Beyond Benchmarking – Forward to Activity Based Measurement
BEYOND BENCHMARKING: Forward to Activity-Based Measurement
Robert T. Yokl-President and Chief Value Strategist
Labor management or the measurement and control of departmental workloads and staffing ratios on a continuous basis is becoming a priority in healthcare organizations today. When healthcare organizations consider that their labor cost continue to rise, while at the same time reimbursement from third parties continues to fall. Healthcare organizations must dramatically improve and maximize their management of their labor resources if they are to survive and thrive in the 21st century. The question that most CEO’s, CFO’s and COO’s are asking today is not when, but how do we put the pieces of the labor puzzle together to get a real picture of our labor resources, so my department heads and managers can take action before a crisis arises?
Benchmarking has become a major industry in healthcare today. Numerous companies and alliances will provide your healthcare organization with just about any comparative data you could ever want, but are they really the right metrics for your organization considering the data dump that is required to generate these statistics? Thus, leading to the inexactitude of these measurements. Most healthcare organizations only use them as a guide, not a precise measurement tool, because they don’t know how to relate them to their own operations or they can’t convince their department heads to buy into them. Isn’t there a better way to get these metrics right?
Putting all of the Pieces of the Labor Puzzle Together
The answer to this labor puzzle is to give your department heads and managers timely (quarterly static reports won’t cut the mustard) activity-based reports, reliable metrics, ownership of the labor measurement process and advanced training to know where their money is being spent. How their labor resources are being deployed and whether there are better ways to utilize their resources. Healthcare organizations that have solved the labor puzzle have recognized that they must go Beyond Benchmarking, which only gives them a view from 30,000 feet, and come down to ground level with an activity-based measurement system to capture, analyze and report relevant information, they need to plan and manage their labor resources.
Activity-based measurements relates labor resources to their consuming activities, therefore; removes the distortions and guess work caused by traditional benchmarking systems. Unlike most benchmarking systems, activity-base systems will accurately measure your healthcare organizations variable and fixed labor resources, assign them to activity centers which will be determined through an activity analysis to select your best labor resource drivers and allocate them appropriately. This methodology takes the mystery and inexactitude out of benchmarking game and goes Beyond Benchmarking. It gives your department heads and managers reliable mission critical data that they need to manage this vital resource.
Figure 1: Activity-Based Labor Management Report
Activity-Based Trending is the Answer to the Puzzle
Over the past six years, our extensive research and imperial experience have shown that if a healthcare organization utilizes activity-based labor trending reporting (figure 1) in combination with reliable functional benchmarks, they will quickly and scientifically identify numerous incremental as well as, huge departmental unfavorable labor variances in real time, by pay period or on a monthly basis. Based on our experience this can mean a labor saving opportunity of 5% to 8% annually for your healthcare organization. We can make this claim because timely activity-based labor trending reports will show you where your gaps are in your labor cost, therefore, you can reduce these unwanted and unneeded cost painlessly through attrition, re-engineering or redeployment of labor resources before a crisis arises.
For example, most hospital executives don’t realize the huge swings in labor resources and excess labor dollars that can be wasted on any given month. To demonstrate, in figure 2 we show a 250-bed community hospital that had a labor variances from a low of ($ 742,000.00) in December 1999 to a high of $ 3,206,000 in the month of January 2000. This phenomenon created cash flow challenges and excessive labor cost averaging
$1.5 million dollars annually for this hospital. But, until this hospital’s senior management embraced the concept of activity-based labor trending they weren’t even aware that this phenomenon was happening.
Don’t you make this same mistake!
Beyond Benchmarking: Forward to Activity-Based Measurements
Benchmarking is an important tool to take a static picture in time – if measured by function — of where your healthcare organization is related to labor resources. However, if you want to move forward Beyond Benchmarking to continuously measure, manage and control your labor resources, you will need a new dynamic (not static) methodology to do so. Activity-based trending is that tool that will give you and your department heads/managers the right technology to continuously manage their labor resources, so that your healthcare organization can:
Have a real picture of your labor resources so you can take action to control them.
