Reducing Operational Costs Focus on Labor Expenses Burn Care Unit Essay

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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.

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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….....

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References

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

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