Take Control

A recent evaluation of top-performing companies turned up some common characteristics. Among them was “controls,” or B-school speak for the system that alerts management to deviations from expected conditions. For example, a budget variance report is a way to alert management that revenue or expenses deviate from the expected (the budget) and, thereby, may be a part of the system known as “controls.”

The objective of controls is to allow management to make accurate and timely adjustments to the environment the business is in, whether external or internal. Having good controls goes well beyond your company's budget and, thus, can't be limited to management information found in financial statements. Such information includes market share, market penetration, throughput, quality, activity costs, payer mix, product mix and productivity.

• Market Share

  Market share refers to the percentage of a market's expenditures a company receives. The revenue component of market share comes from the income statement, but the market information comes from census and/or economic reports. Some sources of market information are CMS, the U.S. Census Bureau, health organizations and state health agencies. Most managers wish to increase their share of the market because it indicates that a company holds a better position in the market than at least one of its rivals.

• Throughput

  This is about the number of widgets in a time frame that a company produces. A commonly mentioned throughput measure is deliveries per day. The source of this information is from operations documents, i.e., signed delivery tickets. Throughput information can be acquired for each company process and each job description. Efficient companies manage throughput, which means they measure it, too.

• Quality

  A good definition of quality is “meeting the customer's expectation.” Each business has both external and internal customers. Failing to meet their expectation generally results in performing an activity a second time without creating new revenue, but it can be much worse. Quality is measurable, but it might require a little thinking to decide how to measure the quality of a process or activity. An example is claim submissions. The quality of submissions can be measured by denials, which (for most payers) are the result of failing to meet the payer's expectation. Managing quality requires operational information that can't be found on the income statement.