funding Plan– Based on business model– Minimum of 30 years or worst case

This is not some FOB product – this is a product of a team effort!

Answering The 4 R’s Question

Repair? Renovate?

Reposition? Replace?

“Are We Throwing Good Money After Bad?”

• Straight line depreciation of 39.5 yearsFCI = 2.6% per year (this includes everything –structure, foundation, etc.)

• Developed by US Navy around WWII:With a 0.30 index (30%) renovation, they would replace the building vs. renovate

FCI = Repairs + Replacement costs + (other)Current Total Building Replacement Cost

FCI & the 4R’s Question

FCI: Use to evaluate future years vs. a new building

Answer:

• Autumn Place: renovation 29% of total supports a renovation

– Long term FCI = 0.9% very good vs. new of 0.8%

– No other factors need consideration as long as client is satisfied with the renovation design and marketability

• Miller Manor: renovation of 36% is marginal

– Long-term FCI = 2.4% is very high vs. new at 0.8%

– Need to factor marketability and acceptance value of the renovation vs. new

– Final decision is a client call

Autumn Place at 0.9% per year

Replacement in 111 years

Miller Manor at 2.4% per year

Replacement in 42 years

Cost Per Unit and Per Square Foot

Renovation cost vs. new:• What are the per Unit and SF cost analysis of

a renovation vs. new

Long-term maintenance costs vs. new:• Which option is the most expense to

maintain?• Why?• What options are available to reduce costs?• Does renovation bring building to current

standards– Operational Efficiency– Architectural– Market– Code

Per Unit and SF reports for various

scenarios to determine: Per Unit

Per SF

7 Other Considerations to Evaluate a Building

1. Emotional Equity:– Historical or emotional significance– Is there a price on this?

2. Old vs. New Cost: – Cost of capital

3. Marketability of Old vs. New: – Historic marketing advantage– Latest trends and features

4. Life Safety– Are your residences as safe?

5. Old vs. New Floor Utilization: – Floor area efficiencies – if down 85 - 68%– Maintenance expenses - up 20%

6. Old Systems vs. New Systems Efficiency– LEED and Energy Star Improvements – Utility expenses

7. Old RUL vs. New EUL: – Compare number of remaining life cycles

How Far Ahead Do We Look?

Avg. over 6 Yrs. = $346,140/Yr.Avg. over 30 Yrs. = $740,052/Yr.

Each case is unique. Look ahead at least 30 years including the longest RUL

and worst funding year

47% delta in a 6-year average vs. a 30-year average

Current Funding Plan

• 264 beds and units and 95% occupancy• End of year 2009 Reserve Fund Balance was: $65,340• Current Funding Level: $400,000 per year = $129.04/mo./resident + 3% inflation• Increase reserve funding 3% per year to offset effect of inflation at 3%• Interest earning on reserve fund deposits 0.5%• Reserve Fund goes negative in 2017

Reserve Funding - Cash Flow Analysis

• Assume the same as previous terms

• Annual Reserve Funding = $483,312 in 2011 = $160.59/month/resident + 3% inflation

• First year with zero balance is 2037

• This situation required looking out 27 years to find the worst year

• Maximum amount in reserves is $2.6 M, which is 36% of accumulated depreciation

Reserve Funding - Fully Funded

• Fully Funded means accumulated depreciation is 100% funded

• Cash Flow max reserve $2.6 M (previous page) vs. Fully Funded of $9.5 M

• The only reason for such a program is to fund for a portion of a building’s replacement costs

“Show me the money…”

Options to start a reserve funding program

• Fund– From cash

• Accelerated increases over customary annual increase– Modify the funding plan to meet tolerance levels for funding increases

• Fundraiser reach-out to benefactors– Benefactors more likely to contribute when they know the end game!

