In Part II of this interview, Healthcare Informatics editor Daphne Lawrence talks with Rick Schooler, vice president and CIO of the seven-hospital Orlando Health network in Florida, about some of the challenges and tricks of the trade in budgeting for IT.
DL: And the rest (of your budget?)
RS: The rest is going to be targeted towards what we call applications and technology, which are essentially new end user systems and/or new technologies that we may decide to implement. In some years that infrastructure is going to be half our spend. And as we buy more technology and systems, that infrastructure keeps growing because it takes more to keep what we have running. This year we’re going to be approaching 50 percent of the IT spend on end of life, growth, refresh, break fix, that kind of thing. That’s for networks, servers, desktops, end user devices, all of that. And then we have another budget that we use to fund major software upgrades for applications or new systems or new technologies that we want.
DL: Do you have to consider new areas like biomed as well? And what is the impact of that on the IT budget?
RS: With biomed, as a CIO, if it’s not reporting through you, you will support them because their world is becoming IT-based. So there’s no way around it. As more of these biomedical systems become network-based (and they’re all headed in that direction) anything that can be put on a network with a wireless card will be. And as they become more IT-based, you’re introducing increased costs. And typically, the organization has to agree to invest capital to bring on those additional features and functions. If you buy biomed equipment today, it is going to have an IT component, there’s no way around it. So it is beginning to drive up the IT cost. We spend about 15 to 20 percent of our total capital spend on IT as a percent of total capital. Anywhere between 10 and 20 percent, most hospitals will fall in that zone. If you’re spending more than that, you’ve got a major initiative going on. If you’re spending less than that, you’re holding off on large system growth. But the bigger the health system gets, the harder that is to do.
DL: Do you have to sell your budget?
RS: It’s not a problem, but it is a process that I go through. You’ll have success if you’ve garnered the support of other executives who value what IT is doing for the organization’s well-being and bottom line. I do go through a process of explaining. On the expense budget side, I spent the last two weeks understanding how are we varying from what our run rate has been. I say, ‘tell me what’s different next year than what we’ve already experienced this year.’ I’ve accumulated all the variance justification in the budget that they’re asking me to approve first. So I’ve gone through and done that. Now I’m going to start talking to the other executives about where the overruns are from what our financial people projected IT should be coming in. Because there’s a lot they didn’t know.
Some organizations say, I’m only going to spend x percent of our capital on IT and then every year IT is going to get a flat increase, and at the end of the year they are going to explain why they went over it, if they did. Some places still budget that way. That’s the old model; but you’d be surprised how many organizations do that. It should always be a zero-based budget.
DL: Did you have to change the culture to that way of thinking when you got to Orlando?
RS: As any leader, you’re always going find yourself discussing the budget with the other executives. So if that’s not happening, that’s a problem. You’ve got to be sure that you’ve got an opportunity to discuss with the other executives what’s going on. When I first got here seven years ago, we reached an agreement as an executive team that we were going to invest money in IT, so we know these budgets are going to go up. We’ve more than doubled our budgets in seven years — as a matter of fact, we’ve almost tripled. But that’s because the organization agreed each step along the way to make the investment and add the people.
It’s also keeping your eye on how much are we spending on IT as percent of our total spend. It never ends. You need a thermometer in your hand the whole time. People need to be aware of where things are standing as you move forward because you can have radical changes from one year to the next in the raw dollars, but when you keep that metric there — you say, ‘we’re still spending below 3 percent of total expense.’ I always use 3 percent because if we’re below, we need to make sure we’re doing the right thing and if we’re above, I need to understand why. It’s kind of an industry sweet spot for a progressive organization. If you’re spending more than that, just be sure you understand why. If you’re spending less, make sure you’re not sacrificing something you ought to be investing in.
DL: What are some common pitfalls or best practices for budgeting that you can share?