Business for Health Business Skills for Private Medical Practices

Business for Health Business Skills for Private Medical Practices Module 15: Understand Your Costs and Profitability

A Quick Start Welcome! While you are waiting for the class to begin, please take the Pre-Test and make sure your name is on it before you hand it to the facilitator. Thank you!. Business Skills for Private Medical Practices

Agenda Welcome Types of Costs Costs and Cost Drivers Control Costs Costs and Profitability Cost Management Audit Summary and Evaluation Close Business Skills for Private Medical Practices

Learning Objectives During this session, you will: • describe the different types of costs; • analyze costs and cost drivers; • discuss how to control costs; • define profit; Business Skills for Private Medical Practices

Learning Objectives • assess how cost adjustments can affect profitability; • conduct a cost management audit; • discuss the next step; and • state your key take-away from this session. Business Skills for Private Medical Practices

Introduction You will have 1 minute to introduce yourself: 1. Your name 2. Your position 3. Your business 4. How long you have been in business Business Skills for Private Medical Practices

Types of Costs Business Skills for Private Medical Practices

Direct and Indirect Costs Direct costs: • Directly involved in providing goods and services • Vary according to volume • Sometimes called “variable costs” Business Skills for Private Medical Practices

Direct and Indirect Costs Indirect costs: • Needed to run the practice • Cannot be directly attributed to providing a specific product or service • Remain the same regardless of the volume of business • Sometimes called “fixed costs” Business Skills for Private Medical Practices

Direct and Indirect Costs Business Skills for Private Medical Practices

Costs and Cost Drivers Business Skills for Private Medical Practices

Using a Cost Analysis to Identify Cost Drivers Cost drivers are the factors that can cause a change in the cost of an activity. An activity can have more than one cost driver attached to it. Business Skills for Private Medical Practices

Example of a Cost Analysis Business Skills for Private Medical Practices

Conducting a Cost Analysis Business Skills for Private Medical Practices

Cost Analysis Questions • Which cost drivers have the greatest impact on the final cost? • Which cost drivers could the practice control-and how? • How would these controls affect the final costs and the ultimate profitability of the practice? • What, if any, cost drivers could be eliminated? Business Skills for Private Medical Practices

Control Costs Business Skills for Private Medical Practices

How to Control Costs • Identify major costs • Determine essential costs • Focus on costs under your control • Involve employees • Establish cost budgets and monitor • Review how costs impact objectives Business Skills for Private Medical Practices

Cost Control Assessment • Consolidate purchasing • Eliminate unnecessary activities • Control excessive costs • Improve efficiency • Improve financial control • Assess the potential impact of any changes Business Skills for Private Medical Practices

How to Control Costs • How essential are these costs? • What degree of control does the practice owner have over them? • What cost-saving strategy could be developed and implemented? Business Skills for Private Medical Practices

Costs and Profitability Business Skills for Private Medical Practices

How to Increase Profitability Profit = [Revenue (Sales)– Costs (Expenses)] • Can we increase profit without lowering costs? • Can we increase profit without increasing revenue? • Can we increase profit by increasing revenue and increasing costs? Business Skills for Private Medical Practices

Increasing Profitability • Did the clinic raise or lower its costs? • What impact did this cost adjustment have on revenue? • What impact did this cost adjustment have on the clinic’s profitability? • What conclusion can you draw about profitability and this type of cost adjustment? Business Skills for Private Medical Practices

Assessing Strategies to Increase Profitability: Hospital/Outpatient Clinic • Was building an outpatient clinic a good strategy to increase profit? • Were there any risks in making the decision to build an outpatient clinic instead of increasing the number of beds in the hospital? Business Skills for Private Medical Practices

Assessing Strategies to Increase Profitability: Joint Purchasing • Was implementing a joint purchasing agreement a good strategy to increase profit? • Were there any risks in making the decision to join together to purchase family planning products? Business Skills for Private Medical Practices

Assessing Strategies to Increase Profitability: Fraud/Mismanagement • Was implementing the accounting expert’s recommendations a good strategy to increase profit? • Were there any risks in implementing the accounting expert’s recommendations? Business Skills for Private Medical Practices

Cost Management Audit Business Skills for Private Medical Practices

Preparing to Conduct a Cost Management Audit A cost management audit is a way to monitor and control costs. It is most useful and efficient to focus the audit on specific costs that: • Have a significant impact on profitability, and • Are within your control. Business Skills for Private Medical Practices

Cost Management Audit Steps • Determine the costs you want to monitor. • Schedule a specific time. • Analyze the changes in the key costs. • Identify and implement actions to control these costs. Business Skills for Private Medical Practices

Cost Management Audit Job Aid Business Skills for Private Medical Practices

Conducting a Cost Management Audit Case: Funyula Clinic • Working with your small group, complete a cost management audit, including your recommended courses of action. • Use the Cost Management Audit Job Aid on pages 23-24. • Then answer the question that follows the case study. Business Skills for Private Medical Practices

Cost Management Audit Job Aid Business Skills for Private Medical Practices

Business for Health Business Skills for Private Medical Practices