Without an Activity-Based labor management system, your healthcare organization has no idea of what resources are truly required to staff your hospital’s departments on a day-to-day, week-to-week and month- to- month basis. Therefore, your department heads and managers can only make assumptions about their ideal staffing requirements. This is not the case if you employ an Activity-Based system! Your department heads and managers will have a real picture of their past labor performance, current labor resources being consumed and their future staffing requirements based on scientific analysis of anticipated demands.
Create and refine staffing models and “what if” scenarios for budget or special projects
All healthcare organizations are finding that it is necessary to project their labor resources into the future for budget purposes, programmatic changes and downsizing opportunities. However, most organizations are winging it when it comes to this activity. Rather than scientifically forecasting their labor resources they are making educated guesses about the future. This approach to constructing staffing models isn’t good enough in this era of tight budgets, limited resources and risk avoidance! A better way is to utilize staffing models that are based on scientific data, labor trending and functional labor measurements. Conversely, an Activity-Based labor system will give you the historical and predictive data that you need to create and refine staffing models that are exacting and reliable.
Be able to analyze your labor resources, so you can reallocate them as required
Most department heads and managers don’t realize that they are deploying more labor resources than is necessary to meet their workload requirements. Being creatures of habit (like all of us) they are scheduling their staffing based on gut feel, past history or a combination of both elements. Whereas, if they would have the opportunity to analysis their actual labor trends, patterns and have activity-based measurements to guide them, they will quickly reallocate their labor resources to be balanced with their actual labor metrics.
Giving you the ability to visualize your labor resources at any level of your organization.
Do you know how many fixed positions (positions that have no direct activities related to your core functions of patient care, but are considered important to your healthcare organization’s mission,( i.e., security, administration, risk management, legal, material management, marketing, public relations, data processing, mail room, quality management, telecommunications, etc.) you have? Or how many functions or activities are being duplicated in your hospital or multi-hospital system? For example, on an recent assignment in New York City (figure 3) we found through activity analysis that an eight hospital system had hundreds of fixed positions and 2,574 duplicate functional administrative, financial, support and clinical positions that could possibly be candidates for elimination, consolidated or re-engineered to reduce the systems labor cost. This is the kind of information that you need to visualize and analyze the value of all of your functional departments.
Figure 3: Functional Administrative, Financial, Support and Clinical Departments
Provide a framework for benchmarking with your peer healthcare organizations
Benchmarking is not a science, but is the art of measuring opportunities for improving a healthcare organization’s performance. To effectively conduct a benchmarking study you must have common characteristic that can be measured accurately. The most exacting measurement for this purpose is a functional measurement!
No two hospital departments function identically, yet most labor benchmarking systems will attempt to compare your hospital departments (laboratory, radiology, operating room, nursing floors, specialty units, etc.) to hospitals of the same type, size, workload intensity and volumes — when no valid comparison can really be made. Whereas, with functionally benchmarking all of the above factors are taking into consideration, but with one big difference; your departments are also measured functionally to determine their uniqueness. This approach is a more exacting measurement than just a statistical or operational comparison of your hospital’s departments. For example, in figure4 we show a sample functional or activity analysis of a typical general nursing unit
Figure: 4 Sample Functional Benchmarking Analysis – 2 West Nursing Unit
With this functional approach your unique functional departmental profiles or characteristics can be accurately compared and benchmarked to similar peer hospital functional profiles for an exact match. This match might require comparisons of eight to ten or more peer hospital departments to configure your exact functional equivalents. Thus, truly finding comparable “peers’ that mirror your own operation, not just a statistical measurement or comparison to some unknown, non-conforming hospital operation.
What Gets Measured Happens!
“What gets measured gets done has never been so powerful a truth” is sound advice from Tom Peters. Yet, most healthcare organization don’t effectively or precisely measure their labor resources on a continuous basis or are measuring the wrong things sporadically, or not at all. Here are four critical success factors to insure that you are measuring the right things, in the right way, with the right tools and training.
