Vendors' 3 Most Common ROI Mistakes - Part 2
Last time, I presented the first of three fallacies vendors often succumb to in their ROI projections to potential clients, namely the idea that saving time in a worker’s day results in cost savings to the hospital. The typical methodology they use is identifying a certain number of minutes per procedure the new approach will save, multiplying the time saved by the number of procedures per day that job function performs, and then multiplying the result by annual salary plus benefits. Viola! Savings.
Not so fast. As I pointed out, very rarely will a worker be sent home after seven hours and 45 minutes (instead of working a full eight-hour shift), thereby truly reducing costs. When I point this out, the vendor typically counters by stating there is value in freeing up someone’s time to perform other neglected tasks. True, but that doesn’t save a dime.
The example from last time concerned a vendor who had a product he claimed would save physical therapists’ time. He was a little rattled after I explained Fallacy #1, so his next line of reasoning was, “Well, even you don’t send the therapist home early, reducing the time per procedure ends up increasing the therapist’s capacity so he can see more patients and bring in new revenue.”
Nice thought – if the facility is literally turning patients away due to capacity constraints. That may hold true in for some clinical areas, but it’s certainly not universally true across all hospital services. Depending on the service line, some providers may be idle for parts of their days due to low patient volume. So increased efficiency doesn’t necessarily mean bringing in new patients, meaning incremental revenue will probably not materialize.
There is a further complication to the “increased throughput argument.” There may be other staff involved in a clinical or operational process who wouldn’t be directly affected by the positive effect of the new technology. A good example relates to Operating Room schedules. Even if a technology saves a few minutes per procedure for the surgeon, those saved minutes evaporate if housekeeping is understaffed and can’t turn the room can’t over quickly enough to slip in an additional procedure.
So increasing patient throughput is Fallacy #2.
What It Takes to Avoid Fallacy #2
· A revenue-producing service where the hospital is literally turning away patients due to capacity limitations
· No other volume-based bottlenecks in related service areas
So demonstrating credible and persuasive ROI numbers is harder than it seems.