Reducing Operational Costs Focus on Labor Expenses Burn Care Unit

Burn-Care Unit: Reducing Operational Costs- Focus on Labor Expenses

1.0. Executive Summary

To remain relevant in the long-term, the Burn-Care Unit ought to adopt either of these two strategies, or combine both in a hybrid mix: reduce costs or boost the current level of revenues while keeping the current cost levels constant. The most viable strategy for an organization of this nature would be to rein in costs via the adoption of an effective cost minimization strategy or approach. It is important to note, from the onset, that being a reputable burn-care facility at the national level, there is need for the Burn-Care Unit to maintain the integrity of its processes as well as its operational efficiency, even as it seeks to minimize costs. For this reason, the relevance of embracing the most viable course of action towards the minimization of operational costs cannot be overstated. Reducing operational expenses, and most specifically labor costs as is desired in this case, is likely to bring forth a number of benefits. In addition to permitting a more strategic resource allocation approach, reducing operational costs could further help accelerate processes and eliminate waste. As a matter of fact, operational cost minimization remains one of the most effective ways to further enhance margins.

Just as is the case in other organizational settings, healthcare institutions need to rein in their operating expenses so as to remain relevant. It is important to note that in healthcare services provision, labor remains to be one of the most prominent inputs. In that regard, therefore, to enhance profitability, there is need to control labor costs. The mandate of this report is to recommend strategies and approaches necessary to bring down the costs relating to the Burn-Care unit’s main operating activities by $500,000. This is especially important at this point in time given the need to ensure that the unit remains economically viable even under the managed care contracts. In seeking to bring down the unit’s operating expenses, it is important to note that deliberate measures have been adopted to ensure that the quality of services and care advanced to patients is not adversely affected. Effort has also been made to avert employee dissatisfaction. In reducing the operating expenses, two approaches were explored. These include the adoption of a new nurse scheduling system and the adoption of additional strategies to bring down overtime hours. It should be noted that a high turnover rate could be a huge recurring expense. It is for this reason that specific measures ought to be taken so as to enhance retention. Implementing a nurse self-scheduling system would be a welcome move in this direction. Absenteeism associated costs are a key expense that would be sufficiently addressed via the adoption of such a system. To determine and highlight the prevailing labor costs vis-à-vis the desired labor cost levels, the report suggests a method of estimating the annual cost of running the Burn-Care Unit. The method takes into consideration all the labor-associated expenditures, notes the need for a standard rate, and suggests other indicators that could be utilized in the analysis of labor costs.

The nurse scheduling system suggested is not only robust, but also flexible and user friendly. Its implementation is meant to ensure that there is optimal utilization of one of the most important organizational resources, i.e. personnel. A system of this nature, it should be noted, is of great relevance as the unit seeks to ensure that service delivery is enhanced, nurses are satisfied and motivated, and operational costs are brought down. The two approaches suggested in this case are interlinked and, in essence, complement each other. Being one of the many units of the hospital, the Burn-Care Unit could be used as the test ground for the operational cost minimization strategies highlighted herein for later organization-wide implementation.

2.0. A Methodology for Estimating the Annual Labor Cost of Operating the Burn-Care Unit

In seeking to estimate the annual labor costs of operating the unit, all expenditures (as opposed to wages only) will be included. This is to say that such items as social security paid for by the hospital, as well as pension plan and health insurance contributions will be included. It is also important to note that other related allowances including, but not limited to, the recruitment of staff and training efforts (if any) will be taken into consideration in the estimation of annual labor cost of operating the unit. While this report uses “wages” in reference to what health workers in the unit receive as pay for hours worked, salaries (if and where used) will be in reference to the compensation offered to managerial level employees whose pay is not dependent on the number of hours worked.

It should be noted that given that the mandate in this case is to estimate the labor costs of operating the Burn-Care Unit per annum, the said costs will be in reference to change in cash-flows in the present year. To begin with, the unit’s compensation expense is computed. The budgeted hours of the hourly workforce will be used in the annual cost estimation. In this case, plan targets will be utilized when it comes to the yearly payout estimates for incentives. Adding up all these items will give us the yearly compensation cost estimate. As I have pointed out above, all expenses (as opposed to wages only) ought to be taken into consideration. Although basic compensation will take up the lion’s share of the total labor cost, benefits are also likely to be sizeable. These could be recognized as a percentage of wages. The actual expenditures will be reviewed to ensure that all expenses related to labor are captured, including costs associated with sourcing from agencies.

Also, the relevance of establishing a standard rate cannot be overstated. This would, in essence, represent the direct labor cost estimate in normal circumstances. Given that standardized models, such as the one suggested herein, are not likely match actual outcomes, this undertaking would only be of help in highlighting deviations from the results expected. In that regard, therefore, this approach would be interested in one kind of variances, i.e. rate variance – which is essentially representative of expected cost levels being above the actual labor costs.

