sarah_3_09-17-2024_103005: Welcome to the Parity Pod. I’m Sarah Austin, the Director of Customer Success at Parity Healthcare Analytics. And today I’m joined by our founder and CEO, Heidi Morin, and our co founder and COO, Chuck Alsdorf. we’re going to talk about budgeting, and I hope to share some valuable insights from both the nurse leader and finance perspectives. So let’s get started. Heidi, maybe
to mind when you hear the word budget. Okay.
heidi-morin_3_09-17-2024_103006: heart palpitations, of course, as a former nurse
chuck_3_09-17-2024_102959: All right.
heidi-morin_3_09-17-2024_103006: anytime we talk about budgets, preparing for your next fiscal budget or, doing variance reporting each month with finance, there’s a lot of stress it relates to, getting the information that you need in order to have informed conversations with finance, right?
And when you’re a new leader, you don’t have that knowledge set or expertise because you haven’t gone through that process. So it’s even more [00:01:00] stress producing when you’re a new leader. But besides being stressful, I also think it’s a huge opportunity for nurse leaders to really take hold of the accounting units budgets that they’re responsible for.
It’s a time to really make sure that you’re setting yourself up for success for the rest of the year, making sure that The budget looks good that you’ll be approximately aligned with where you should be, where you think you’re going to be, , in collaboration with finance. I don’t, I know a lot of nurse leaders probably don’t have that same, feeling, that I do now with it relates to budgets. and they do still have a lot of stress. but I do think it’s an opportunity, to really partner with finance and to really help set up again, your unit for success.
sarah_3_09-17-2024_103005: So Chuck, from your point of view, what do you believe are the top challenges or misnomers when it comes to budgeting?
chuck_3_09-17-2024_102959: Yeah, I think that just the word inducing the stress, puts everybody on edge. [00:02:00] And it’s also very stressful for finance because finance is doing this for the whole hospital, the whole organization. So, in my last role, we had something like four or five hundred departments that we had to do budgets for.
So that’s a lot of work to do. And typically that means that there’s dozens and dozens per analyst. And then, obviously the director VP has to review all of that and make sure that everything is precise as possible. So it is pretty stressful. There’s typically a long lead time though.
And I think that’s , the one thing that I would say is, think about when the cycle is going to start as a nurse leader,
heidi-morin_3_09-17-2024_103006: hmm.
chuck_3_09-17-2024_102959: for that. Yeah set time with finance in advance, because I think people think, oh, we’ve only got these two weeks to do the budget. You can actually start those conversations earlier and really, and have them prepare a lot of information for you.
So that when it gets to the time where the system opens or the budget parties start or whatever it is. Then you, I used to have budget parties, [00:03:00] then you’re prepared and you have all the data that you need. So I think the first misnomer is really that it’s a time crunch. I think you’ve got plenty of time to do this.
I think the other challenge or hangups that a lot of people get into is. Around it being 100 percent right. And this is a budget. This is a forecast, right? This isn’t the absolute definitive truth. We know things are going to change. We know that we’re doing this in advance of the 1st month of the budget year.
And so. Do we want to get it as close as possible? Absolutely. Do we have to be a hundred percent right now? That’s why we have variance meetings and reporting And a lot of organizations have moved to a rolling forecast to kind adjust for that But if you’re in this kind of budget process and cycle annually, I think doing your best to prepare in advance and then Knowing that there’s going to be things that are missed or change And being comfortable with that and kind of letting that go a little bit, are two things that I would [00:04:00] suggest.
sarah_3_09-17-2024_103005: So how should nurse leaders prepare and approach budgeting season? And Heidi, why don’t we start with you
heidi-morin_3_09-17-2024_103006: yeah.
sarah_3_09-17-2024_103005: and what your thoughts are on that?
heidi-morin_3_09-17-2024_103006: Yes, I have a lot of thoughts. I’d love budget.
sarah_3_09-17-2024_103005: I bet you do.
heidi-morin_3_09-17-2024_103006: I’m probably one of those rare nurses that actually loves the budgeting process. I think first and foremost is to get into the ownership mindset when it comes to your budget and not a renter’s mindset. So a lot of, misnomer is that, your budget, gives it to don’t have any ownership have to take what they gi forward when really it’s process.
