Sometimes, the right answer is to take less risk; sometimes, it’s to take more. The real value lies in knowing which, when and why.
Not-for-profit healthcare is an inherently challenging business. With capital-intensive strategic imperatives, constrained margins, few controllables and persistent volatility, the balance sheet has never been more central to long-term sustainability for providers. While these challenges are universal, investment portfolio strategy must be highly tailored to each organization’s unique circumstances.
This is where Strategic Resource Allocation (SRA) comes in—not as a rigid formula but as a dynamic methodology for diagnosing financial posture, quantifying enterprise risk and guiding action. SRA treats the balance sheet as a strategic lever, helping organizations determine how best to position investments to protect the enterprise and pursue appropriate returns.
A brief primer: what SRA does
At its core, Strategic Resource Allocation is a cross-functional, enterprise-level diagnostic framework that connects strategic ambition, financial resources and organizational risk. Though it often draws on insights from Enterprise Risk Management (ERM) studies, SRA is broader and more forward-looking. It incorporates future cash flow modeling, a quantified view of enterprise risk and defined risk tolerances across multiple domains.
The SRA process typically unfolds in three phases:
- Assess Risk – Identify and quantify risks across strategy, operations, capital spending and debt, using scenario-based stress testing and leadership input.
- Measure Resources – Evaluate the availability, accessibility and resilience of financial resources, particularly unrestricted cash and investments.
- Guide Investment Strategy – Align asset allocation with the organization’s risk capacity, including clear definitions of liquidity floors and volatility limits.
One process, two outcomes
What makes the SRA framework powerful is its repeatability. Its impact is often subtle yet profound as demonstrated by two recent client engagements with vastly different outcomes.
Both clients faced significant external pressures and internal transitions, ranging from reimbursement volatility and capital expansion to variable performance and leadership turnover. Each sought clarity on whether their investment strategy was aligned with their risk profile. Each turned to SRA to balance liquidity, risk and return. The conclusions, however, could not have been more different.
Case 1: An over-risked portfolio | when liquidity becomes fragile
In the first case, the SRA analysis revealed that the organization’s investment strategy was misaligned with its strategic and operating profile. The client faced elevated residual risk driven by margin pressures, an ambitious growth agenda and several disruptive regulatory exposures.
Despite this, more than 40% of the long-term investment pool was allocated to alternatives resulting in portfolio volatility that exceeded modeled risk capacity by more than 150 basis points. While liquidity remained technically adequate, projections showed a tightening cash position over the next two years.
The SRA Scorecard flagged this mismatch as a critical vulnerability. The organization was, in effect, betting on portfolio performance at a time when it could least afford a drawdown. Our recommendation was clear: rebalance toward fixed income and cash-flowing investments to reduce portfolio volatility, preserve liquidity and buy time for the operating model to stabilize. Here, investment strategy needed to act as a hedge rather than a growth engine.
Case 2: An under-risked portfolio | when safety limits opportunity
In the second case, the client began the SRA process with strong liquidity, minimal debt and a robust capital plan in motion. Risk mapping revealed a healthy distribution of exposure across strategy, operations, capital and debt—but also highlighted that more than 60% of the gross enterprise risk had already been mitigated through operational levers and management actions.
This organization had the capacity to take risk—but the investment portfolio did not reflect it. A high investment cash floor and excess reserves in low-yielding vehicles meant the organization was forgoing potential returns. Portfolio volatility was well below modeled capacity, and even under severe stress scenarios, balance sheet strength remained robust.
In this case, the recommendation was the inverse: modestly increase portfolio risk by reallocating to equities or higher-returning alternatives. SRA gave leadership the confidence to loosen overly conservative constraints without jeopardizing the mission or stability.
A flexible framework for a dynamic landscape
These contrasting outcomes illustrate the framework’s value: SRA does not prescribe a particular outcome. It enables organizations to arrive at the right outcome rooted in risk analytics, guided by liquidity and driven by mission.
The divergence in outcomes also highlights the importance of context. What may appear prudent in one setting (e.g., a high allocation to alternatives) may be unsustainable in another. Likewise, what seems conservative (e.g., holding cash) may actually signal lost opportunity. Knowing how to appropriately interpret that context is invaluable for providers.
By embedding risk analytics into investment decisions, SRA gives healthcare leaders the language and logic to right-size investment portfolio strategy based on real-world constraints and strategic priorities.
Conclusion
In today’s challenging environment, the ability to maintain balance sheet strength is a critical differentiator. Liquidity, risk and return are not separate decisions; they are deeply interconnected. Strategic Resource Allocation provides a disciplined, data-driven way to evaluate these connections and to build consensus for confident, mission-aligned balance sheet positioning.
Strategic Resource Allocation services (“SRA”) are conducted through Kaufman Hall Investment Management, LLC (“KHIM”), an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Additional information about KHIM is available at https://adviserinfo.sec.gov/.
This material is general in nature, does not consider any reader’s objectives or circumstances, and is not an offer to buy or sell any security or to adopt any investment strategy. Investing involves gains and losses and may not be suitable for all investors. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Using this material, or contacting KHIM, does not create an advisory relationship. Services described herein may not be suitable for everyone and readers should assess appropriateness with professional advisers. KHIM does not provide legal, tax, or accounting advice. This material may not be used, reproduced, or distributed where unlawful or without KHIM’s prior written consent. It is not directed at any person in any jurisdiction where such distribution would be contrary to local law; KHIM is not licensed in the EEA, U.K., Canada, or any jurisdiction outside the United States. Reference to SEC registration does not imply a specific level of skill or training.
Bobby Bruning is a Senior Vice President with Kaufman Hall’s Treasury and Capital Markets practice. He provides strategic and analytical support for not-for-profit hospitals, health systems and other not-for-profit organizations nationwide.
