Business Plan Guide
Management within Johns Hopkins Medicine needs to prepare a business plan to justify the commitment of significant Johns Hopkins Medicine resources to a new endeavor
Table of Contents I. Introduction II. Standards for Financial Analyses (New) III. The Business Plan Outline IV. The Business Plan Narrative A. Executive Summary B. Background C. External Assessment D. Internal Assessment E. Marketing Assessment F. Implementation Plan G. Financial Projections & Analysis H. Goals, Objectives, & Strategies I. Conclusions
V. Appendices Appendix A: Business Review Group Members Appendix B: Request for Marketing Support Appendix C: Sample Business Plan Exhibits Appendix D: DATA SOURCES
I. Introduction Management within Johns Hopkins Medicine needs to prepare a business plan to justify the commitment of significant Johns Hopkins Medicine resources to a new endeavor. A business plan serves three basic purposes. It: - defines the opportunity
- explains why it is in the interest of JHM to pursue the opportunity
- projects the financial implications of the opportunity
This document guides planners to create consistent, complete, and efficient business plans. It is meant to serve as a reference for all new business planning. Each opportunity is unique, so elements of this guide which do not apply to a given business opportunity may be omitted. However, there are three criteria that mandate the submission of a formal business plan following this guide to the JHM Business Review Group (BRG). The BRG is a committee composed of senior management that is charged with evaluating proposals involving: - a joint venture with an outside entity
- the use of the Johns Hopkins name
- significant funding by JHM
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II. Standards for Financial Analyses In order to be able to evaluate a request from a Department for financial support, the requests need to be reviewed in a consistent context. We need to have the following information for both the division and the entire Department: All Funds Report Identify all aspects of the mission (Research Program, Teaching Effort, Clinical Effort) Productivity analysis by physician (worked RVU's vs. MGMA Median) Joint Agreement support General Funds support Salary analysis (total and supplements) compared to Academic Medical Center. 25% - 50% for all faculty within the Department. Specific "run rate" after the faculty have attained a targeted productivity level. This will help us understand if the department/division needs ongoing or one-time support to sustain the mission.
We will also need to review the Hospital's performance that relates to the above referenced departments/divisional information. Some examples of departmental/divisional information include the following for the current year and the immediate past three years. - Hospital Net Margin
- Hospital Variable Net Margin
- Hospital direct cost per case
- Total Volume (IP discharges, OP visits, and cases actual vs. budget)
- CMI
- A minimum of three years (future) analysis to include references to the 10 year plan
- Balance available in discretionary funds, amount of alignment of incentives provided to the department from the SOM, balance of Dowry Funds available to support programs
This suggested information/analysis is required by JHM leadership to have a baseline when considering additional funding for the Department. Top
III. The Business Plan Outline A. Executive Summary
This section gives the reader a synopsis of the plan so the general opportunity can be kept in mind while reading the details. B. Background
This section discusses the origin of the business opportunity and the reasons for its consideration. The reasons for consideration must be given in relation to both the JHM Strategic Plan and the involved Business Unit's overall strategic plan. C. External Assessment
This section presents the argument for why the proposed project would be beneficial to Johns Hopkins Medicine based upon analysis of the external market in which the Business Unit will be performing the new or expanded activities. D. Internal Assessment
This section presents a report on the ability of Johns Hopkins Medicine to perform the functions required by the proposal, based upon analysis of the historical internal performance of the Business Unit that will be performing the new or expanded activities. This section also identifies future service development issues and opportunities of the Business Unit. E. Marketing Assessment
This section outlines the Business Unit's marketing objectives, recommends preliminary programs and high level strategies for achieving these objectives, and provides a rough estimate for funds that should be dedicated to the marketing effort. F. Implementation Plan
This section details how the project will progress from the concept to a functioning area of JHM. A timeline must show how long will it be until the new plan starts functioning and how long it will take to mature and reach its full operating capabilities. Any special start-up issues, such as obtaining facilities, staff or equipment, must be addressed. An important aspect of implementation is evaluation. The Business Unit will need to be able to determine how the performance of the new opportunity compares to the objectives and projections delineated in the business plan. G. Financial Projections and Analysis
This section explains the assumptions behind, and implications from, the supporting financial schedules. The sources for all support data must be identified, such as JHH billing system, HCFA standard tables, etc. If the project requires funding, the planned source of the funding must be identified. Any concerns, open issues, or unanswered questions on funding must be listed here. H. Goals, Objectives and Strategies
This section outlines what the Business Unit wants to accomplish with the new service. Marketing, operational, clinical, and financial goals should be considered, along with the methods for achieving them. I. Conclusions
This section discusses the pros and cons of the opportunity from financial, marketing and operational aspects. It will include a recommendation on the action to be taken on the business opportunity, as well as the risk factors involved, i.e., what happens if the project isn't successful. Top