If you actively again, yourself in th mindset where you take ownership of what is being presented to you preparing, knowing what the metrics are, knowing how everything works, especially in a variable budget where you have varying volume and you have productivity that’s intertwined there and expenses and your revenue case mix indexes.
All those things. you have to know what those terms [00:05:00] mean. You need to know how things are calculated so you can really be proactive and aware and engaged in the process of reviewing what’s been given to you in finance when they first release it, what’s the key things to look for and making sure that everything’s working accordingly and really again, projecting what you think is going to happen. In the how I usually start to prepare for the budget review is first and foremost looking at your units of service. Because that’s going to drive almost everything in your budget. And what I mean by units of service is your volume. So, regardless of what kind of unit you are, it might be equivalent patient days at midnight, right?
Head count at midnight. It could be births if you’re an LDR. It could be observation or visits if you’re an ED or triage, surgeries, etc. Know what your metrics are. Look at what they’re projecting your volume to be. Is it aligned with what you think you’re doing, where you’re actually run rate is, or are you going to see a market increase, but [00:06:00] make sure that number looks appropriate.
Cause again, it drives a lot of the other metrics in your budget. The next thing that I look for is your productivity stat. looking at, okay, so here’s our volume, how many hours per patient, day or birth, et cetera. Am I being allocated for my budget? Is it aligned with what my run rate is? Is it aligned with what I’m budgeted?
Is, do I need to adjust it by any means? Cause I’m adding some roles to the organization, making sure that metric looks correct. And you can do some mathematics behind the scene to make sure it’s, it is aligned with what you’re functioning at or close to what you’re functioning at. And then the next thing that I usually look at is the total revenue and expense. know, looking at my case mix index, looking at my supply lines, making sure that everything is aligned with how we’ve been functioning or close to it. What do I think I need a budget for, for education, training, et cetera. And then looking at revenue and there’s different [00:07:00] mathematics that you can do to kind of gut check to make sure that it’s aligned with how you’ve been functioning and, or a rethink you’re going to land at in the future.
Okay. And then the last thing I usually look at from a budget perspective is the FTE allocation, which is again, driven by your productivity stat, driven by, you know, service has been calculated. It’s going to tell you how many fixed positions you or allocated, variable positions, et cetera. And you want to make sure, of course, it’s aligned with what you have, because if you don’t have those key four steps assessed in your variable budget, you’re going to be seeing a lot of variances each month to month. you’re gonna have to explain those variances to finance. So really diving deep and knowing what those metrics are, making sure that things are, you know, being built correctly and having that conversation with finance is key, uh, from my perspective.
sarah_3_09-17-2024_103005: Excellent. And Chuck, would you add anything to that?
chuck_3_09-17-2024_102959: I think I’d just maybe call out one thing that I think a lot of nurse leaders deal with is [00:08:00] that they, as much as they want to own the budget, sometimes they’re not part of the process. So if you’re in a very large organization, a lot of times, whether it’s a standalone facility or large health system, finance is preparing the budgets.
And kind of delivering them to you and maybe there’s a conversation, but it’s not, you’re not part of the holistic process within the budget. So what I would suggest there is knowing that, hey, I wasn’t really involved. Maybe I’m a new leader. I wasn’t really involved last year in the budget. What’s the deal again?
Reaching out financing. Hey, how does this work and trying to get some of that information so that you can help inform it? Right? So, to Heidi’s point, a lot of times, There will be mistakes in the hours per unit of service because they’re translating a lot of times from the productivity hours per unit of service, which is a bi weekly metric into a monthly metric.
