Resource Productivity – Overhead Analysis and Labor Productivity

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To fully assess the profitability of a department, management needs to take into account the overhead costs of operating the department. A comprehensive identification of overhead and indirect cost drivers – which can sometimes exceed 35% of its total expenses – is key to supporting management’s efforts to minimize waste or non-value adding activities.

Labor typically represents 60% or more of the cost in a healthcare environment. Creating a complete picture of the local baseline situation can be challenging, due to factors such as salaries, wages and benefits, overtime, extra shift and call-in premiums, agency costs, and a wide variety of cost drivers.

How Thomas Group Can Help

At Thomas Group, we assist management in the identification of overhead or indirect cost drivers and provide a process view that minimizes waste or non-value-adding activities and drive more efficient management of resources. An overhead expense reduction review has several components, including:

  • Define common overhead components for the system
  • Research the cost of specific overhead expense
  • Confidential interviews with key personnel in overhead departments
  • Study the current policies and procedures that have been established to reduce expenses and then assess their effectiveness
  • Test expenses to determine their value and competitiveness, stratify vs. benchmarks (internal and national)
  • Review opportunities to reduce overhead expenses through consolidation or sharing of overhead services
  • Prepare assessment report with identified savings and recommendations for implementation

To help reduce costs, Thomas Group works with hospitals to analyze labor excesses or shortages quickly and cost effectively. Improving and codifying the underlying analytic and decision processes is critical to success in managing labor costs. Key processes to get a handle on labor expenses include:

  • Productivity reporting – Comparing the number of hours worked to work volume. We will identify lower-than-expected productivity and establish appropriate corrective actions.
  • Labor distribution reporting – Analyzing where the hours are worked for all types of labor (full-time, part-time, permanent, temporary, agency, and float-in). We will identify problem areas and recommend remedial action.
  • Management by exception – Through the use of dynamic dashboards, we will make key performance indicators visible, providing tools for timely resolution of labor performance issues and alignment of staffing levels to work volume.
  • Implement procedures – For routine staffing/ scheduling and contingency management.

We will work hand in hand with management to look at utilities, interest costs, depreciation, and insurance and compare them as a percent to total expense and percent of net revenue. We will review purchasing policies and inventory controls, review contracts and other agreements which affect purchasing decisions, and identify more productive sources or negotiate greater value from present suppliers. We can also compare healthcare systems with similar sized facilities.

We will study the current procedures that have been established to reduce expenses and then assess the effectiveness of these procedures and review opportunities to reduce overhead expenses through consolidation of overhead services, for example, by:

  • Leveraging resources
  • Optimizing operational performance
  • Improving patient satisfaction (experience)
  • Conducting a facilities and people analysis (layout of facility, ease of use, convenience, etc.)