Transition Budget Blog Series (4 Parts)
I. Transition Budget Overview and Approach (October 2013)
II. Building the Transition Budget (November 2013)
III. Implementing and Managing the Transition Budget (December 2013)
IV. Transition Budget Best Practices and Lessons Learned (January 2014)
I. Transition Budget Overview and Approach
The development of a thorough and comprehensive transition budget is a critical component of a successful healthcare facility activation plan. Covering the financial gap between the project budget and a hospital’s operating budget, the transition budget should be a temporary cost center established to support the one-time activities related to the activation of a new facility. These activities can typically be classified in one of the 5 budget categories described in the table below. Although it is rarely supported by additional funding sources, a transition budget is created to provide relief to an organization’s operating budgets. Additionally, since many transition-related costs can be anticipated, this budget prevents unnecessary variances and negative impacts to a department’s productivity figures. Lastly, a well-defined and isolated transition budget allows for the potential capitalization of costs that would otherwise be difficult to find favorable financial treatment for. In order to realize the above-mentioned benefits, a clear and deliberate approach is required.
|Pre- Building Turnover||Hospital resources required to support activities that occur before facility construction is substantially complete.|
|Fit-Up Period||Activities required to make the completed facility patient-ready. Occurs after the facility is turned over from the contractor, but prior to the start of Operations in the new facility.|
|Training||Costs related to the training and orientation of non-exempt staff to the new facility, equipment and systems as well as changes to general operations and department specific workflow. Includes additional training for “staff experts”|
|Move Period||Relocation costs, including internal and external resources, required to support new facility licensing and activation. Includes mock and actual department and/or patient move activities.|
|Decommissioning||Resources required to consolidate equipment and materials, reclaim supplies and manage vacated spaces. This includes preparing the existing facility for future use or demolition activities.|
There are generally three ways to go about building a transition budget. The first involves backing into a preliminary estimate carried over from the design phase or an organization’s multi-year financial plan. While this budget approach requires the least amount of time and resources to develop, it usually necessitates an increased contingency or significant concession on the part of the organization. These estimates are usually based on rule-of-thumb percentages and underestimate resources due to unmade equipment decisions and unforeseen workflow impacts, in addition to the other unknowns of long construction timelines.
The second and more common approach is for hospital executive teams to define a budget that is realistic and affordable. Portions of the total budget allocation can then be assigned to each department based on a basis of anticipated need. Department leaders are instructed to plan their resource requirements to work within their budget allocation. This method often requires departments to absorb certain activities into their operating budget to stay within the parameters of their transition budget. This approach can be completed relatively quickly and requires a lesser investment to develop. While the average transition budget bottom line is lower, this approach usually exhausts most of the contingency and still results in some variances to department operating budgets.
The third and most popular manner of creating a transition budget involves the direct engagement of department leadership through budget development interviews and the collection of department resource requests. These requests must be reviewed, clarified and ultimately approved by hospital management. Due to the multiple review cycles, this approach is the most resource intensive although more accurate than the other methods, especially with the support of transition planning professionals. The reality is that most department managers are not in the habit of developing temporary, zero-based budgets and measures to monitor and control the utilization of each department’s budget allocation must still be taken.
These various approaches exist because no two organizations are the same and the unique time, financial and human resource constraints often determine which path a hospital should pursue. Regardless of the approach taken, an organization must manage its resources well during a transition. The evaluation of its support options, such as utilizing in-house staff or contracting 3rd party services, can have a significant impact on how close an organization comes to meeting their transition budget.
Which option should be chosen? In next month’s installment, we will answer this and other questions as we explore the development of a transition budget.
-Jeff Agner, MPHc, Senior Project Manager and Director of Transition Planning, HTS, Inc., JAgner@consulthts.com