So it’s not as simple as using the same metric or, the [00:09:00] fluctuations are, throughout the year, right? We’re looking, we’re talking about total right now.
heidi-morin_3_09-17-2024_103006: Mm
chuck_3_09-17-2024_102959: You, the spread, the monthly spread is something that you really need to be involved in because , your unit better than they do, you know, that, Hey, we, it looks like we’ve got a lot of like in labor and delivery, for example, there’s some leading indicators,
heidi-morin_3_09-17-2024_103006: hmm.
chuck_3_09-17-2024_102959: about what your birth volume could potentially be next year, , birthing classes.
Maybe there was a hurricane or a blizzard, right? Things like that. We use that information to inform our budget for the next year. And so those are the kinds of things that taking it down to the next level, really
heidi-morin_3_09-17-2024_103006: Mm hmm.
chuck_3_09-17-2024_102959: being thoughtful about the spread. Because to Heidi’s point, if you missed the spread a little bit, that’s fine.
But if you’re just taking it and dividing it by 12, or that’s what finance is doing, that’s going to be very problematic for you next year.
heidi-morin_3_09-17-2024_103006: Correct. Correct. I mean, I just for an example story, I remember a time when I was reviewing one of my [00:10:00] budgets and the volume was projected to increase, which is exactly what I was expecting to happen because our volume had been
chuck_3_09-17-2024_102959: Mm hmm. Mm hmm.
heidi-morin_3_09-17-2024_103006: year. But I noticed my FTE allocation went way down, which doesn’t make sense.
You think proportionally, if volume goes up, my FTE volume should also be increasing at least by this similar percentage. And when I drilled down to it, I saw that my productivity went down. And that’s why the FTE allocation went down. And there was just an error. It was just like an error in the spreadsheet that needed to be fixed.
If I didn’t catch that, right? In, in foreign finance, we need to adjust this because this is, it’s not accurate and it’s not going to be achievable. Then I would have been looking over every month for FTE. They’re like, why is your labor expense higher than budget? Like, and you have to explain it. And you’re like, oh, it was an error in the budget.
Like it, you have to catch those things as a leader. So you don’t have to like, yourself later by having these conversations with finance in the monthly variance meetings that you’re having.
chuck_3_09-17-2024_102959: Yeah. That was my favorite explanation is budget error.
sarah_3_09-17-2024_103005: You’re like,
chuck_3_09-17-2024_102959: we will just put that in [00:11:00] budget error,
heidi-morin_3_09-17-2024_103006: some.
chuck_3_09-17-2024_102959: finance error. Yeah. And there’s going to be, yeah, there are going to be errors, right? Whether it’s because the nurse leader didn’t catch her because finance did it or whatever it is. There’s it’s amazing how much still happening offline is advanced as the budgeting systems have gotten.
And they’re really sophisticated in terms of projecting revenue and reimbursement and all of that, there’s still a lot of offline work because. We’re taking a gap because it’s usually not a surplus. And we’re trying to figure out how to give people more money and FTEs every year. It’s a gap. And so we’re trying to figure out solutions and options for the management team to take, to get to the targeted margin and all of that.
And so I would a hundred percent say, please review everything. Please make sure everything looks good to you. Even if you aren’t preparing it, you’re still,
heidi-morin_3_09-17-2024_103006: Yeah,
chuck_3_09-17-2024_102959: The owner, you’re the CEO right? Of your unit. And so you need to make sure that if there is an issue, that you catch [00:12:00] it before it’s too late.
heidi-morin_3_09-17-2024_103006: I think there’s two other key things to look at. just jump in real quick, Sarah. To your budget that sometimes people miss, like I went to the four big things, right? Just to kind of globally look at your budget to figure out what’s going on, making sure everything’s aligned correctly and calculated correctly. But there’s also the nonproductive time. It’s very, very important to be looking at that, like how many FTEs you’re allocated for nonproductive time. Because sometimes that is also adjusted and sometimes it doesn’t even The allocation doesn’t even cover your vacations, right? And you need to make sure that you do have enough to cover for your staff’s vacations and what they earn, plus whatever else your team allocates in a nonproductive bucket. Could be education, could be orientation, could be mandatory training that your teams have to have,
chuck_3_09-17-2024_102959: Mm-Hmm.