A number of indicators could also come in handy in labor costs analysis. These include, but they are not limited to, salary per full-time equivalents. This could be obtained by dividing the wage and salary expense with the total full-time equivalents. This cost indicator would come in handy in seeking to assess the average cost of labor per nurse.

3.0. Strategies for Reducing Labor Expenses

The relevance of controlling labor costs cannot be overstated. This is more so the case when it comes to the further enhancement of the bottom line of an entity or unit. It is for this reason that this report highlights a number of approaches that will be utilized in seeking to rein in personnel costs. Of importance in this case is that the unit will be seeking to cut labor costs without firing workers. Towards this end, two basic strategies have been adopted. These are:

· Redesigning the nurse scheduling system
· Reduced overtime

3.1. Redesigning Nurse Scheduling Systems

Currently, the unit utilizes the Baylor Plan. An overview of this particular plan has been highlighted below:
Overview of the Baylor Plan for Scheduling Nurses
Weekends: Working hours: 24 hours (12-hour shifts)
Total hours paid for: 36 hours (overtime policy = 1.5X)
Weekdays: Working hours: 60 hours (12 hour shifts for five days)
Total hours paid for: 70 hours (overtime policy = 1.5X)
Groups of nurses: 3
Group 1: first week
Group 2: weekends
Group 3: second week
Staffing System: Medicus

In seeking to cut operational costs, there is need to ensure optimal utilization of not only personnel, but also facility resources. Towards this end, the relevance of resource scheduling cannot be overstated. Resources are, in this context, used in reference to nurses - who happen to be a hospital’s most important resource. As a matter of fact, a significant portion of a unit’s costs comprise of nursing costs, of which the deployment of nurses is a key constituent. In that regard, therefore, the scheduling system implemented ought to be considered part and parcel of cost containment efforts. The current nurse scheduling system, i.e. a Baylor Plan, is cyclical. While it has its own unique merits, it has limited application. It is important to note that in essence, the Baylor Plan offers a pattern that is uniform, predictable, and can be replicated over an entire scheduling period. Effectively, this helps reduce scheduling time. It should, however, be noted that this approach to scheduling is largely rigid and fails to appreciate the dynamic nature of human capital. The inflexible nature of the Baylor Plan effectively means that the unit is likely to incur significant replacement costs, overtime costs, etc. An alternative scheduling model would, therefore, be desirable. The said system ought to be semi-automatic or fully automated. Manual scheduling, as many nurse administrators have pointed out in the past, is often time-consuming. In addition to being an inefficient undertaking, it makes poor economic sense for the head nurse to allocate significant time to scheduling. It is for this reason that a semi-automatic scheduling approach has been adopted. Some of the key benefits unique to a semi-automatic scheduling methodology include, but they are not limited to, enhanced information flow, flexibility in staff management, reduced paperwork, etc.

In essence, nurse scheduling has always been a challenge as far as service vis-à-vis costs balancing is concerned. This is more so the case given the need to keep the rising healthcare costs in check, while at the same time dealing with trained staff shortage. A review of the unit’s nurse scheduling system indicates that some changes ought to be made so as to further enhance and optimize services while at the same time reducing operational costs. Towards this end, a new scheduling system has been recommended – self scheduling. In basic terms, self-scheduling is a methodology that that will be seeking to empower nurses such that they will be responsible for the creation of the schedule of the unit. Here, nurses will have the available shifts posted for them to assess and make selections or seek to swap. As opposed to the current system whereby we have a scheduler responsible for assigning nurses shifts, the new scheduling system only permits the scheduler to post available shifts, approve schedule once nurses are done with the swap and/or self-select exercise, and ensure that no gaps exist.

To ensure that the system runs effectively, a number of rules will be implemented. These are:

· Self-scheduling should begin two weeks to the schedule posting
· There will be a minimum number of working hours nurses must work within the specified period of scheduling.
· Employees shall abide by all the regulations of the unit, as well as the applicable labor conventions while scheduling themselves.

If well implemented, the unit will stand to derive a number of benefits from the new nurse scheduling approach. One of these is enhanced worker satisfaction, and hence better performance of roles. It is important to note that the self-scheduling system essentially gives nurses some level of control over work processes. Thanks to its transparency as well as accessibility, nurses are likely to view the new scheduling system as being fair and mindful of their other day-to-day obligations. It is for this reason that their satisfaction levels would be further enhanced, hence promoting better service delivery. Given that nurses in this case are unlikely to actively seek greener pastures due to the level and degree of flexibility tendered, this could also be viewed as a step in the right direction as far as employee retention is concerned. Next, the unit will be able to bring down absenteeism rates. This is more so the case given that this being their creation, nurses will be more inclined to demonstrate greater levels of commitment. It is important to note that absenteeism does have cost implications – especially with regard to replacement wages and overtime costs. In that regard, therefore, reducing absenteeism via the implementation of the proposed nurse scheduling system is a step in the right direction when it comes to reining in operational costs.

