Informed Decision Making: Knowing Which Actions to Avoid

The Cost of a Bad Decision

Business leaders are faced with the daily challenge of making big decisions that are critical to the success of their venture. However, a recent survey reported that more than 70 percent of executives believe that bad operational decisions are as common as good decisions in their organization.1 Depending on the institution, bad business decisions can cost millions of dollars with far-reaching financial implications that can affect every aspect of the organization.

To ensure long-term success, financial teams need to balance short-term objectives with longstanding mission-based goals before making any potentially harmful changes. Navigating this territory remains a constant challenge since most businesses are up against circumstances beyond their control, however, there are plenty of innovative financial modeling techniques available to make the decision-making process more intuitive. Synario’s powerful financial modeling tools allow decision-makers to visualize the ramifications of important decisions prior to implementation in order to know which actions to avoid.

Case Study: UCLA’s Plan for Pandemic Survival and Recovery

Presented at WACUBO 2022

The COVID-19 pandemic presented an enormous financial challenge for higher education institutions across the nation, leaving wide-ranging and lasting impacts for decades to come. Many aspired for future growth that was in jeopardy due to the pandemic’s initial financial impacts of decreased revenue generation and the high costs of COVID-related safety measures and precautions.

Prior to the pandemic, UCLA’s leadership had planned to embark on new strategic mission-based capital projects and investment plans, which they feared would need to be scaled back suggesting dire consequences.  UCLA’s Treasury team used Synario to develop a comprehensive strategic plan that would guide them through the strains of the pandemic and pave the way for a brighter future ahead.

The first step in the modeling process was to navigate through the pandemic's immediate impacts – what were some of the biggest challenges experienced by the university in 2020? Like many colleges and universities, UCLA experienced a large drop in revenue. In addition, UCLA’s Health System was quick to respond to a huge surge of COVID-19 patients in 2020, rearranging resources and making significant operational changes to address the public health crisis head-on.  As a result, this caused a huge financial strain on the organization, since many outpatient and non-emergency procedures were canceled or postponed, and the hospitals were subsequently operating at only 50% of their capacity.2

To examine the outcomes, UCLA decided to stress test COVID spending and explore the impacts of the Chancellor’s projected spending on their allotment of unrestricted funds, modeling the effects of underspending, overspending, and staying on budget. They also investigated their capital projects and their impacts on debt service, long-term returns, and unrestricted liquidity.

The next step in the process was to determine how to offset these immediate financial impacts and understand what the lasting effects of the pandemic could be on the trajectory of the university. UCLA leadership considered the grim possibility that they would have to liquidate some of their long-term assets to allot more unrestricted cash to the Chancellor, which would subsequently decrease the organization’s ability to fund future mission-critical initiatives.  Before making any rash decisions, they fed these considerations into their Synario model to help visualize their financial future based on known financial assumptions such as investment return rates, committed cash outflows, upcoming stimulus payments, and debt issuances. They wanted to identify the initiatives that would be most impactful in defining UCLA’s desired financial outcome of protecting its long-term liquidity.

The Treasury team next identified their desired outputs from the model,  which were maintaining historical and pro forma investment balances and critical performance indicators of liquidity metrics, such as Days Cash on Hand (DCOH). By compiling all this information in one place, Synario helped UCLA establish a baseline projection to allow them to see their true financial story, and then make the most informed decisions on how to move forward – could they stay on track with their prior strategic plans, or would they need to reroute towards something less ideal?

The last step was to review the aspirations for the future and determine what could still be possible. UCLA worked with Synario to fully understand the impact of these decisions and explore their alternatives with the primary objectives of sustaining its long-term capital and mission-based investment plans and generating more unrestricted income in the next ten years.  At the end of the day, the Synario model helped to determine that UCLA had plenty of cash on hand to weather the impacts of the pandemic without having to tap into their precious investments, easing tensions about the future of their financial situation.

The Benefits of a Broad Perspective

The ability of UCLA’s Treasury team to see multiple outcomes all at once in Synario allowed these decision-makers to visualize impacts and evaluate them to quickly answer their questions around the adequacy of their liquidity. Synario’s dynamic presentations eliminated the need for the repetitive back and forth between traditional spreadsheet modeling and slideshow presentations and allowed these decisions to be made quickly for more immediate impact. The projections created in Synario allow for a deeper comprehension of UCLA’s future standing and enabled the Treasury team to be proactive in their conversations with internal and external stakeholders. Not only were they in better financial shape than they had previously envisioned, but they were able to create more efficient communication with leadership to become more prepared for future challenges on the horizon.

The UCLA Treasury team likened their experience of creating financial projections for their institution to using a GPS mapping app.  Prior to adopting the Synario platform, they felt like the decisions they were making were akin to following the blue dot on a map, and simply turning right or left when the app instructs one to do so. After adopting the Synario platform to create intelligent models, their experience was more like zooming out and looking at the map from point A to point B, visualizing an overview of the direction they were heading, and being able to make more calculated and informed decisions. They were able to weigh the pros and cons of each step before making any moves, which ultimately led them to choose the best path forward. As the UCLA Treasury team eased tensions surrounding their financial outlook by confirming their ability to weather the pandemic’s impacts, they also determined that they could maintain their commitment to fund critical initiatives in support of their mission, and they turned their attention to maximizing the allocation of surplus cash into longer-term investments.

Illuminating the Path Ahead

The UCLA story is just one case where Synario proved to be an invaluable tool for helping business leaders stay on the right course while traveling through murky waters. Often when organizations are amid a crisis such as a global pandemic, it is difficult to visualize the true costs of making a wrong turn until it is too late. Your strategic plan can only be as effective as the information that you have at your disposal to create it, so it is imperative to be well equipped with the best tools that current advances in technology have to offer.

The dynamic nature of higher education institutions means that strategic objectives change rapidly, and leadership must be prepared to adapt to these changes from a well-informed position. Synario’s approach to financial modeling allows users to ideate, experiment, and communicate more effectively, creating increased adaptability to future challenges and opportunities, allowing business leaders to weigh out the consequences of any critical decision, keeping their organization’s trajectory moving in their desired direction.