heidi-morin_3_09-17-2024_103006: be. But you also want to make sure that information is also accurate. Otherwise, you’ll have a variance every month whenever you have a training or BLS that you have to do for your team. So you want to make sure that’s appropriately budgeted. And then the last thing, which Chuck alluded to earlier, is your spread, [00:13:00] your volume spread, your units of service spread, making sure it’s just not total volume divided by 12. And that’s what you’re going to have in We have seasonality. Almost every department has that. So making sure that the spread is also mimicking what you typically see for volumes each month to month, to make sure everything is in sync. So when your volume’s up, your expenses for labor are going to go up, your expenses for your supplies are going to go up, and when it goes down, course, it’s going to mimic that going down, and making sure that’s as accurately, as again, it can’t be perfect, reflecting what your reality is.
sarah_3_09-17-2024_103005: And I think that’s in line, Chuck, with what you said about, budget season is, does it need to actually be a season? Like, you can, because all the things you’re talking about require you to really To really prepare for that and know this information so that you’re not trying. I think people get into that mindset of like, oh, we have to do this in this certain amount of [00:14:00] time.
And so I
chuck_3_09-17-2024_102959: Mm-Hmm. . Mm-Hmm.
sarah_3_09-17-2024_103005: those things seem like a little more difficult to prepare for. But I think that’s good advice to not think about it just as, it’s a budget season and I only have this 1 month or whatever to, you know, prepare what I need, but to be looking at it over the long term so that you’re prepared for those conversations.
heidi-morin_3_09-17-2024_103006: I would say even just to make sure that you’re looking at every month, like in your actual
sarah_3_09-17-2024_103005: exactly.
heidi-morin_3_09-17-2024_103006: as a leader, you’re not, your preparation for the budget is being aware of your metrics. your monthly performance every month. When those reports come out, you look at them, you look at the reports, you scour to see what your expenses were, you scour to see what your revenue is, your FTE allocation, your salary expense. And you will be very, if you do that, you’ll be very prepared for budget season because you will know your information, your department’s information. And it is doable. Some people are like, I don’t have time for that. I was over nine clinical departments and I was able to keep up. Once you learn the key things to look for. it becomes very embedded into your process and very easy to [00:15:00] read the reports once you get familiar with them, but challenge yourself to, do that. So you can be very informed, , and having very active and proactive conversations with finance when it’s time to build your budget.
sarah_3_09-17-2024_103005: So, Chuck, since labor is the largest expense and the biggest line item for nursing budgets, what kinds of questions should nurse leaders be asking of finance?
chuck_3_09-17-2024_102959: Yeah. So I think we’ve talked about a few things in terms of just the high level metrics, but what a couple things that I would always ask is there a labor reduction target? Is it across the board?
sarah_3_09-17-2024_103005: Mhm.
chuck_3_09-17-2024_102959: it specific to my unit or units if I’m over several, what are we trying to achieve next year?
Right. And is that mean that my hours per unit of service needs to go down, or does that mean that I need to look at premium hours, right? So over time or call pay or, or whatever else it [00:16:00] is. So, I think that’s the, that’s one thing that you should really just out of the gate. Say, Hey, I know times are tough.
What’s the labor target this next year? Because I don’t want to cut things like. Education supplies, things like that, that make life even more challenging. Not that not having enough labor resources isn’t challenging, but then let’s not add to it by cutting some of these things that are really necessary.
And we want to continue to educate our team. So I think that’s something I would ask. The second thing I would ask is to see a detail of the actual labor expense by pay code or by pay category. So when we do labor budgets in. Hospitals specifically. We actually, Heidi called this out a little bit, right?
We look at by pay code. So regular time over time, call pay, , then there’s other premium things like shift differential, there’s orientation, there’s, meetings, so [00:17:00] there’s all these other things that we have, all these different pay codes, I mean, hundreds and hundreds of pay codes usually, but within your unit, you might have somewhere between like five and 10 that are the core.