Apart from being relevant in reducing voluntary absenteeism, self-scheduling could also reduce the impact of involuntary absenteeism as a consequence of illnesses and other unforeseen circumstances. This is more so the case given that measures in this case are implemented to instantly update availabilities in the system, thus helping in the avoidance of replacement costs. Self-scheduling also helps free up time for the person(s) responsible for the current nurse scheduling system, hence aiding in improved service delivery and further helping in reducing staffing costs. Towards this end, it should be noted that shift trading between nurses is in essence an intense undertaking that leads to significant resource wastage as nurses seek persons available to accept the proposed arrangement, and as those responsible for scheduling are forced to make updates and validate changes. A self-scheduling system is, therefore, of great relevance in the further enhancement of efficiency.

3.1.0. Cost savings

Nurse self-scheduling will help in the reduction of the unit’s labor costs on two key fronts. These are:
· Reduced personnel turnover costs
· Reduced absenteeism costs

3.1.2. Reduced Personnel Turnover Costs

Self-scheduling, as it has been pointed out elsewhere in this text, further enhances the satisfaction level of employees due to the level of flexibility offered. Towards this end, employee retention is improved, meaning that the unit would in this case be able to significantly cut personnel turnover costs. This is particularly important taking into consideration the prevailing staff shortages. It is important to note that when a staff member, i.e. a registered nurse, leaves to seek greener pastures, the unit would have to find a replacement for the said nurse. Meanwhile, the unit would have to fill her shift with expensive overtime hours, further costing the unit as far as overtime hours are concerned. Scouting for an appropriate replacement is also likely to be costly as the hospital may have to engage the services of hiring and related agencies. The estimated savings to be made in reining in high turnover rates are highlighted below:
· Training costs
· Hiring costs
· Overtime costs attributable to exit of employee

It should also be noted that there are some other hidden costs that accompany a high employee turnover rate that cannot necessarily be estimated beforehand. When an employee is unsatisfied, and plans to leave, such a person is likely to be less enthusiastic about their job. For this reason, he or she is likely to compromise safety and quality – effectively exposing the unit to malpractice claims. Costs arising on this front would be difficult to quantify, and hence cost savings will not be estimated at this point. Other associated cost savings that the unit will be saving include costs associated with peak productivity ramp time, onboarding costs, etc.

3.1.3. Absenteeism Costs

Generally, absenteeism could be categorized into two, i.e. scheduled and unscheduled absenteeism – with the latter being the failure of employees to turn up for work as a consequence of unforeseen circumstances, and the former being planned absences to meet personal or vacation needs. In this case, the nurse self-scheduling system will help in reducing the costs associated with both kinds of absenteeism. In essence, the costs associated with absenteeism could either be direct or indirect. While indirect costs such as loss of productivity would be difficult to estimate in this case, direct costs include overtime pay for nurses and replacement costs and can easily be estimated. Cost savings on this front would be inclusive of:
· Overtime costs
· Replacement wages

3.2. Reduced overtime

Paying premium rates for additional hours definitely impacts the bottom line. It is clear from the presented data that overtime accounts for a significant percentage of the total percentage of hours worked. In essence, while the unit cannot do away with overtime due to its relevance in open shifts filling, there is need to better overtime management.
To begin with, the cyclical shift schedule already in place, i.e. the Baylor Plan, does not help matters far as overtime management is concerned. This is more so the case given that it fails to meet operational demand in an effective manner. Towards this end, it is largely suboptimal and in addition to hiking overtime rates, it could have a negative impact on not only morale, but also productivity. It is for this reason that a nurse scheduling system (i.e. the self-scheduling system) that would march the work demand with the level of staffing was adopted. In a dynamic work setting such a hospital, work demand fluctuations are a norm, rather than a rarity. This is also the case in the Burn-Care Unit where the said fluctuations in work demand would call for a proportional staffing answer. The self-scheduling system is a methodology or approach to the management of the nursing workforce that is largely flexible and adaptable, and that would come in handy in facilitating the reaping of maximum operational benefits.

In seeking to rein in overtime costs, absenteeism also ought to be monitored. Although this has already been highlighted elsewhere in this report, it deserves a mention in this section due to the impact high rates of absenteeism have on overtime employee levels in instances where available nurses are called upon to cover available shifts. Monitoring absenteeism would include finding out the actual trigger of unscheduled absenteeism. One of the most prominent unscheduled absenteeism trigger that has variously been highlighted is dissatisfaction and low morale. With the self-scheduling system in place, unscheduled absenteeism could be reduced, thereby bringing down overtime levels.
Some of the strategies that could be adopted in bringing down overtime levels, independent of the implemented self-scheduling system, include:

· Cross-training
· Hiring of additional staff

3.2.1. Cross-Training

Essentially, significant skewing in overtime distribution could be observed in instances whereby only a few members of staff are competent in in the completion of certain tasks. In that regard, therefore, equipping a greater number of employees with the various skills and capabilities that are in low supply could come in handy on this front and ensure that overtime costs are distributed in a more evenly format.

