Improving and Monitoring Budgets & Productivity

1. Improving and Monitoring Budgets & Productivity Craig Whitaker, MBA Financial Analyst, Franciscan – St. Francis Health

2. Overview • Operating Budget • Role of the Budget in Strategic Planning • Components of the Budget • Determining How Much to Budget • How Operational Data Flows into the Budget • Budget Approval Process • Productivity Reporting • Primary Components of Productivity • Calculating the Standard (Benchmark) • Quick Method for Calculating FTEs needed • Monitoring and Analyzing Productivity • Productivity Reporting Tips • Requesting New FTEs

3. Operating Budgets

4. Why is Budgeting so Important? • Mission Statement Goals and Objectives • Fiscal Responsibility per Business Unit • Efficient Use of Resources (Labor and Supplies) • Aligns Operations with Strategic Plan

6. What is a Budget? • In this presentation, when we say “budget” we mean the Operating Budget, which includes the following: • Operating Plan • Statistics Budget • Revenue Budget • Expense Budget • FTE Budget • Notes • Summary (Pro Forma)

7. Operating Plan • Primary Objectives • Factors That May Aid / Prevent from Accomplishing Objectives • Operational Factors That Will / Will Not Occur Next Year • Any New Operational Factors That Will Occur Next Year • Quality Improvement Plan • Less turnover, injuries, increased number of inspections • Labor and Productivity Plan • Keep Square Footage updated, monitor overtime • Other Expense Containment Plan • Less contract labor, standardize cleaning supplies

8. Statistics Budget • *Stats are key to a good budget, they impact several other areas of the budget including: • Revenue projections • FTE projections (to be hired) • Reviewing variable expenses on a per statistic basis from year to year • Goals from the operating plan • Actual v Budgeted statistics are reviewed by management on a monthly (and/or biweekly) basis • Some typical ES statistics might include: • Cleanable Square Footage • Number of Rooms • Visits (Guests, Patients, Students, etc.) • Adjusted Discharges (Hospitals)

9. Revenue Budget • House keeping departments are overhead departments, meaning they typically do not generate revenue • The revenue budget is likely made up of misc. income from various sources, which is categorized as “Other Operating Income” on the financial statement • Sources of Income: • Income from recycling • Trade Credits – 2% 10 net 30 • Rebates on cleaning supplies / equipment • Contracted cleaning agreements

10. Expense Budget (Example of Accounts)

11. Expense Budget • Review current YTD expenses, and also previous year expenses • Make sure your expense totals are accurate for the year by asking the following questions: • Are we receiving our trade credits? • Do the invoices hitting our accounts belong to us? • Have we received the refunds or rebates owed to us by our vendors? • Are we still being charged a lease expense for equipment we no longer posses? New equipment? • What has caused our cleaning supplies expense to fluctuate? • Level of Acuity – case mix? (Hospital only) • More expensive cleaning solutions? Environmentally friendly? • Special Event? • Additional Square Footage? • More equipment?

12. Horizontal Analysis • Definition: Analysis technique used to compare changes in statistics, revenue, expenses and hours over various periods of time (typically years). • Example: How much has our revenue increased in the last 5 years? (%) • Formula: • X = Statistics, Revenue, Expense, or Hours

13. Horizontal Analysis - Example • 2007 Revenue = $195,000 • 2012 Revenue = $243,000 • Note: When using horizontal analysis, always calculate the $ change along with the % change. A change of 5% to $1,000 won’t be nearly as significant as a change of 5% to $1,000,000.

14. Vertical Analysis • Definition: Analysis technique used to identify how much a particular line item of a category contributes to the total. • Example: What % of our expense budget is made up of purchased services? • Formula: • X = Statistics, Revenue, Expense, or Hours

15. Vertical Analysis - Example • Example: What % of our expense budget is made up of purchased services? • Purchased Services = $33,000 • Total Expense = $572,000 • Formula: • Note: use VA to identify the particular expenses that contribute the most to your overall expense total and monitor the % changes each month. Then, identify the root causes of any trends that develop.

16. FTE Budget • There are a number of factors that determine the FTE budget: • The current year workload (amount of cleanable square ft) • Anticipated changes in the size of the workload (next year) • The strategic plan & operating plan • Task changes in individual job types • *Productivity efficiency • The FTE section of the Budget may include: • Job Descriptions • Employee Names • Number of Current FTEs • Number of Projected FTEs (Next Yr.’s Budget) • Specific FTE Adjustments • Target Number of FTEs (Based on Productivity) • Salary / Wages Expense

17. Notes & Comments • Always include a sidebar for notes and comments in your budget. Why? • Senior management (budget committee) review process • Reference for the Finance department – variance review • For personal reference - after a few months, it is easy to forget what you budgeted for: • Various types of expenses • FTEs • Statistical fluctuations • Changes in FTEs

18. Budget Summary • What is it? – All of the estimates and projections used to create the various sections of the budget (revenue, expense, etc.) are calculated into a budget income statement for the following year. • Why? – It can be used to compare to the actualized income statement of the current year to determine if adjustments need to be made to the budget, while the budget is still available to be edited.

19. Tips for Determining How Much to Budget • Annualize the first 6 months of the current year to project next year’s budget. (St. Francis method) • Also compare last year’s actual to last year’s budget to see if there were any significant budget variances that need to be addressed for next year. • Allow open participation of those involved with daily operations in order to estimate increases or decreases in expenses or other sections of the budget. • Do not use a “gut feel” if possible, base estimates on facts and calculations.