Two White Papers - Take Home

1. Facility Management Performance– A self-assessment for the executive

department

2. Fundamentals of a Reserve Study and Reserve Funding Plan

– An objective White Paper for Boards and Executives to better understand the fundamentals of a Reserve Study

Plan, monitor, report …act

Board/Governance

• Still relevant?• Strategies in place to achieve goals?Mission

• Select leadership• Transform mission into productive workLeadership

• Compliance• Effectiveness of ethical/moral guidelinesConduct of Operations

• Protect and enhance resources needed for mission• Resource allocation amongst competing needs

• Capital investments are appropriateFiduciary

• Organizing board to carry out functions of governance

Board Organization and Development

Strategic Considerations

Strengths Weaknesses

Opportunities Threats

Strategy

Market Driven, Financially Viable

2. Financially Viable

Market Driven

•Consumer needs and wants

•Adaptability to changing healthcare delivery

•Value

•Property assets well positioned and maintained

Financially Viable

2. Financially Viable

•Understand impact of change or status quo

•Evaluate/assess competing capital needs

– IRR,ROI,NPV, etc.

•Compliance with stakeholder expectations

•Access to capital

– Debt Service Coverage Ratio (“Margin/Debt Capacity”)

– Cash to Debt Ratio (Liquidity/“Reserves”)

What is a Strategic Capital Plan?

• Strategic Capital Planning is defined as the process of linking capital financing (“funding”) to your strategic, operational and repositioning plans.

• This is performed by:

– understanding your strategic initiatives

– clarifying key issues required to build financial performance targets

– driving change throughout the organization

– preparing a financial analysis of the goals and outcomes

Market Operations

Mission

Financial

Mission/

Strategy

Our occupancy keeps declining…should we paint the halls?

A Simple Five Step Approach

#1 – Clear Vision

#2- Define Capacity

#3- Establish Targets

#4- Allocate Capacity

#5- Identify Gaps and Priorities

Strategic Capital Concept #1

• Income = $110,000

• Expenses= $70,000

• Disposable Income=$30,000

• Cash in Bank = $20,000

Strategic Capital Concept #1 (continued)

•Yr 3 Housing Repairs = $50,000

• Vehicle Purchase = $30,000

• Spouse not Marketable = (40,000) Revenue

Strategic Capital Concept #1 (continued)

Yr. 6 Son in College =

$20,000/yr

Spouse not Marketable =

($40,000) Revenue

Concept #1: Need Comprehensive Long Range Planning

Higher

Accuracy

Short

Time

Horizon

Lower

Accuracy

Long

Time

Horizon

Budgets

Short-term capital planning

As accuracy declines (time variability), need for more

comprehensive and sound planning approach becomes more

pronounced

Long-term strategic

planning

SCP Concept #2- Establish Affordable Capacity2012 2014 2015 2017 2019 2020 2021

Income 110,000$ 116,699$ 120,200$ 127,520$ 135,286$ 139,345$ 143,525$

Adjustments:

Spouse (40,000)$ (41,200)$ (43,709)$ (46,371)$ (47,762)$ (49,195)$

Net Revenue 110,000$ 76,699$ 79,000$ 83,811$ 88,915$ 91,583$ 94,330$

Expenses 70,000$ 74,263$ 76,491$ 81,149$ 86,091$ 88,674$ 91,334$

Adjustments:

Housing 50,000$

Vehicle 30,000$ 20,000$ 20,000$ 20,000$

Net Expenses 70,000$ 154,263$ 76,491$ 101,149$ 106,091$ 108,674$ 91,334$

Net Income 40,000$ (77,564)$ 2,509$ (17,338)$ (17,176)$ (17,091)$ 2,996$

Cash and Investments BOY 30,000$ 111,200$ 33,636$ 38,729$ 4,133$ (13,043)$ (30,134)$

Cash and Investments EOY 70,000$ 33,636$ 36,145$ 21,391$ (13,043)$ (30,134)$ (27,138)$

2012 2014 2015 2017 2019 2020 2021

Income 110,000$ 116,699$ 120,200$ 127,520$ 135,286$ 139,345$ 143,525$

Adjustments:

Spouse (40,000)$ (41,200)$ (43,709)$ (46,371)$ (47,762)$ (49,195)$

Net Revenue 110,000$ 76,699$ 79,000$ 83,811$ 88,915$ 91,583$ 94,330$

Expenses 70,000$ 74,263$ 76,491$ 81,149$ 86,091$ 88,674$ 91,334$

Adjustments:

Debt Service 8,237$ 8,237$ 10,296$ 14,415$ 16,474$ 16,474$

Net Expenses 70,000$ 82,500$ 84,728$ 91,445$ 100,506$ 105,148$ 107,808$

Net Income 40,000$ (5,801)$ (5,728)$ (7,634)$ (11,591)$ (13,565)$ (13,478)$

Cash and Investments BOY 30,000$ 111,200$ 105,399$ 94,018$ 76,770$ 65,179$ 51,614$

Cash and Investments EOY 70,000$ 105,399$ 99,671$ 86,384$ 65,179$ 51,614$ 38,136$

Capital

Projects

Affordable

Capital

Capacity

FinancialTargetsScenario

SCP Concept #2- Establish Affordable Capacity

How Do You Measure Affordable Capacity?

Starting Cash

$10,000

Inflows

$20,000

Outflows

$15,000

Ending Cash

$15,000

“Reserves”

$10,000

Affordable

Capacity

$5,000

Days Cash On Hand

Component…


Existing Funds Available for Debt Service 12,000$ 12,000$ 12,000$ 12,000$

Existing Maximum Annual Debt Service 6,000 6,000 6,000 6,000

Maximum Annual Debt Service Coverage 2.00 2.00 2.00 2.00

Target Debt Service Coverage Ratio 1.50 1.50 1.50 1.50

Interest Rate 5% 6% 7% 8%

Term (Years) 30 30 30 30

Excess Funds Available for Debt Service 3,000 3,000 3,000 3,000

Borrowing Capacity $30,745 $27,530 $24,818 $22,516

Funds Available

For Debt Service

$12,000Current Debt Service

Coverage Ratio

2.00xMaximum Annual

Debt Service

$6,000

Affordable

Capacity

$31M-$22MReduced to

1.5x

DS

CR

co

mpo

ne

nt


Affordable

Capacity (Excess Liquidity)

$5M

Affordable

Debt Capacity (In Excess of Our

Target)

$31M-$22M

$27M to $36M in Total

Affordable Capacity

SCP Concept #3: Establish Financial Targets

Establish Financial Goals

Actuarial Targets

Margin Targets

Liquidity

Targets

•Establish Goals Upfront

•Short-Term and Long-Term

Set Targets

•Use Targets to Plan

• Incorporate Strategies

Chart the Future • If Targets not met,

agree on solutions

•Re-evaluate targets

Revisit Outcomes

Targets establish financial discipline. However,

they just establish “trip wires”…it sets the stage

to have a “value” discussion regarding strategies

vs. hoped for financial targets

SCP Concept #2- Establish Affordable Capacity

“Affordable”

Capital Capacity

Debt

Revenues

Debt

Cash Flows(Profitability)

Income

Statement

Strength

Debt

Cash

Reserves

Debt

Net Assets(Equity)

Balance

Sheet

Strength

-DSCR

-Cushion Ratio

-Debt

Service % Revenue

-Debt to Net

Assets

-Cash to

Debt-Days Cash

on Hand

Main DashboardSAMPLE ENTITY - Obligated Group ($000s) Long Range Financial Planning Dashboard

Key Strategic Opportunities Capital Capacity in 2019 Capital Spending

1 - Core Business DSCR Target @ 1.75 x @ 100% $53,442 Major Capital Projects

SNF Occupancy DCOH Target @ 200 days $13,070 $10,000 in 2011 Interest Rate =

Housing Occupancy Total Capital Capacity by 2019 $66,512 $20,000 in 2014 7.00%

$25,000 in 2014 Term = 30 Yrs

2 - Growth of Existing Business

ALF Client Equity

ALF 2 Routine Capital $5,407 2014 / % Dep. = 74%

Retire debt $0.0M in 2010

3 - New Ventures

Home Health

4 - Other Strategies

Revenue Enhancement

Expense Reduction

Days Cash on Hand

149165

182199

218 237

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Debt Service Coverage*

2.09

2.562.70 2.80 2.91 3.03 3.15 3.28 3.42

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Net Operating Margin

2.6% 2.7% 2.8% 3.0% 3.1% 3.2% 3.4% 3.5% 3.6% 3.7%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Average Age of Facility