IV. The Business Plan Narrative The narrative is the full text of each of the major segments noted in the outline. Included here are content requirements and hints on how to find the required information. Formal presentations to the Business Review Group should follow the outline. Exhibits that directly explain points in each section should be included in each section. For example, maps of market area would follow the External Market Assessment, financial projections would follow the Financial Projections and Analysis section, etc. Information that is attached for general reference but not directly involved in the development of the proposal should be attached as an appendix. A. Executive Summary This summary contains: background on the opportunity overview of the market analysis overview of the financial analysis conclusions derived from the analyses recommended plan of action
The executive summary is the first part of the narrative and stands alone. It should broadly summarize the proposed Business Plan. If successful, it provides reviewers a clear picture of the opportunity as they review the detail of the plan. Sections B through H:
These sections provide the body of the Business Plan narrative. Each section provides a guide for the detail that supports your plan. B. Background This section addresses in a general way why the opportunity will be beneficial to JHM. This section should provide: overall strategy of the proposing entity description of this opportunity and how it fits into the entity's strategy a discussion of the origin of the business opportunity reasons for its consideration including:
C. External Assessment The purpose of this section is to more specifically present why the proposed project would be beneficial to Johns Hopkins Medicine. This section provides analysis of the market external to JHM in which the Business Unit will be performing the new or expanded activities. There are several possible areas to be investigated and reported. These include: market overview, market sizing, competitor analysis, and primary research. 1. Market Overview: The purpose of this step is to evaluate the existing market for service delivery, identify key historical trends and project future demand. The assessment of the market will include an analysis of: service delivery trends and the impact on future delivery patterns barriers to entry health care trends relevant to the new opportunity current and projected demographic trends
2. Market Sizing: The purpose of this step is to evaluate the current and projected size of the inpatient and outpatient (based upon available information) market in need of the Business Unit's new service. This will allow the Business Unit to determine what proportion of the market they may capture and to identify program development opportunities. Market sizing requires identifying: overall patient origin and market share indices to identify key geographic areas of opportunity and potential service areas for the Business Unit the current market size based on the geographic draw of the program market segments and targets within the segments extent of migration trends, commutation patterns and patient's willingness to travel for service
3. Competitor Analysis: The purpose of this step is to assess the competition by understanding what the competitor is doing and can do and determining its relative strengths and weaknesses. The outcomes of this analysis will aid in focusing on appropriate program development opportunities. Competitor analysis requires identifying: geographic location of competitors the competitor's service mix the competitor's market share whether the competitor is for-profit or not-for-profit the competitor's capabilities and hospital resources the competitor's physician resources existence of other freestanding competitors methods competitors use to attract patients areas where the competitor is most vulnerable potential moves or strategy shifts the competitor will make as a result of the new service the competitor's pricing structure
4. Technological Developments: The purpose of this step is to identify anticipated technological developments that would affect the Business Unit's market position. Identifying and understanding technology advancements can impact the Unit by: supporting the development and introduction of a new service identifying potential changes in treatment patterns enhancing the productivity and cost efficiency of the operational practices implemented by the Business Unit determining the composition of the staff skills required to run the new service
5. Economic Developments: The purpose of this step is to determine whether economic developments (e.g., levels of the employment/unemployment, disposable income, financial markets, etc.) would impact the Business Unit's new program. 6. Regulatory and Licensure: The purpose of this step is to determine what regulatory or licensing changes would impact this program, e.g., JCAHO, MHCC, DHMH or HSCRC. 7. Societal and Environment Changes: The purpose of this step is to determine if there are emerging societal trends that would affect how potential patients or other market segments would perceive and access the new program. 8. Primary Market Research: The purpose of this step is to further assess the external environment through surveys, focus groups, mystery shopping or interviews. The purpose of primary research would be to explore: quantitative and qualitative assessment needs (e.g., gap analyses or needs assessments) opinions regarding the Business Unit's new service (e.g., level of interest/demand for service, perceived need, etc.) perceptions about the Business Unit's current provider capabilities attitudes and concerns about the delivery of health care services both currently and in the future opinions about key providers who currently offer services similar to those being proposed by the Business Unit
D. Internal Assessment The goal of this section is to present how Johns Hopkins Medicine will be able to perform the tasks required by the new project, based upon analysis of the historical internal performance of the Business Unit that will be performing the new or expanded activities. This section identifies future service development issues and opportunities of the Business Unit based on operational evaluations and staffing requirements. 1. Operational Evaluation: The operational assessment defines the Business Unit's current delivery capabilities and its ability to support substantial programmatic development. This critical assessment also determines what additional resources are required to support enhancement of the Business Unit. The operational evaluation analyzes: current technologies and capabilities strengths areas of needed support
facilities evaluation/space requirements inpatient and outpatient utilization current and potential referral sources related support structure of the institution When applicable address: the Business Unit's market share (size relative to competitors) suppliers/service delivery - How will you deliver the service? What would happen if our suppliers raised prices or got out of the business?
