It’s important to master all three cost drivers.
Value analysis is an interconnected process centering on time, cost, and quality. If you aren’t focusing on all three of these elements with your value analysis program, you aren’t maximizing your outcomes. In this article, we will explore all three elements in detail and why they are mission critical to the success of your value analysis program.
It always amazes us how long it takes for value analysis projects to be completed. It isn’t unusual to see a VA project take a year or more to be finished. Well, this is an impediment to drive costs out of your healthcare organization in a timely manner. For you see, your hospital, system or IDN needs all the savings it can muster now that the effects of the Affordable Care Act are being felt on your healthcare organization’s bottom line.
This is why you must set deadlines for all of your value analysis projects and must not treat each and every value analysis project the same way. We set a project deadline with the client teams we facilitate for 90 days on most projects. We also encourage our clients to follow these rules to speed up their projects:
- Projects that have a value of less than $10,000 in savings should be fast-tracked with a 30-day deadline to speed up your value analysis process.
- Projects that only involve one or two departments should be fast-tracked for quicker results.
- Projects that have a high ROI need to be expedited quickly, if possible, to obtain a more rapid impact on your healthcare organization’s bottom line.
- Projects that can be broken down into pieces need to be given priority over getting the total project completed at one time.
My point here is that value analysis isn’t just about savings, it’s also about time! If it takes your value analysis project managers six, eight, or even 12 months to bring about savings on each and every one of your value analysis projects, this is too slow to meet the demands of your hospital, system, or IDN to generate savings now.
What this means is that we are asking you to put on your thinking cap to find additional ways to speed up your value analysis process, since savings tomorrow might not be enough to keep your healthcare organization afloat in these turbulent times. We know this is possible, since we see these tactics being employed every day with clients we are working with to up their value analysis game.
When we use the term cost, most think of price, fees, and charges, when we should be thinking about lifecycle cost for the products, services, and technologies we are buying. We have all experienced buying a copier for $99.00 only to find that the ink cartridges are costing us twice as much as the copier itself after just a few months. This also happens when we buy almost anything for our healthcare organizations. That’s why we all need to employ the lifecycle cost formula when we buy anything or we will continue to use the acquisition price of the commodities we are buying and think we know the true cost of the items.
The formula for lifecycle cost is, “The sum of the purchase price plus the subsequent costs of ownership over the life of the product, service, or technology” or LCC=C+M+E+R-S (Exhibit “A”).