11.2 11.7 12.4 13.0 13.5 14.1 14.6 15.1 15.6 16.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Capital Capacity in Millions

$66.5

$29.9

$(6.1)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DSCR

Excess Cash

Capital Capacity

Benchmark

1.75 Benchmark

200

Debt Assumptions

Key Assumptions- Operating

Key Baseline Assumptions

Revenue Entities Included Base Year

SNF Rates 2011 2012+ Housing Obligated Group 2010 Budget

Medicare 3.00% 3.00% 2011 3.00% Nursing Center

Medicaid 3.00% 3.00% 2012+ 3.00% Village

Other 3.00% 3.00% Rx = 3.00% Other Revenue and Non Operating

Inflation Spread 2008 - 2018 Entrance Fees Rec. 2011+

Expense$5.5M / 0.0% Annual (Net) = $0 $1,000

2010 2011+ Contributions = $1,500 3.00%

Salaries = 3.00% 3.00%

Other = 3.00% 3.00% Investment Return Unrestricted = 4.00% Restricted 5.00%

Cost of Living

Operating Margin

2.6% 2.7% 2.8% 3.0% 3.1% 3.2% 3.4% 3.5% 3.6% 3.7%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

2010


2.09

2.562.70 2.80 2.91

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Days Cash on Hand

149165

182199

218 237

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Benchmark

1.75

Benchmark

200

Discuss Financial Targets

• As noted previously, financial affordable capacity is highly correlated to internal targets

• Must have both education and goal-setting session

– No organizations will set the goals the same

– The goals may vary over time to incorporate short-term investments

• Trending of goal back to targets becomes critical

• Have we met our goals – short-term wins identified or could be losses too

• Set the Targets BEFORE planning to ensure that you have a self-defined trip-wire that should require:

– Modification of plans

– Discussion with Board/Management to determine whether a lower actual results is warranted given the importance of the strategy

Change in Targets = Change in “Affordable” Capacity

Capital Capacity in 2019

DSCR Target @ 1.75 x @ 100% $53,442

DCOH Target @ 200 days $13,070

Total Capital Capacity by 2019 $66,512


11.2 11.7 12.4 13.0 13.5 14.1 14.6 15.1 15.6 16.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


$66.5

$29.9

$(6.1)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DSCR

Excess Cash

Capital Capacity


DSCR Target @ 1.50 x @ 100% $82,710




11.2 11.7 12.4 13.0 13.5 14.1 14.6 15.1 15.6 16.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


$91.4

$59.7

$21.7

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DSCR

Excess Cash

Capital Capacity

DSCR from 1.75x to 1.50x

and

DCOH from 200 to 150 days

Adjusted Dashboard After Target Resetting

SAMPLE ENTITY - Obligated Group ($000s) Long Range Financial Planning Dashboard





$25,000 in 2014 Term = 30 Yrs


ALF Client Equity



3 - New Ventures

Home Health


Revenue Enhancement

Expense Reduction

Days Cash on Hand

149165

182199

218 237

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


2.09

2.562.70 2.80 2.91 3.03 3.15 3.28 3.42

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Net Operating Margin

2.6% 2.7% 2.8% 3.0% 3.1% 3.2% 3.4% 3.5% 3.6% 3.7%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


11.2 11.7 12.4 13.0 13.5 14.1 14.6 15.1 15.6 16.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


