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Developing an Operational Cash Forecast

Draft. Developing an Operational Cash Forecast. Presenters: Steven A. Alavi – Health Care Service Corporation John Covey - PwC. Agenda. Health Care Service Corporation Cash Forecasting Drivers and Benefits Cash Forecast Development HCSC’s Cash Forecasting Process Lessons Learned.

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Developing an Operational Cash Forecast

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  1. Draft Developing an Operational Cash Forecast Presenters: Steven A. Alavi – Health Care Service Corporation John Covey - PwC

  2. Agenda • Health Care Service Corporation • Cash Forecasting Drivers and Benefits • Cash Forecast Development • HCSC’s Cash Forecasting Process • Lessons Learned

  3. Health Care Service Corporation (HCSC) The nation’s fourth largest health insurance company • The nation’s largest mutual health insurer • Serving approximately 13.1 million members in four states • HCSC provides insurance through Blue Cross and Blue Shield of Illinois, New Mexico, Oklahoma and Texas 3

  4. Health Care Service Corporation • Health care coverage provided: • Group and individual indemnity health insurance • Managed health care products such as HMO, PPO, POS and consumer-driven health plans • Medicare Advantage, supplemental coverage and Part D prescription products • Managed behavioral health, prescription drug and vision coverage 4

  5. Health Care Service Corporation Financial strength is a cornerstone of HCSC’s business • HCSC stands by its members with strong financial ratings • A+ from A.M. Best Company, AA- from S&P and A1 from Moody's • Historically a “net investor” • Cash balance targets are prudently developed to cover all known outflows 5

  6. HCSC’s Drivers for Cash Forecasting HCSC had a number of drivers for implementing a formal cash forecasting program • A formal program will allow HCSC to better manage working capital • Provide visibility and proactively manage working capital needs and cash flows throughout the Company • Materially increase investment performance with marginal risk exposure, including liquidity and interest rate risks 6

  7. Benefits of Cash ForecastingCompanies that have a robust cash forecast process realize value in many ways • Enhanced ability meet financial obligations • “Early warning” for liquidity problems/opportunities • Optimize short-term investing / borrowing decisions • Enables analysis of actual vs. expected cash flows • Increases insight into the company’s cash drivers • Increases confidence in external reporting • Supports cash culture with accountability for results 7

  8. Key Success Factors Key Stakeholder Identification Information Availability Methodology Culture Effective Cash Forecasting Clear Objectives Systems Harmonized Forecasts Training Accurate Information 8

  9. Cash Forecasting Development Approach An organized approach to information discovery and program development increases chances of success Assess Design Construct Implement Operate & Review 9

  10. Assess Design Construct Implement Operate & Review The Assess phase confirmed HCSC’s business needs and analyzed the cash flows and availability of information 10

  11. Assess Design Construct Implement Operate & Review The Design phase outlined the processes and data flows, while Construct included system configuration and a pilot run 11

  12. Assess Design Construct Implement Operate & Review The Implement phase consisted of full roll out, while the Operate and Review phase achieved go live 12

  13. HCSC’s Cash Forecasting Process HCSC leverages historical and predictive data, tempered with human judgment • Leverages historical cash flow data • Captures current functional department inputs • Applies refinements via on-going management review and approval 13

  14. Lessons Learned • Assessment Phase is critical • Articulate objectives within Treasury and beyond • Identify and categorize cash flows • Evaluate technology solution • Cash forecasting is much more than technology • Good information from the business is key • Robust process needed to ensure consistency • Systems/tools do not replace human judgment • Establishing a forecast is just the beginning • Useoutputs to support business decisions • Continuously improve the process 14

  15. Presenters • Steven A. Alavi, CPA • Health Care Service Corporation • Executive Director, Treasury • & Financial Management • Phone: (312) 653-6679 • Email: Steve_Alavi@bcbsil.com • John Covey • PwC, Director • Phone: (713) 356-5643 • Email: john.covey@us.pwc.com 15

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