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?
RS: You do need a good budgeting system. We use a budgeting tool called EPSI. We use that product because it’s an integrated budgeting tool. You’ve always got to be able to see it all on line, with different ways of looking at it and comparing and understanding what’s in the budget. If you’re still doing your budget on an Excel spreadsheet independent from anybody else’s and at the end it get’s loaded into the financial system, that’s going to become a problem as you grow.
DL: When did you begin using it?
RS: It went in three years ago, and before that we had some in-house built spreadsheets that were integrated. So the key is to have budget integration with all the IT areas and the rest of the organization. You always need to know where you are relative to others. If you’re charging directly to other facilities, you always need what that dollar amount is because that’s a line item on their budget. So that tool helps when you’re looking at complex, multi-facility systems.
Another tip is you need to be ready to give to your finance people the expected variance — what are the significant extraordinary items that are going to drive up your budget. (It’s critical to) get those to your financial folks before they start making their projections, because once they make that projection typically you’re trying to explain why you’re missing that projection. So be sure they have your information, and enough of it that they understand and that everybody agrees, ‘yes that is an extraordinary exception.’ Let’s get that in the projection so we don’t spend a lot of time trying to understand why you’re so far above that projection.
DL: I guess you don’t do that right at budget time.
RS: That’s continuous. Because as a CIO, you get branded if you don’t give them information. They’re going to look at you and say, ‘what are you doing, why do your costs keep going up,’ without a governance process and without constantly being out there and talking about it. Because everybody’s going to forget about that at budgeting time. It’s a continuous tracking cycle that when you get close, like a month before they release the projections, (be sure to) get that information in there, get approved, sanctioned and blessed, and they will appropriately inflate the projection.
DL: So do you have any dedicated staffing to help you do this?
RS: I have a financial liaison who works for our vice president of financial planning, and that’s another best practice. Your management team needs to be engaged with a financial person through the year, someone who watches your dollars, helps you basically build a relationship into the financial planning folks. It’s a full report to finance, but he’s our guy.
DL: Does it matter who he or she reports to, who pays their salary?
RS: It matters who he or she reports to. When this person reports under finance, you have more credibility when this individual is promoting on your behalf. When they work in IS., they basically become another mouthpiece for the IT management and there’s nobody from finance really engaged in making sure that information is accurate. When you have him at your beck and call and part of the financial team, then you’re going to have support. And the key is that it has to be ongoing participation. They can’t just show up at budget time and say, ‘I’m going to be your financial liaison.’ Every month, all year, you’ve got to be talking with these guys. Our guy knows all the extraordinary items that have been entered. He said just this past week, ‘I realize we didn’t get all your extraordinary items in that should have been in the projection.’ So I have to have a guy like that in their camp promoting what I’m doing.
The same way, if you have IT people who reporting to IT but live in the areas they support, it works a whole lot better. I believe in shifting that accountability. It’s like auditors. They’re your friends — you should always open your door to auditors and let them live in your house; IT will be better off if you have someone who is there to watch what you do and understand it. If you’ve a good relationship with them, that makes all the difference. You want a finding to be an opportunity; you don’t want a finding to be a problem.
DL: Thanks so much, Rick. In closing, is there any number one takeaway?
RS: Don’t think that budgeting is something you do once a year. If you’re on this throughout the year and you’re not monitoring and explaining and planning expenses with your liaison and the other executives through a governance or one-on-one relationship, if you do budgeting once a year, you’re going to be in trouble. As your organization gets bigger, you can’t lay that many surprises on the team all at once.