$91.4

$59.7

$21.7

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DSCR

Excess Cash

Capital Capacity

Benchmark

1.50 Benchmark

150

Debt Assumptions

Repairs and Maintenance? Yes No 4Rs? Yes No

Capital Capacity in 2019 Capital Spending

DSCR Target @ 1.50 x @ 100% $65,941 Major Capital Projects

DCOH Target @ 150 days $5,505 $10,000 in 2011 Interest Rate =

Total Capital Capacity by 2019 $71,446 $20,000 in 2014 7.00%

$25,000 in 2014 Term = 30 Yrs

Client Equity

Routine Capital $5,407 2014 / % Dep. = 68%



11.2 11.7 12.4 13.0 12.5 13.1 13.7 14.2 14.8 15.3

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


$71.4

$43.7

$21.7

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DSCR

Excess Cash

Capital Capacity


DSCR Target @ 1.50 x @ 100% $82,710




11.2 11.7 12.4 13.0 13.5 14.1 14.6 15.1 15.6 16.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


$91.4

$59.7

$21.7

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DSCR

Excess Cash

Capital Capacity

Addition of $20,000,000 PPE

expenditure (Finances with Debt)


DSCR Target @ 1.50 x @ 100% $38,147

DCOH Target @ 150 days -$7,022



11.2 11.7 12.4 13.0 13.6 14.1 14.7 15.2 15.7 16.1

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


$31.1$32.7

$21.7

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DSCR

Excess Cash

Capital Capacity

Adjustments In Reimbursement? Yes No


DSCR Target @ 1.50 x @ 100% $82,710




11.2 11.7 12.4 13.0 13.5 14.1 14.6 15.1 15.6 16.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


$91.4

$59.7

$21.7

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DSCR

Excess Cash

Capital Capacity

Revenue

SNF Rates 2011 2012+

Medicare 0.00% 2.50%

Medicaid 0.00% 2.50%

Other 3.00% 3.00%

Revenue

SNF Rates 2011 2012+

Medicare 3.00% 3.00%

Medicaid 3.00% 3.00%

Other 3.00% 3.00%


DSCR Target @ 1.50 x @ 100% $48,932




11.2 11.7 12.4 13.0 13.5 14.1 14.6 15.1 15.6 16.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


$50.3

$25.7$21.7

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DSCR

Excess Cash

Capital Capacity

Refinancing Variable Rate Debt to Fixed Rate? Yes No


DSCR Target @ 1.50 x @ 100% $82,710




11.2 11.7 12.4 13.0 13.5 14.1 14.6 15.1 15.6 16.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


$91.4

$59.7

$21.7

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DSCR

Excess Cash

Capital Capacity

YEAR

2012

Total Debt Outstanding Fixed

ADJUSTMENT

Current Rate 2.10% 0.00% 0.00%

Letter of Credit Fees 1.50% 0.00% 0.00%

Fixed Rate 7.75% 7.75%

Total Interest 3.60% 7.75%

Go to Main Dashboard

YEAR

2012

Total Debt Outstanding Variable

ADJUSTMENT

Current Rate 2.10% 0.00% 2.10%

Letter of Credit Fees 1.50% 0.00% 1.50%

Fixed Rate 7.75% 0.00%

Total Interest 3.60% 3.60%


Let’s Put it All Together…


DSCR Target @ 1.50 x @ 100% $82,710




11.2 11.7 12.4 13.0 13.5 14.1 14.6 15.1 15.6 16.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


$91.4

$59.7

$21.7

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DSCR

Excess Cash

Capital Capacity

=


DSCR Target @ 1.50 x @ 100% -$33,152

DCOH Target @ 150 days -$39,529

Total Capital Capacity by 2019 -$72,681


11.2 11.7 12.4 13.0 12.5 13.1 13.7 14.3 14.9 15.4

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


$21.7

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DSCR

Excess Cash

Capital Capacity

Medicare/Medicaid Rate = 3%

Capital Expenditure (via borrowing)= $0

Variable Rate = 3.6% Cost of Capital

Medicare/Medicaid Rate = 0% 2011, 2% after

Capital Expenditure (via borrowing)= $20M

Variable to Fixed Rate = 7.75% In 2012

SCP Concept #4: Evaluate Items that Require Allocation of Capital

• Repairs and Maintenance?

• 4Rs?

• Adding staffing positions?

• Adjustments in reimbursement?

• Changes in investment returns?

• Changes in market demand?

• Changes in entrance fee plans?

• Refinancing variable rate debt to fixed rate?

• Increases in cost of capital (variable rates or LOC fees?)