2. Manpower Assessment: The success of any clinical Business Unit is highly dependent upon the commitment of its physicians and staff. During this step a profile of the staff will be reviewed and ability to support future service development needs will be assessed. Specifically, manpower issues including the following will be determined: number of full-time or part-time faculty needed to support program total staff required to support program capability to re-train existing staff or need to hire new admitting trends and outpatient activity levels of faculty age characteristics - level of experience, active years remaining vulnerabilities - outstanding malpractice suits, contractual obligations existing physician supply and need in the local market based on data obtained from various sources (e.g., AMA's physician database or various sub-specialty organizations)
E. Marketing Assessment The Business Unit should consult with the Office of Planning and Marketing to determine the scope of the marketing effort required for the new service. The Office of Planning and Marketing will work with the Business Unit to determine preliminary marketing goals, high level strategies and potential marketing program. This information will be used to develop a preliminary marketing budget that should be included as part of the business plan. Once the business plan is approved, the Office of Planning and Marketing will work with the Business Unit to develop a detailed marketing plan for the new service.
F. Implementation Plan The purpose of this step is to develop the details of how the project will progress after approval is obtained to develop the proposal into reality. Next Steps After Approval complete financing/detail costs determine location/required square footage complete building/remodeling determine manpower/staffing requirements identify resources/materials obtain necessary permits appoint development oversight team
Start-up Issues hiring, training or retraining staff completed complete CON requirements, if applicable determine how we will attract patients to this new venture - Smaller programs that do not require extensive marketing planning may wish to develop a communications piece (e.g., brochure, announcement or letter of introduction) or implement a limited advertising campaign. The Office of Planning and Marketing provides marketing matching funds (MMF) for these efforts. A copy of the MMF request form is provided at Appendix B determine if support is required from other JHM entities
Full Operations Evaluation
G. Financial Projections and Analysis This section presents the reasoning behind, and results of, the financial implications of this project. Any financial schedules that have been supplied in support of the project will be referenced and explained. The sources for all support data must be identified, such as JHH billing system, HCFA standard tables, etc. Any concerns, open issues, or unanswered financial questions are to be listed here. There are three components in this section: scope, methodology and findings. Scope: This is a description of the extent of the financial analysis and Business Plan. Generally, the scope is to project the funding needs and financial returns for the first five years of the project. The corporate scope is also important; e.g., does this analysis examine the impact on JHM as a whole or is it limited to the Green Spring facility? If any peripheral effects are to be examined, they should be explained here. For example, establishing an off-campus physician practice might be expected to generate admissions to JHH and JHBMC. If the marginal income generated by those admissions is to be included in the financial return of the project, and should be noted in the Scope. Methodology: This is a summary of the methods and sources of data used in the financial analysis of the opportunity. Any underlying assumptions to the financial projections should be mentioned in this section. The nature of the business plan will indicate the preferred method for evaluating the opportunity. If the plan is meant to generate additional revenue for an existing operation, the contribution margin might be the primary indicator. A plan that requires a new department or facility generally requires full-absorption costing. If the opportunity is to purchase an existing medical facility, the net present value of future cash flow is generally indicated as the key financial figure. It is beyond the scope of this template to develop a procedure to determine the exact form of any conceivable business plan. Findings: This section details the reasoning and the results of the financial analysis. This portion of the narrative should follow the order of the financial schedules supporting this project, referencing each exhibit in order. The narrative should explain any underlying facts or assumptions that are not obvious from reading the exhibit. At times, projections have to be based on less than certain assumptions. For example, a totally new clinical procedure is to be offered to our patients. As our payers will not have that in their fee schedules, an assumption will have to be made as to the reimbursement expected for this procedure. In this cases, a note to the reader should also be placed on the exhibit itself, as a footnote, indicating that the expected reimbursement is an estimate. A. A standard format of both layout and content has been developed for financial schedules to ensure consistency from one business plan to the next. This section will reference a sample set of exhibits that has been attached as Appendix C. Each schedule should begin with a heading that includes: The title of the study, e.g., "JHH Pediatrics Building", on the first line A brief description of the contents of the schedule, e.g., "Capital Expenditures", on the second line The exhibit identification, e.g., "Exhibit V", on the third line. We generally use Roman Numerals to identify exhibits