20. Where do we get the information to create our budgets? – Ex. St. Francis

21. Budget Process – Preparation to Approval

22. Budget Approval Process – Using Bribes • Also keep in mind that it never hurts to bribe the budget committee with chocolates, desserts, baked goods, pizza, and especially donuts when having budgets reviewed for approval

23. Productivity “What gets measured, gets counted!”

24. Productivity FAQs • How do I know how many FTEs to budget? • Am I currently working too many FTEs? • What productivity statistics should I be monitoring? • How often should I review productivity? • How should I go about requesting additional FTEs?

25. Productivity Components • Productivity reporting normally involves the following measures from which other metrics are then calculated and monitored • 1. Operating Statistic (Cleanable Sq Ft) • [Output] • 2. Total Worked Hours (Non-productive is excluded) • [Input] • 3. Standard (Productivity Target or Benchmark) • Productivity = [Input] / [Output] • Helps answer the question, “How many FTEs do I need?”

26. Calculating the Standard (Benchmark) • The standard is calculated by dividing total productive hours by total cleanable sq ft, or how long it takes to clean a specified number of sq ft (in hours). • This same calculation is done biweekly (26 results) for one year or more. • The results are sorted starting with the shortest amounts of time used per square foot, descending to the longest.

27. Calculating the Standard (cont’d) • (Subjective) A percentage of top performances must then be decided on, should we use the top 40%, 25%, 10%, etc? • Top 15% is chosen (15% x 26 = 4), so the top 4 lowest cleaning times per sqft are averaged together as the new standard.

28. Step 1 – Calculate Actual Worked Hours per Sq Ft

29. Note: Adjust Actual Worked Hours / Sq Ft • Per our last calculation, Actual Worked Hours / Sq Ft was 0.00725873 . • This means for this 2 week period it took us on average 0.00725873 hours to clean 1 sqft or 26.13 seconds. • Our square footage total was 1,260,000. • Remember that Actual Worked Hours / Sq Ft is a rate that will be compared during each two week pay period against subsequent pay periods. • 0.00725873 is a very small, very ugly number to work with • 1,260,000 is a very large, very ugly number to work with • So...

30. Note: Adjust Actual Worked Hours / Sq Ft

31. Step 2 – Repeat Step 1 Each Pay Period

32. Step 3 – Sort Actual Worked Hrs / Sq Ft from Lowest to Highest

33. Steps 4 & 5 – Decide on Percentile, then Average (Standard)

34. So what does all of this tell us? • We chose 6.42 as our new standard • And our cleanable sq ft was 1,260 • ( 900,000 per day for 14 days = 1,260,000, adjusted to 1,260). • So… = 101 FTEs • To maintain our top performance (efficiency), we would need to use no more than 101 FTEs to clean 1,260,000 total square feet within a 2 week period

35. Get Clean the “Quick n’ Dirty” Way!

36. Monitoring Productivity - Stats In this report, actual sq footage exceeds budgeted sq footage in March. This change was not anticipated during the budget planning process. More sq ft means a larger workload and more staff required. Actual Hours worked will likely be higher than budgeted hours.

37. Monitoring Productivity - Hours Actual Hours were approx. 8,700 on average before the sq footage increase. After March, actual worked hours increased to 9,500 on average, leaving the YTD average 9,275 v 8,400 budget.

38. Monitoring Productivity - FTEs

39. Monitoring Productivity - FTEs

40. Analyzing Productivity

41. What Does the FTE Analysis Tell us? • Act v Flex – We should have budgeted 3.2 FTEs less for our workload (total cleanable sqft) so far this year. • Act v Bud – Our actual FTEs have exceeded our budget by 10.9 FTEs on average so far this year. • Act v Std– In order to be in the top 15% of most efficient historic performances, we should have used 7.3 FTEs less so far this year on average.

42. 4 Ways of Improving Productivity • 1. More sq footage is cleaned w/o using additional FTEs • 2. More sq footage is cleaned w/ less FTEs • 3. Same sq footage is cleaned w/ less FTEs • 4. SqFootage remains the same, cleaning robots are used and FTEs are reduced (New Technology)

43. 5 Principles for Measuring and Managing Productivity • 1. Consistent • Reporting over same time frame • Using the same statistic • 2. Reliable • Data and calculations are consistent • 3. Measurable • Statistic should be measurable • Data systems involved with productivity should be accurate • 4. Quantitative • Do not use subjective or qualitative data for productivity • Productivity should have a numeric value, not “lazy” or “busy” • 5. Comprehensive • Primary statistic should cover majority of work being done

44. Requesting New FTEs • Business cases typically include, but are not limited to: • A Job Description (Estimated hours given for each task) • All of the benefits associated with the new hire (improved quality, safety, patient care, etc.) • Any field research or existing statistics to support the case

45. New FTEs – Budget Hearing Questions • What would be the consequences of not hiring the employee? • Patient Safety Violations • Legal Issues • Lost customers • Lower satisfaction • Is there any added value in the position (i.e. does the added FTE provide a service that saves money or generates income?) • Could the need for this employee be satisfied by shifting around existing employees in the department? • What are other hospitals (companies) doing? • How is the need being satisfied elsewhere?

46. New FTEs – Budget Hearing Questions • Does this FTE help increase patient (customer) satisfaction? • Higher Press GaneyScores? • Does this FTE help increase employee satisfaction? • Will there be enough additional volume to support the new FTE? • What good will this position do, and for what people?

47. Questions? Thank you for your attention, sorry for all of the math!