EVOLUTION OF THE FINANCE FUNCTION Case Study Lean Accounting Summit August 2016 Mike De Luca

Learning Objectives •  Learn what lean training and development the finance

function undertook to better support a lean organization. •  Learn how the Finance department created capacity to

take on process improvement and new work. •  Learn about specific process improvements the Finance

department implemented to increase both efficiency and quality in production of both analyses and reports.

•  Learn how the Finance department more directly connected its products and services to improving value for the organization's customers.

Outline • Section 1: Background, case for change and vision • Section 2: Finance support of the Lean enterprise • Section 3: Lean management and continuous process

improvement within the Finance function

1. Organizational Background • Group Health Cooperative is a member-governed,

nonprofit health care system that coordinates care and coverage. Founded in 1947 and based in Seattle, WA, Group Health serves more than 600,000 residents of Washington and North Idaho.

•  $3.6 billion annual operating revenues. • Began Lean journey in 2004

• Model line in Claims • Cross-functional management training – all managers • Hoshin Kanri • Daily management/front-line improvement

1. Case for Change – The Problem •  Not clear what process inputs and outputs we should focus on

to improve our costs or sustain improvements once they’ve been made.

•  Checking processes and measures are focused more on lagged or outcome measures and don't give us insights into why we're not seeing the improvement we're targeting.

•  Financial performance management and Lean operations linked checking processes are separate and disconnected.

•  Need to better understand what to check to assess routine performance, not just improvement initiatives.

•  We can't link all drivers or improvement initiatives down to changes in repeatable processes that we can measure.

1. Case for Change – The Vision •  Finance "must become a fundamental part of the team-

based improvement efforts at the core of a lean transformation.”

• We use our "skills to help accelerate change throughout the organization.”

• We become "valued business partners who contribute meaningful information for decision-making purposes.”

All quotes from “Real Numbers” – Cunningham and Fiume

1. Case for Change – The From-To From To

Workbehindthescenestodevelopmetrics,reports,informa6onandtools.

Worktogetherwithopera6onswheretheprocessesoccurtodevelop,implement,sustainandcon6nuouslyimprovethemostrelevantinforma6on.

Primaryfocusonoutcomemeasures. Equalfocusfromoutcomes-levelmetricstotheprocessesthatmovethedialonperformancedrivers.

Primaryfocusoncostandu6liza6on. Flexiblefocusasneededonothernon-financialmeasuresrelevantinlinkedcheckingsuchasaccess,capacity,etc.

Separateanddisconnectedfinancialandopera6onalmeasurementandcheckingsystems.

Oneunifiedlinkedcheckingsystem.

2. Finance support of the Lean enterprise • Changes in the way Finance supports the organization

•  Daily management system •  “Finance in a Lean World” •  Linked checking

•  Influence diagram – process to outcome •  Control charts – variance analysis

•  Reporting and analytics – customer-focused •  Financial planning – rolling forecasts (process drivers)

2. Daily Management System • Primary Care Medical Home Pilot

•  Pull from Operations for different type of Finance support and collaboration

• Standard work • Process measures • Daily huddles and rounding • Needed support for data, analysis, display of measures • Asked by Operations to re-purpose Finance resources to

focus on the management system as a pilot. • Developed tools and automation, data infrastructure,

supported identification of process measures during events and throughout implementation.

2. Finance in a Lean World “FINANCE in a LEAN WORLD” 3-day course co-developed by Finance and Lean Senseis. Content included: • Operations context: the improvement imperative •  Finance’s role (Jean Cunningham/Orry Fiume: “Real

Numbers”) • Consulting Skills (Peter Block: “Flawless Consulting”) • Seeing waste • Seeing and measuring processes • Standards and standard work • Visual (daily) management and linked checking of

processes and outcomes

2. Linked Checking – Performance Drivers

2. Linked Checking: 5-Why Variance Analysis Problem:ClinicalCostPMPM

overtarget

Firstlevelwhy

Secondlevelwhy

Thirdlevelwhy

U<liza<onnotincontrol

Price(costperu<l)notincontrol

Inpa<ent EmergencyRoom Pharmacy Specialty Primary

Care

Readmitrateishigh

Dischargesaredelayed Other

Fourthlevelwhy

Pa<entsarenotadequately

supportedintheirtransi<onfromtheinpa<ent

seIng

2. Customer-focused reporting & analytics • Continuous Improvement of Reporting: Guide for Annual Report Evaluation

•  The overall goal of report evaluation is to ensure reports improve our understanding of clinical cost drivers and trends, and inform decisions that lead to an increase in customer value.

• Continuous improvement of our reports helps bring more clarity to care delivery cost and its drivers.

•  Improving efficiency in preparing routine reports promotes our goal of deploying our Finance resources to the highest value work.

2. Customer-focused reporting & analytics •  Tool sections: • What is your general assessment of report clarity and

utility? • How confident are you in the data? • What is your client involvement?

2. Customer-focused reporting & analytics

2. Financial Planning – rolling forecasts • Driver-based • Drivers are closely linked to core process measures so

process measures and drivers provide insights into improvement and expected performance

• Other financial planning changes included Beyond Budgeting – closely aligned with Lean at a principle level

2. Rolling Forecasts – Example

3. Lean management/CPI within Finance •  Lean management and process improvement in finance

•  Report production/evaluation •  Customer value •  Production efficiency

•  Resource management •  Consulting process •  Training, development and engagement

•  Foothills and peaks •  Standard advancement

•  FLI – habits around improvement thinking

3. Report production/evaluation

3. Resource Management

Intake

Prioritization

Resourcing

Production

Delivery

3. Intake

3. Prioritization

3. Resourcing

3. Production and Delivery: Progress Management

3. Production and Delivery: Capacity Management

3. Consulting Process

FINANCE OPERATIONS CUSTOMER Produce Consult Improve Engage

Produce reports, tools, analyses,

proformas

Create clarity and

understanding for Operations

through effective products

Improve customer-facing

products and services

Improved value leads to increase

in customer loyalty, retention

and business growth

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3. Consulting process – failsafing defects

3. Front Line Improvement (FLI)

3. FLI Applications – Finance Dept Situation Approach Results

Department of 25 staff across 4 locations needed to collaborate on projects but unable to locate electronic files easily, or in some cases at all. Some staff unable to find files they themselves created.

Develop and implement standard file folder structure and hierarchy with common file naming conventions. Implement periodic audit and PDCA of structure and standard work.

Made files easier to find. Reduced searching time. Reduced overproduction of information that was already available.

Finance staff spent time searching for documents and data, which sometimes resulted in duplicating or recreating work unnecessarily.

Developed a standard electronic file storage structure and file naming convention for universal use.

Reduced searching time. Improved staff’s awareness of colleague’s work. Reduced duplication of work.

3. FLI Applications – Finance Dept Situation Approach Results Reports and analyses were delivered to end users with inconsistent or contradictory information.

Developed a standard documentation process for all reports and analyses to ensure consistent data definitions and clarity of interpretation.

Improved clarity and understanding of all analytical products among staff and end-users.

Dozens of reports with RVU data were based on seven different data structures, queries or programs. Staff time wasted developing & maintaining duplicative systems, and reports were delivered with inconsistent or contradictory information.

All RVU reports re-engineered to run off of a single data structure and program.

Report users received consistent information. Dramatically reduced staff time required to maintain and update reports.

3. Training, Development and Engagement

3. Skills Peaks

3. Skills Peaks – Mountain Ranges • Advanced Business/Finance • Advanced Programming • Advanced Statistics • Advanced Operations Content Knowledge • Leadership and Management • Advanced Software/Development

Questions and Discussion