MDS

If You Need To Know The Senior Market

You Need To Know MDS

Consulting and Strategy Solutions

A Two Generation Company - Serving Clients For Over 39 Years

OLD CONCEPTS TAKE ON NEW MEANING IN 2009

            “Irrational exuberance, strong head winds and toxic assets” are current industry buzz words.  However, it would be much more productive to focus some of our 2009 strategies on some old concepts that have stood the test of time.  Business buzz words such as “Management by Objectives (MBO)” come and go.  Often perceived as vague, complex or confusing, many of these concepts fade into the past before most of us really understand or appreciate the practical application or potential benefit to our current operations.  But old concepts are taking on new meaning in today’s complex business environment. Let’s see how five of these concepts of the past relate to today’s senior living business.   

1.      Zero Based Budgeting – In your 2009 budgeting process, don’t merely escalate 2008 actuals by an annual inflation factor.  Doing so merely compounds errors of the past.  Each and every budgeting period, go back to square one and develop next year’s budget from a “zero base”.  Use a combination of your community’s actual financial experience and available industry benchmarks to sharpen your budget.  Challenge each department to answer three key questions; 1) How can we reduce operating costs by 5% while not compromising quality of care or resident satisfaction?  2)  What would really happen if we reduced our staffing by one or two full-time equivalent employees?  3) In your specific department would you have to increase your staff if we increased occupancy by five additional residents? You should also ask your staff to provide a sound rationale for their answers. These questions may seem unusual – but you may be surprised at the beneficial results you might realize.

2.      Benchmarking – Effective benchmarking answers the question: “How does my community stack up in terms of industry factors, financial ratios and best practices when compared to my industry peers and immediate competitors?” Benchmarking has seen limited use in Senior living; but it will eventually become a commonly used management technique by progressive Senior living sponsors and owners/operators. Benchmarking provides a bridge that links goals and objectives with expected outcomes. The process will force you to define, position, operate and price your community more effectively. 

3.      No Margin – No Mission –   This started out as a cliché that sounded crude and insensitive to some, but to most operators today, especially not-for-profits, it’s the new real world of operations. That’s because lenders and bond rating agencies are expressing heightened concern about heavy reliance on non-operating income derived from donations, endowment proceeds or interest earned.  Simply stated, they (and you) should expect positive operating profit margins based on true operating revenues and expenses.  And that’s usually not enough; most lenders want at least $1.30 in operating margin cash flow for every dollar in debt payments you owe.

4.      The 80/20 Rule – Frequently, 80% of our favorable outcomes result from only about 20% of our efforts.  The trick is to identify that critical 20%.  For example, 80% of your assisted living costs are usually incurred within 20% of your departments or cost centers.  But here’s the big killer involving the 80/20 Rule; that 20% of expenses incurred are usually extremely difficult to control and frequently seems to take 80% of the total time available for financial enhancement.

5.      Expected Outcomes – Expected outcomes is used in health care to measure the effectiveness of clinical tasks and procedures.  But defining desired outcomes can also assist in sharpening the focus of your financial and marketing objectives for your Senior living community.  One approach is to define the top five initiatives that would lead to specific successful outcomes. For each of the initiatives answer four questions, 1) “Where are we now?”, 2)What challenging, but achievable outcomes can we expect to realize?”, 3) “How specifically will we get there?”, and 4) “ How much time and financial resources do we plan to allocate to accomplish this outcome?” 

            2009 will present many challenges.  But there will also be opportunities as you pursue three expected outcomes; survival, growth and profitability.  “In search of excellence” was another cliché of the past.  But if you’re truly in search of excellence for your community, your chances will improve significantly if you bring new meaning to some of yesterday’s concepts and sound bites. 

Jim Moore is president of Moore Diversified Services, Inc., a national Senior housing and health care consulting firm based in Fort Worth, Texas.  He has written several books about assisted living and Senior housing, including Assisted Living Strategies for Changing Markets.  A new book titled Independent Living and CCRCS will be available soon.  Jim Moore can be reached at 817-731-4266 or jimmoore@m-d-s.com.

Moore Diversified Services, Inc.    │    3001 Halloran Street    │   Fort Worth, Texas  76107

(817)731-4266    │    Fax (817)738-2031

E-Mail:  MDSResearch@m-d-s.com

Web Address:  www.m-d-s.com

Suggestions or Comments About This Website:  webmaster@m-d-s.com

All Material Copyright © 1998 - 2010 Moore Diversified Services, Inc.