TO OUR FINANCE PROFESSOR
Dear Keith: Thank you for a course well done.

Students will learn many things in a course but realistically, only several things will be remembered with the passage of time. One of an instructor’s goals therefore should be to facilitate that.

An instructor must make a decision concerning his teaching philosophy. Should he try to teach them everything or should he teach them only enough? The answer makes a significant difference.

The first approach, in my opinion, is full of complications. How can one reasonably expect to teach students everything, even when the topics are defined by a set of Terminal Course Objectives (TCOs)? Consider the students’ attitude. Many of them probably enrolled in the class because it was necessary and not because the subject interested them. This approach has a tendency to lead an instructor who believes that these TCOs are set in stone to evaluate the performance of his students against his personal standard. An instructor, by definition, is a master of his subject. Consequently, everything that he teaches, he knows very well. That poses a dilemma, whether the instructor realizes it or not. How can a student, no matter how diligent, understand much less master, the nuances and aspects of each TCO? I contend that this approach creates a hurdle so high that students will not be able to measure up. Every nuance of each TCO counts. Every time that mastery of each nuance is not demonstrated, it counts against the student.

TCOs should serve as a guide, I think. A prudent instructor, in my mind, will use the TCOs in a flexible manner. He could, for instance, at the start of the course, survey the students in order to learn their academic objective. Someone pursuing an MBA with a concentration in Project Management would have a different perspective than someone pursuing a Master’s degree in Project Management. A survey will give the instructor more insight into the needs of his students. This might sound absurd but like anything else, instructional style can be dogmatic. To dogma I contend that one size will not fit all. Address the needs of the customer and realize that the customer is your student.

Focus on the essentials. Follow the Pareto rule. Twenty percent of what you teach will account for 80% of what is important. Might it not be wiser to focus on that 20% then? The challenge in fact is determining the content of that 20%. This is where your expertise and experience as a subject matter expert will help you.

Your method was certainly different but I think you exhibited an uncommon touch in focusing on that 20%. Thanks to this course I am more cognizant of the importance and operation of the finance side of the house.

Within the healthcare sector, my field, hospitals are a key institutional player. Since the 1990s their environment has become more competitive. Looking back I now realize that there are still plenty of managers who don’t appreciate why creditworthiness, for instance, matters. Creditworthy organizations, as you taught, enjoy improved capital market opportunities. A higher credit rating means lower interest costs. A small decrease in the capital rate will, over the life of a bond, translate into significant savings. Creditworthy hospitals also enjoy less restrictive covenants that, in turn, extend their financial flexibility. Creditworthy hospitals also experience lower costs associated with their bond issues. I did a cursory study of the performance of A-rated and C-rated hospitals and noticed that the stronger organizations tend to consolidate markets by acquiring weaker competitors. Apparently, the latter can’t compete because they lack access to cost-effective capital. One author pointed out that winners in the competition for capital are hospitals and systems that can invest in their future. Capital-poor organizations are forced to sit on the sidelines, unable to expand or upgrade their facilities. (Coile 2002).

In the face of ongoing reform initiatives, the environment will only become more turbulent. Hospitals must adopt EMR or face reductions in their Medicare and Medicaid reimbursements. Rising bad debt and charity care are becoming contentious issues as several lawsuits filed by the IRS demonstrated. Commercial health insurance payments are in flux as more and more cost shifting related to consumer-directed health plans take root. A substantial number of hospitals with aging facilities are facing new financial and operational challenges. Tight labor markets continue to exert pressure on salaries and benefits. Regulatory compliance has multiplied and become more complicated. This has increased compliance costs. And competition continues to increase due to industry consolidation and the growing presence of physician-sponsored niche operations in the most profitable service areas. In the face of these sweeping challenges, my education will certainly prove useful!

Thank you again.

IT ASSET AUDITING

Low-risk. High-reward.

You’re an organization that’s lost count of your desktops, servers, and other IT equipment. Sounds familiar? Most organizations are in that situation.

This is a low-risk, high-reward activity. Be legally compliant. Most software publishers do not litigate. Instead, many use the results of auditing reviews as a basis for “true-up” deals. “True-up” refers to the process of buying more licenses.

Two examples illustrate:

1. You have 150 licenses of software X. The audit reveals that 180 licenses were deployed and that all 180 are being used simultaneously. You will be required to pay for 180 licenses. This is “true-up.”
2. You purchased 300 licenses of software Y. You installed it on 300 desktops. The audit reveals that only 250 instances of software Y are being used. Come renewal time, you pay for only 250 licenses. Let’s refer to this as “true-down.”

The auditing process can collect more useful information. And you should take advantage of that. Since you’re checking every desktop and server (and other IT equipment, but we won’t include that here) anyway, you might as well gather the additional information.



Learn the configuration of each machine.

• Desktop 56 runs the G/L of the accounting module of SAP Business All-in-One on Windows 2000.

Identify the user of each machine and confirm the appropriateness of that role to the machine.

• Desktop 56 is assigned to Tom, a cost accountant.

Determine whether the correct software is installed on a particular machine.

• You discover the accounting module would run faster if more RAM was added to Desktop 56.

While it is true that many users use unlicensed software, a good number of them do so unwittingly. How does this come about?

Confusion that arise from vague, complex, and ever-changing licensing rules.

Software publishers frequently change user licenses. About half the time, they do it during the active life of the product. Case in point: Microsoft. It changed significant parts of its Client Access License (CAL) three times during the three years of Microsoft Windows 2000’s marketing life.

Changes in the user IT environment.

In the data center, servers are inevitably upgraded to newer, more powerful models. Software licenses recognize this and permit software to be installed in the replacement. The process isn’t complete, however, until the same software is removed from the old server that was replaced. In many instances, this part is overlooked. Result: one licensed and one unlicensed deployment.

Mergers & Acquisitions.

It may surprise you but this isn’t a subset of the preceding reason. Why? Many software licenses do not automatically transfer licensee rights to another party unless it’s stated explicitly. More often than not, after one company acquires another, the acquirer takes control over the assets of the acquired. In theory, the acquirer has the responsibility of checking this provision. In reality, lawyers on both sides are busy dealing with other larger issues.

Misunderstanding between IT and Procurement.

This is related to the first reason, namely the confusion that arise from vague, complex, and ever-changing licensing rules. In theory, either IT or Procurement should know how many and what kind of licenses should be acquired. In reality, this often falls between the cracks. Result: under- or over-purchases of appropriate or inappropriate licenses. Two examples: (1) a license is deployed on a server that has more CPUs than the license allows, and (2) widespread access is allowed for software that has a limited-user license.

Is non-compliance a serious problem?

It is. Most software publishers deal with offenders—especially first-timers—in an understanding and lenient manner. Publishers realize that they can lose customers and antagonize entire user groups if they act with a heavy hand. To be fair, publishers deserve the revenue from unlicensed deployments. Bottom line: I think the relative laxity stems from practical reasons of customer relations as well as the recognition by the software industry of the vague, complex, and ever-changing rules of their products. Result: many publishers will settle for true-up deals.