In complex cases, it might be necessary to include support schedules showing the derivation of key figures on the main exhibit in order to maintain clarity. In the example above, suppose that there are special needs of the Pediatrics Building that will make the total cost significantly higher than a similar general-purpose building. Rather than show the details on Exhibit V, list them on a separate, following page, titled "Pediatrics Building Details", Exhibit V-A. If it is also necessary to detail the equipment requirements, show the details on "Capital Equipment Requirements", Exhibit V-B and carry the total to Exhibit V. Exhibit I: the first schedule, will always be the summary schedule of the major financial indices of the study, such as average projected revenues, capital investment required, return on investment, DCF results, etc. Exact contents will depend on the nature of the study. Each of the major figures on the summary schedule should be clearly derived on a support schedule so that the reader can perform an audit of the data flow
Other than Exhibit I, the exhibits should flow naturally from the basic assumptions of the project to more complex schedules built upon those assumptions. The following list of schedules is generic, but gives some idea of the flow concept. Exhibit II: Volume, pricing and revenue projections for the period of the study. The sample assumes that there will be three procedures performed; examinations, Treatment A, and Treatment B. The charges and volumes are projected for each procedure, then totaled. Exhibit III: Staffing assumptions showing the number of FTE's (by job type) which will be required to produce the projected volumes. Staffing and salary projections should be based on similar units, if possible. Any major deviations from existing staffing should be explained in the narrative. Exhibit IV: Supplies or other variable expenses that will be needed to meet the projected volumes, such as radiology film, OR supplies, etc., are estimated by procedure. The volumes are linked to the volumes in Exhibit II. Exhibit V: Capital requirements of the project. This may include new buildings, renovations to old buildings, or major equipment purchases. All capital items need a useful life estimation so that depreciation expense can be derived for each item. Exhibit VI: From the data in the preceding exhibits, a projected operating statement can be developed. This will show the revenues, collections, expenses and profit for each year of the study. Depending on the nature of the project, the expenses can be compressed into a few categories or detailed at the account level. Employee benefits are estimated at 22% of salaries for JHH, 28% for JHU, as of December, 2000. Exhibit VII: A projected balance sheet can be derived from the operating statement and capital purchase assumptions. Standard projections for accounts receivable and accounts payable are ΒΌ of the annual revenues and operating expenses, respectively. Exhibit VIII: Annual cash flow, as derived from the operating statement and balance sheet. Cash flow begins with the projected net profit, adds back any non-cash expenses like depreciation, adjusts for change in current balance sheet items, deducts capital expenditures and adds in any funds obtained from investments or loans. Exhibit IX: If a project has a significant "ramp up" time where it is incurring expenses for several months before sufficient revenues and collections are generated to cover those expenses, it will have to be funded with working capital to keep it solvent. Developing a monthly cash flow projection for the first year can project the working capital requirements. A cumulative cash shortfall is derived from the monthly cash flow results. The working capital required is taken as the maximum cash shortfall, plus 20% to cover unforeseen contingencies. Exhibit X: Generally accepted payback statistics, such as Return on Investment (ROI), years payback, evaluation as an ongoing concern, etc., will give senior management a standard yardstick against which to measure the proposed project. The statistic to use depends on the nature of the project. Exhibit XI: A sensitivity analysis shows how well the project can absorb unfavorable circumstances. Working from the projected operating statement, this schedule shows the effect if volumes are 10% under projections in Exhibit II. A project that can maintain profitability under adverse conditions is more likely to be approved than one that is financially unstable.
As each business plan will be different from the others, all of the above exhibits might not be needed for each plan. Conversely, there may be plans in which additional support schedules are needed to validate the assumptions. Many of the concepts in the sample exhibits are self-explanatory. Others, like developing projected balance sheets, require experience with fairly abstract accounting concepts. The JHHS Financial Analysis Unit of the JHHS Finance Department is available to assist in the development of these exhibits or to review your draft exhibits. B. Financial assumptions. The financial projections are only as reliable as the source data upon which they are based. Financial projections are based on current revenues, salaries and expenses, extrapolated to fit the conditions assumed in the business plan. For information on where to start looking for source data, please see Appendix C.