3.2.2. Hiring of Additional Staff

Although this could be overlooked, its impact on bringing down overtime hours, and thus the minimization of labor costs cannot be overstated. One of the factors associated with overtime is poor nurse – workload imbalance. This should be looked into in the case of the Burn-Care Unit. Understaffing in this case would mean increased levels of overtime and thus an increase in associated costs.

It is important to note that overtime costs extend beyond monetary expenses. In essence, the mandate of this undertaking remains the reduction of operational costs without necessarily compromising on the quality of care advanced to patients. In that regard, therefore, reducing overtime will be a step in the right direction especially given that when nurses work overtime on a consistent basis, their free time is effectively reduced. This means that they have less time available to rejuvenate before the next shift. A number of studies have clearly demonstrated that reduced mortality rates are associated with sufficient nurse resting/relaxation times away from their work stations.

4.0. Implementation

4.1. System Design

Implementation will in this case commence with system design. Towards this end, the following factors will be taken into consideration at this stage.
· The need to embrace the individual preferences of nurses
· The need to ensure or enhance equality in scheduling
· The need to ensure a proportionate mix of both skilled and unskilled workforce during all working hours.
· Point-and-click functionality that is user friendly
· Semi-automatic application of nurse schedule preferences
· An inbuilt staffing target monitoring tool
· Automated notification capabilities. Mobile device capabilities will be embraced so as to ensure that open shifts and related adjustments are made in good time via the automated text-message notification of all participants.

4.1.0. Design Options

Option 1: A blank template schedule is created by the scheduler. Nurses then key in the relevant details and final adjustments are made by the scheduler before posting.
Option 2: Nurses form or establish a committee on scheduling. A blank template schedule is then created by the committee, after which those working in the Burn-Care Unit proceed to self-schedule. Adjustments are then made by the unit scheduling committee, which then avails the final schedule to the scheduling manager for further adjustments (if need be). On approval by the scheduling manager, the schedule is then posted.
Option 3: There is also the option of a fully automated self-scheduling system that does not routinely require the intervention of a scheduling manager or committee. In this case, the configuring of the various parameters relating to self-scheduling takes place at the implementation stage. The system then, in this case, runs compliance checks on the entries and with minimal human intervention, posts the schedule.

4.2. User Consultations

There is need to involve the end users of the self-scheduling system from the onset. Like is the case in hospital-wide policy development initiatives, seeking the input of nurses in the scheduling system implementation process could bring fourth better outcomes. It important to note that in this case, roping in nurses accords nurse administrators a unique opportunity to not only source for input from the end users, but also to explain to nurses the need for change. Change is not always embraced, even when it is desirable. For this reason, there is need to ensure minimal resistance to change. As a matter of fact, nurses who are well versed on the operation and application of the self-scheduling system, and who have had their concerns taken into consideration, are likely to be more enthusiastic about the same, effectively smoothening the implementation and adoption process.

4.3. Planning and Development

The planning and development of the self-scheduling system ought to take into consideration the need for a feedback mechanism. This would come in handy in continuous improvement efforts and in the review as well as evaluation of the approach so as to enhance optimal performance. Some of the information that could be collected towards this end includes nurse satisfaction levels as well as the system’s quantitative outcomes.

Efforts will be made to ensure or guarantee that access to the self-scheduling system is not only fair but also equitable. The system will be configured to ensure that there are clear parameters on self-scheduling and the entire exercise takes place within well-defined limits. In this case, two models of self-scheduling have been integrated. These models have been designed in a way that advances the fairness, integrity, as well as equity of the system. The said models are;
· The seniority model
· The first-come, first-served model

5.0. Conclusion

The self-scheduling system to be adopted in this case, as it has been clearly pointed out in this report, will have significant cost implications as far as bringing down labor costs is concerned. In addition to these cost benefits, self-scheduling also further enhances the quality of services delivered. It is important to note that when nurses have greater control over their work schedules, they tend to be more productive due to the life/work balance maintained. Filling shifts also becomes easier, effectively bringing down replacement and agency costs. The various approaches suggested in seeking to bring down labor costs are interconnected in one way or another and could play complimentary roles. In that regard, the implementation of a self-scheduling system could be used to support reduced overtime via the integration of parameters that seek to ensure that there is a limit to overtime shift self-scheduling per nurse.




References
The Evans School of Public Affairs (2000). Burn-Care Unit. Seattle, WA: The Electronic Hallway.