Let it Roll - Rolling Forecasts and Performance Management Lead to Better Decision Making

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1 Let it Roll - Rolling Forecasts and Performance Management Lead to Better Decision Making Scott Marrs Vice President of Financial Analysis CCS Medical April 28,

2 CCS Medical Services over 300,000 thousand chronically ill customers by providing ongoing medical supplies via mail order. Diabetes management Urological and Ostomy supplies Wound Care Products are marketed to referring healthcare providers, insurance companies and directly to customers. Company emphasizes service value of convenience of home delivery, compliance, and insurance billing. 2

3 CCS Medical s Approach to Planning Annual Strategic Planning Process Work Plans and Associated Budgets Metrics Based Quarterly Forecasting Metrics Based Monitoring 3

4 Keys to Successful Planning It is all about Obtaining RESULTS Solid Strategic Planning Process Solid CPM Process Monitoring and Forecasting in a Timely Manner DECISION MAKING to obtain RESULTS 4

5 Solid Strategic Planning Process Where is the organization currently? Where does it want to be (what markets served, what customers are targeted, competitive position) How does the organization get there? Does the company have financial resources to get there? 5

6 Making CPM and Planning Work Collectively Owned by Organization Led by Finance Metrics Driven Culture CPM Tools Accountability Driven Culture 6

7 Metrics Making It Connect Metrics Link Market and Operational Realities to Financial Results. Metrics Link Previous Trends to Future Assumptions Metrics Should be Consistently Defined and Used across the organization and Cascade to Appropriate Levels of Detail 7

8 Example CCS Medical Metrics Actual Results Budget 10/31/ /30/ /31/2010 1/31/2011 2/28/2011 3/31/2011 4/30/2011 5/31/2011 6/30/2011 Beginning Customers 28,276 28,710 28,986 29,452 29,863 30,115 30,558 30,947 31,178 New Customers 1, ,045 1, ,045 1, ,045 Attrition (566) (574) (580) (589) (597) (602) (611) (619) (624) Ending Customers 28,710 28,986 29,452 29,863 30,115 30,558 30,947 31,178 31,599 Attriton % 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% Beginning Customers Reordering 45.00% 45.00% 45.00% 45.00% 45.00% 45.00% 45.00% 45.00% 45.00% Orders New Customer Orders 1, ,045 1, ,045 1, ,045 Reorders from Existing Customers 12,724 12,920 13,044 13,253 13,438 13,552 13,751 13,926 14,030 Total Orders 13,724 13,770 14,089 14,253 14,288 14,597 14,751 14,776 15,075 New Customers by Channel Channel A Channel B Total New Customers 1, ,045 1, ,045 1, ,045 New Customer Acq Costs / Channel Channel A $ $ $ $ $ $ $ $ $ Channel B $ $ $ $ $ $ $ $ $ Revenue per Order $ $ $ $ $ $ $ $ $ COGs per Order $ $ $ $ $ $ $ $ $ Financial Projections Revenue $ 8,920,730 $ 8,950,315 $ 9,157,734 $ 9,264,577 $ 9,287,285 $ 9,487,965 $ 9,588,203 $ 9,604,439 $ 9,798,775 COGs 5,489,680 5,507,886 5,635,529 5,701,278 5,715,253 5,838,747 5,900,433 5,910,424 6,030,015 GP 3,431,050 3,442,429 3,522,205 3,563,299 3,572,033 3,649,217 3,687,770 3,694,015 3,768,760 GP% 38.5% 38.5% 38.5% 38.5% 38.5% 38.5% 38.5% 38.5% 38.5% Selling Expenses Channel A 12,250 8,750 12,775 12,250 8,750 12,775 12,250 8,750 12,775 Channel B 17,550 16,200 18,360 17,550 16,200 18,360 17,550 16,200 18,360 Total Selling Expenses 29,800 24,950 31,135 29,800 24,950 31,135 29,800 24,950 31,135 Earnings Contribution $ 3,401,250 $ 3,417,479 $ 3,491,070 $ 3,533,499 $ 3,547,083 $ 3,618,082 $ 3,657,970 $ 3,669,065 $ 3,737,625 8

9 Metrics are consistently defined and used across company s six main services. Metrics are expanded to additional detail where needed. The company s largest service is providing customers with diabetes testing supplies additional detail on key assumptions such as revenue per order are built out. Metrics 9

10 Additional Detailed Metrics Diabetes Testing Supplies Items per Order 2.0 Ostomy Payer Mix Payer A 60.0% Payer B 40.0% Payer A Average Reimbursement $ Payer B Average Reimbursement $ No additional detail needed for forecasting due to stable payer base and rates Revenue Per Order $ $ Average Monthly Order Volume 100,000 2,400 10

11 Metrics Continued Customer census and order activity projection metrics are also used to project resource and headcount requirements required for operations. 11

12 Quarterly Forecast Process Business units have clear objectives tied to budgets and work plans tied into strategic plan. Business units are aware of performance and underlying issues given company s metrics based approach for monitoring activity and results. Tools allow for full bottoms up forecast to be accomplished in about two week time period allowing management to focus on decision making in light of updated information. 12

13 Quarterly Forecast Process CCS use of CPM Tools such as TM1 drastically reduce time to perform a full bottoms up forecast process Comparison between Forecast and Budget Data housed in one location 13

14 Quarterly Forecast Process CCS use of CPM Tools such as TM1 drastically reduce time to perform a full bottoms up forecast process Comparison between Forecast and Budget Data housed in one location-including metrics for forecasting revenue growth 14

15 Planning Software Implementation Know your needs, do your homework Hire a solid implementer with a good track record (do your homework again). GET TRAINING Have a reporting solution Ensure data is consistent and aligned with financial reporting system and other operational data used in the organization PRIOR to making an investment. 15

16 Lessons Learned Create a metrics based environment and align with forecasting and financial reporting and other monitoring tools. Implement processes to drive efficiency and effectiveness of planning and CPM. Strategic Planning is the most important part to having a solid plan. A budget is not a plan! Remember CPM including Planning is about DECISION MAKING. Finance should play a leadership role and drive involvement and collaboration across the organization. Accountability Culture What is rewarded is repeated! 16

17 CCS Medical Story 2003 Planning and CPM was ad-hoc and not collaborative Revenue size $400 million+ when current company created through merger. Company wide forecasting and metrics based monitoring process created Quarterly Forecasting Implemented Senior management first involves finance leadership in strategic planning Cognos Planning Implemented Planning and Analysis Team begins to play active leadership role in creation of company s annual strategic plan 17