Vendors' 3 Most Common ROI Mistakes - Part 1
For more than 19 years, part of my job as Executive Vice President at Georgia Hospital Association was serving as gatekeeper for vendors seeking the association’s endorsement for promotional purposes. Believe me, I have heard just about every vendor approach imaginable, and I would say the biggest mistake I consistently saw was vendors presenting questionable ROI numbers. I call those “ROI numbers only your mother would believe.”
Let me present the three most common ROI fallacies. A couple of years ago, I met with a vendor who asserted that his product could greatly enhance throughput from increased efficiency. The product was fairly expensive, but he promised a five-month ROI. “You’re on,” I said. (I’m changing the facts of his product, but let me walk through his logic.)
“Our product can save a physical therapist five minutes per procedure, and the average PT sees 15 patients a day. So that saves 75 minutes per eight-hour shift.” He did the math assuming fulltime PT’s salary and benefits at $90,000 to get to his five-month breakeven.
What’s wrong with this picture? His math works but his logic doesn’t. Assuming his product did truly save five minutes per procedure, could the hospital really capture those savings? In other words, he was asserting a reduced workload – and by implication reduced costs – of 75 minutes per day. He then declared you could apply the savings to pay for his product. But since the PT isn’t going home after 6 hours and 45 minutes, he is still on the clock and getting paid. You can’t write a check from the reduced minutes..
After I explained to my vendor friend that capturing savings can be tough, he said, “Well, maybe, but the therapist can do other things that are really important that he hasn’t had time to do.” True, formerly undone tasks may get done, but he is still getting paid, so there is no salary reduction.
I should point out that this logic could work in an area with many employees performing the same job function which dominates most of their days. In that case, you could potentially aggregate the saved minutes. For example, if you have six FTEs in the same job function and you can eliminate 75 minutes per day each, that translates to 450 minutes or 7.5 hours per day. Now you’re talking.
This only works, though, if demand is pretty steady throughout the day. Departments like outpatient Physical Therapy where procedures are somewhat elective may face uneven demand through the day as patients choose visits based on their pre-work or lunchtime schedules.
Also, keep in mind the nature of the job function. A technology that reduces minutes for a billing clerk is likely to be more promising than one that saves time for nurses. Billing staff have one primary task, and larger hospitals typically have enough billing clerks that a streamlined process could potentially eliminate part of a position. On the other hand, nurses conduct many different functions during their shifts, so it is unlikely they do the same activity enough to aggregate enough “saved” minutes to cut staffing.
So Fallacy #1 is claiming that the few minutes saved per procedure can pay for the product.
What’s Required to Avoid Fallacy #1
· A technology that introduces efficiency for positions with high volume of a single activity and fairly steady demand throughout the work shift
· Enough employees in the affected job category to “gather” the savings to the point where headcount can be reduced