And so you want to look at that and look at the mix. And you want finance to really help you prepare that you shouldn’t be having to prepare a lot of this stuff. You should say, Hey, finance partner, I would like to see year to date or rolling 12 months, my labor expenses by pay category or pay code.
Um, and then I’d also like to see it by job code, right? So RN1, CNA, et cetera. Um, and that information at that level might be, it might feel a little overwhelming. But at least now you have a reference and it’s not just hours per unit of service,
heidi-morin_3_09-17-2024_103006: hmm.
chuck_3_09-17-2024_102959: Because now you can start thinking about the mix of those hours between those different job codes or position types, right?
However you want to think about it. And then also those premium hours, right? Because we’re budgeting at that level. We’re not budgeting at a Average hourly [00:18:00] rate on total with all the premium. We’re budgeting at the pay go level, or at least the high pay category. So having that information because labor is the biggest expense, not just for you, for the organization.
Will really help and asking those things around labor targets. So you understand what the mindset is going in and then also having the data to then kind of call out like, Oh, this is kind of funny. Like maybe we don’t need this much overtime or what happened in March. And so you’re really. In the weeds on it so that when finance comes and says, Hey, I need to find two more percent.
You go, Hey, we’ve stripped everything out. We can, right. And this is what we’ve done. And then you can kind of have that conversation and justify your decisions because without that, it’s going to be really hard to stand on.
heidi-morin_3_09-17-2024_103006: Exactly. And I mean, I have a story that goes right with that because, when I saw the pay codes, spread, when we were looking at preparing for budgets, they had in tons of traveler hours and overtime hours for a particular month, because that’s what our run rate was. [00:19:00] it was because we had significant amount of LOAs for maternity leaves to cover. And so we had to use tons of, traveler and overtime pay to cover those LOAs. But I was not expecting that for the next year. So I can reduce the expense and OT line and traveler line because I, it’s, I didn’t anticipate another surge in LOAs for the next year, but if I didn’t catch that, know what I mean?
That it would, it just would have been, the budget would have been off, but it was a way to save money. If they say you need to reduce by 1%, I know where I can reduce because I know I’m not going to use those hours.
sarah_3_09-17-2024_103005: Heidi is, I know you’ve mentioned several things already, but is there anything else that you would recommend or suggest that nurse leaders do prior to We’re during the budget process that you haven’t covered already.
heidi-morin_3_09-17-2024_103006: I think just be humble and. Step outside your comfort zone and ask if you don’t know all the elements of your budget. Ask. Reach out to your finance partner. Reach [00:20:00] out to, mentors that you might have within your organization, more experienced leaders, especially if you’re a newer leader. Don’t keep it in and just think that you’ll figure it out.
Like ask. Educate and inform yourself so then you can be well prepared because again, you’re the expert of what’s happening on your unit or units, right? The activity and you want to make sure that your budget’s reflecting that activity, from, , detailed perspective, going on. And just again, do not be shy in and educate yourself. That would be my biggest takeaway. Don’t run away.
sarah_3_09-17-2024_103005: Great. Thank you. Okay. So last question, we know, there are unexpected future events that occur after we finalize the budget for the year. So how should nurse leaders handle these situations? And what approach have you taken in the past? Heidi, let’s start with you.
heidi-morin_3_09-17-2024_103006: Yeah, I mean, that happens all the time, right? So you have unexpected LOAs, you have attrition that you’re [00:21:00] expecting because people had to leave because their spouse has got a job somewhere else. And you have a lot more orientation time. Again, just be very aware and cognizant of what’s happening on your unit. And I’m a big believer in metric tracking. So if there’s things that I didn’t budget for that pop up throughout the year, I will track how, for example, orientation, I have more orientation than expected. Okay. I’m going to track each month how much orientation pay codes, like how many hours am I paying out each month and then explain during that monthly variance. Yes, I am off on my labor costs because I had 300 hours of orientation and was not expecting like you have to be able to bring that information to finance and finance is not going to push back on you. They just want answers and rationale of what’s happening so then they can explain it to who they need to talk to about the budget.