One Way to “Fix”

Medicare/Medicaid Rate = 0% 2011, 2% after

Capital Expenditure (via borrowing)= $20M

Variable to Fixed Rate = 7.75% In 2012

SAMPLE ENTITY - Obligated Group ($000s) Long Range Financial Planning Dashboard





$25,000 in 2014 Term = 30 Yrs


ALF Client Equity



3 - New Ventures

Home Health


Revenue Enhancement $1,000 in 2011

Expense Reduction $3,750 in 2012


11.2 11.7 12.4 13.0 12.5 13.1 13.7 14.3 14.9 15.4

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


$17.9

$27.6$33.5

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DSCR

Excess Cash

Capital Capacity

Debt Assumptions

Target Revenue Enhancement = $1,000,000

Target Expense Reduction = $3,750,000

Lowering of Targets

One Way to Fix (continued)

SAMPLE ENTITY - Obligated Group

Projected Income Analysis - For Internal Use only

Scenario: Custom Dashboard

Years Ending June 30,

($ in Thousands)

Budget

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

REVENUES

Net Patient Service Revenues 120,177 122,668 125,589 128,585 131,655 134,803 138,030 141,338 144,728 148,204

Amortization of Deferred Revenue

From Entrance Fees 630 643 656 669 682 695 708 721 734 747

Other Revenues 175 180 185 191 197 203 209 215 221 228

TOTAL REVENUES 120,982 123,491 126,430 129,445 132,534 135,701 138,947 142,274 145,683 149,179

EXPENSES

Salaries, Benefits and

Other Expenses 107,346 110,567 110,134 113,438 116,842 120,348 123,959 127,678 131,510 135,456

Depreciation & Amortization 6,329 6,607 6,818 7,039 7,953 8,196 8,450 8,714 8,989 9,276

Interest Expense 4,199 4,085 8,543 8,384 9,760 9,559 9,342 9,109 8,858 8,589

TOTAL EXPENSES 117,874 121,259 125,495 128,861 134,555 138,103 141,751 145,501 149,357 153,321

Operating Income (Loss) 3,108 2,232 935 584 (2,021) (2,402) (2,804) (3,227) (3,674) (4,142)

NON-OPERATING GAINS (LOSSES)

Investment Income 1,236 2,671 2,885 3,094 3,311 3,436 3,549 3,648 3,733 3,802

Unrealized Investment

Gains and (Losses) - - - - - - - - - -

Contributions 896 1,500 1,545 1,591 1,639 1,688 1,739 1,791 1,845 1,900

Other Non-Operating Gain (Losses) 71 - - - - - - - - -

Net Income 5,311 6,403 5,365 5,269 2,929 2,722 2,484 2,212 1,904 1,560


Go to Cash Flow

$1M Revenue Improvement = 0.80% or Revenue

$3.75M Operating Expense Improvement = 3.4% of Expenses

SCP Concept #5: Identify Shortfalls and Create a Long-Range Plan

Identify “Strategies”

• Identify all items whose change will impact capital capacity

• Both existing and strategic…important to dream

Measure Impact

• Estimate impact of strategies or changes to existing operations

Prioritize

• Prioritize changes (Needs vs. Wants)

• Timing can sometimes accommodate a plan (phasing)

Create a Plan

• Solve “gaps” between capacity and uses• Might be painful

• With enough time, small changes yield big results

Sample Dashboard

Sample Dashboard

Conclusions: SCP is a Proven Way to Impact Organizations

•Can validate plans

•Can “dream”…and chart a path to achieve the dreamMission

•Can help build consensus around strategic imperatives

•Can help create understanding of collective challengesLeadership

•Can help build consensus around operating discipline

Conduct of Operations

•Protect and enhance resources needed for mission

•Resource allocation amongst competing needs

•Capital investments are appropriateFiduciary

•Organizing board to carry out functions of governanceBoard Organization and Development

Documents

“Can We Afford Our Strategic Plan?” --Using the Tools of ... · PDF file–Executives’ Role in Facility Management ... (marketing) • Financial and strategic planning: ... –ID