H. Goals, Objectives and Strategies This section begins the process of transitioning the findings of the assessments into meaningful business decisions. Goals reflect the direction the business unit wants to go with the new project, such as "To become the dominant provider of complex diabetes care in Maryland." Objectives outline specific, quantitative statements that will be achieved by the Business Unit over a designated timeframe, such as "Increase the monthly number of clinic visits to 350 within two years." The method for collecting data to measure progress toward achieving the objectives should be determined. If a measurement process is not in place, additional money should be set aside to develop a suitable electronic data collection process. Strategies delineate the steps needed to put programs into place that will ensure the Business Unit achieves their goals and objectives, such as "Improve communications and build relationships with physicians in the broad geographic area."
I. Conclusions This section consists of discussion of the findings from the analyses and assessments in the Business Plan and the pro and cons of the opportunity. It will include a recommendation on the action to be taken on the business opportunity, as well as the risk factors involved (i.e. what are the downside risks; what happens if the project isn't as successful as planned?). Top
V. Appendices APPENDIX A
JHM BUSINESS REVIEW GROUP MEMBERS
As of September 20, 2002 APPENDIX B - JOHNS HOPKINS MEDICINE
Marketing Assistance
Request/Information APPENDIX C
Sample Business Plan Exhibits APPENDIX D
DATA SOURCES After thoroughly defining the project, the business plan has to project the expected capital needs, revenues and expenses of the project. This is generally done for the first five years, as most projects "mature" in that period of time, reaching their sustainable volume and staffing levels. Capital Expenses Capital expenditures are for items costing more than $5,000. The major categories are facilities, such as new buildings or major renovations to existing structures, and equipment, such as a new magnetic scanner. Facility costs should be derived with the assistance of the Vice President, Facilities. Capital equipment prices can be obtained from vendors of such equipment. Revenues If an opportunity is expected to generate revenues through increased patient volume, accurate projections of the potential volume and the charge per case are needed. Volumes should be determined in consultation with the Director of Business Development in Planning and Marketing. Charges can be obtained from various sources; the CaseMix database for hospital charges and the IDX billing system for physician fees. When dealing with inpatient revenues, the HSCRC case rates are a major limiting factor and cannot be ignored. It can be a difficult task to determine who is the keeper of specific revenue data. The JHH Financial Analysis Unit has extensive experience in these matters and is an excellent source for obtaining financial data; contact the Director of Financial Analysis for assistance. Expenses There are two major categories of expenses, variable and fixed. Variable expenses are those which change with volume, such as medical supplies; the more patients you see, the more supplies you use. Fixed expenses are unrelated to patient volume, such as rent for a physician office, which will have to be paid even if there are no patients seen in a given month. Expenses for an existing hospital cost center can be found in the Statement of Direct Income and Expense (SDI&E) reports, issued monthly with year-to-date information included. The most recent June SDI&E will contain the totals for the previous fiscal year, which is a good base from which to draw data. Historical data may have to be modified to reflect changes inherent in the proposed project. For example, if a new piece of equipment will reduce supply expenses by 20%, you will have to reduce the historical per-case supply expense accordingly. Staffing can be estimated as a ratio of current variable labor expense or by defining specific job categories required to staff the new function. Salary data can be obtained from the Payroll Department. Again, the Financial Analysis Unit has extensive experience with obtaining and modifying data for projections; they are a good source to begin tracking down information for a business plan. Executive Information System JHM has been developing the Executive Information System (EIS) for the last few years. This is a cost accounting system which draws information from the general ledger, billing, payroll and other systems. This information is applied to cost standards for billable procedures to obtain very detailed unit costs. It is anticipated that the system will be available for JHH and Bayview Medical Center use sometime in Fiscal Year 2001, with all other JHM entities being brought on the system over the next couple of years. When this system is available, it will provide much of the financial information needed to produce a business plan. Include in a COVER MEMO:
History The first business plan template was developed in 1995 as a joint project between Planning & Marketing and Finance as an internal guideline for those two departments in developing business plans. However, proposals for new ventures developed outside of P&M and Finance were still being presented to senior executives and board members in a variety of formats. Sometimes vital information would be missing, necessitating a reworking of the plan. Even if all pertinent information was included, the first portion of the review would be to determine where in the document the various facets were to be found, wasting valuable time. Senior management requested that a standard business plan format be developed. This would ensure both that those preparing the business plan would be aware of what supporting details were needed and also that the information would be presented to top management in a concise and coherent format. The revision of mid-1997 was presented to, and approved by, senior management as the format to use in presentations to their weekly Business Review Group (BRG) meetings. The purpose of the BRG is to thoroughly evaluate all business opportunities presented that require the use of the Johns Hopkins name or investment capital. Top
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