They’re not going to say, well, you need to reduce your orientation time. No, they just want to know what caused the variance. So then we can check that box and move on. And so just knowing how everything’s related because the labor hours going up is going to cause your labor [00:22:00] expense to go up, which is going to cause a variance. So just be anticipatory of those things that are happening on your unit and just be prepared to speak to it.
sarah_3_09-17-2024_103005: Excellent. Would you add anything to that, Chuck?
chuck_3_09-17-2024_102959: No, I think that’s a great. And it’s a good way to think about it. The other thing I would say, and I know I mentioned this a couple of times, but finances support organization. So we’re, we don’t run a finance business, right? We support clinical operations. So when you do have something that is coming up
maybe. No, you need to invest in some software or you need to, there’s a new supply that you need on the unit because of, , change in technology or whatever it is, usually it’s something like that. If it’s outside of labor, call finance, say, Hey, I’ve got this thing coming up. It’s 20 or 30, 000. Could you sift through all of my budget for , for the rest of the year, kind of where I’m at actual year to date and provide some [00:23:00] potential options for me to reduce spending in other areas to make this fit.
heidi-morin_3_09-17-2024_103006: Mm
chuck_3_09-17-2024_102959: That’s the conversation. That you should be having you shouldn’t be necessarily grinding through the supply expenses for the last six months, you should call finance and have them do that for you. Because first of all, that’s what they do. They will appreciate a little bit of a project and kind of an adventure to some extent.
And then being able to provide a solution for you. So that’s the other thing I would say is when you do have something like that, obviously keep track of all these things so that you can speak to it and it can inform your budget for the next year. Or if you’re doing a rolling forecast, it can, you can inform the next forecast, how finance support you and help you find a solution for that, because there’s.
Dollars there. This is all a four, like I said, an estimate of forecast. There are dollars that you’re not going to spend that you budgeted for. And so you can usually find it as long as it’s not a million bucks or something, right. But [00:24:00] if it is something that’s very expensive, figure out what the contingency process is, because.
chuck_3_09-17-2024_102959: All facilities or organizations should have some kind of contingency budget allocated for things that are unexpected too. So that’s something else again, call finance and say, Hey, I’ve got something. It’s pretty big. What’s the contingency process. Where’s the form who does this go to, et cetera. But definitely lean on them.
heidi-morin_3_09-17-2024_103006: I would agree because they usually get very excited when you ask for their help because I mean, just think about how stressed nurse leaders are to go into these financial meetings, right? We always feel like we’re on defense of trying to fight for our unit. do you think finance feels when they come to these meetings with all these different nurse leaders throughout the month because they can meet with everybody. I’m sure they’re equally stressed like, oh, here we go. It’s going to be another battle conversation. Yeah. We all want the same thing. It’s just like, just needed to kind of like back, zoom out and really just figure out how to work together collaboratively and support one another again, every time I’ve reached out, like you said, check for [00:25:00] advice on how I could fit something into my budget or to preemptively warn you, like, hey, I don’t expect it.
X, Y and Z. So you’re going to see this in our budget as a variance. They’ve always been ready to jump in and trust me, it’s much easier to have a peer support person in finance versus like an adversarial relationship. You’re more apt to when you’re building the budget for potentially your budget to be the more profitable, but like supported because you have someone who understands what you’re saying.
And because you’ve been working together for the full year of how you need to budget and how you need a variance. So. I couldn’t agree more. Let them be your partner in crime.
sarah_3_09-17-2024_103005: Perfect. Well, thank you both. And thank you all for listening or watching or both. And please share any topics you’d like to hear us cover. For more information about parody, check out parodypro. com, p a r i t y p r o. com or our LinkedIn, Facebook, or Instagram [00:26:00] pages. Thanks again.