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Finance skills for the non-financial manager.

When I was a new medical technologist several years ago, if someone had told me I needed business skills to supervise a laboratory, I would have laughed. Yes, I wanted to be a supervisor-but for people, not numbers. I considered the business of the lab to be someone else's concern. In fact, I didn't think much about it at all.

Many years and projects later, I have come to understand that basic financial management skills are essential to the healthy operation of every laboratory. Demanding tasks now require supervisors to seek additional training, rather than shrink from these obstacles.

Administrators keep asking us for volume and mix projections, budget cuts, break-even analyses, payback calculations, and other financial reports. They expect us to make important laboratory decisions based on this information. Since not every supervisor can acquire an M.B.A., we must pick up the necessary skills in other ways.

Many hospital administrators stress that supervisors must learn and practice the human side of management. Yet they neglect to provide training in basic finance. In today's health care environment, these skills are greatly needed.

*Bridging the education gap. The vice president of administration at our 450-bed hospital was unhappy with the quality of the capital request, labor, and equipment justifications he had been receiving from his division supervisors. He found they were having a hard time calculating break-even analyses and explaining why negative variances were occurring when actual expenditures exceeded budget.

We supervisors were unhappy about having to rework these requests several times and wade through the mass of computerized financial reports dumped in our mailboxes twice monthly.

One three-page memo on revenue-adjusted budgets was as clear to us as a Cyrillic dictionary . It was obvious there was a lack of understanding on both sides, and something needed to be done.

After I had discussed this problem at a lab supervisors' meeting, our administrative director contacted the hospital's education department and asked what options were available. Next, I found myself organizing a new pilot project: constructing a basic finance course for laboratory and other hospital supervisors . Our goal was to create a curriculum that would provide supervisors with the necessary background to understand the financial operations associated with their section's management.

*Designing the program. The first step was to analyze the performance problem. Applying the analysis of Mager and Pipe,' we asked: "Do supervisors really have a skills deficiency or are they simply resisting the idea of practicing financial management correctly?"

An informal verbal poll of the supervisors in the laboratory, pharmacy, surgery, respiratory, radiology, and data processing departments revealed that financial education had not been part of these technical programs' core curricula. Formal financial training was clearly needed. Once again, we asked the education department for help. Their department head offered the services of the organizational development manager, who assisted me in designing the training program. *Determining needs. Using the basic principles of instructional design, the vice president of ad ministration and I did an informal needs assessment to identify which topics deserved the most instructional time. We decided that the most important topics to cover included:

* cost accounting

* break-even analysis

* budgets

* equipment acquisition

* report interpretation

Suggestions for the program title ranged from the very straightforward to the pointed. We finally decided to combine both into "Basic Finance for Hospital Supervisors: Your Budget or Your Paycheck!"

A short and simple overview conveyed the importance of having technical specialists serve as financial managers in their respective sections. The overview emphasized that understanding and practicing sound financial management was an important objective for supervisors and should be so reflected in their personal performance standards.

The overview stated that the course would teach supervisors to calculate unit costs, prepare breakeven analyses, justify capital equipment expenditures, interpret financial reports, and make future plans by using the budget process. All these skills are important to master in meeting the financial challenges of efficient operation.

At this point, the vice president of administration and I asked the vice president of finance to join our planning discussions. After discussing their preferences and suggestions, we concluded with three overall objectives and a number of sub-objectives, listed in Figure 1.

We then constructed exercises to test participants' knowledge of the course's objectives. One sub-objective, for example, stated that participants would learn to define cost-accounting ten-ninology. For this purpose, we developed a matching exercise of various financial and cost-accounting ten-ns.

Once the analysis and design phases of the instructional development process had been completed, we planned how long it would take to include all the activities. We decided that three threehour sessions would incorporate the material-if we worked fast.

Each session, planned to cover one objective, would contain short lectures, exercises, and discussions. 'The exercises included defining and categorizing costs, calculating standard unit costs, and analyzing financial reports. Each participant would prepare a variance report that explained their own section's budgeted expenditures and a break-even analysis to determine at what point a new test becomes profitable.

* Our first students arrive. The 15-member pilot group consisted of laboratory supervisors and assistant supervisors. Each received a folder of materials that included the course overview, schedule, and outlines for the first session's lectures. Additional sheets were handed out as the classes progressed.

As visual aids, we used nip charts to illustrate temiinology. If we were discussing direct costs, for example, I would write the phrase on a chart. Under this, I would draw a needle, syringe, test tube, or other tangible object to represent the direct costs of the test being performed. If our classes had been larger, slides or videotapes would have been seen more easily.

The sessions begin. When the supervisors from the laboratory assembled for the first session, our divisional vice president of administration explained the intent of the pilot program. He told participants that they would be asked to evaluate the content, value, and design of the program at its conclusion and that their opinions were of critical importance for future programs.

The vice presidents of both administration and finance attended the sessions for several hours, sharing information and answering questions. Most participants said they felt these executives' presence emphasized the significance of the program to the hospital, and they appreciated the direct contact.

After classes, small groups of supervisors huddled in corners over their homework exercises. We got a good laugh when the vice president of finance said he thought he had flunked the exercise in which cost-accounting terms had to be matched because I had made it too hard.

The final evaluations, mostly positive, indicated that the program had been helpful and valuable. Many participants urged that we reduce the number of sessions from three to two and devote more time to discussion and less to lecture.

* Reevaluation. With the pilot project behind us, we redesigned the program format for the next group: supervisors in the pharmacy, radiology, surgery, respiratory therapy, and data processing departments.

The vice presidents of administration and finance suggested that if we conducted the program similarly to the way a case study is done in business school, it would be more upbeat and faster paced. Thus we shortened the course to two sessions, placing all instructional material in the first session and the case study in the second.

Armed with their new knowledge and understanding, supervisors were challenged to prepare answers to case study questions from the material presented. Then, stepping into the vice president's shoes, they were asked to answer the final question: Is the given request justified, and how would it affect the budget?

Our immunovirology laboratory section was chosen as the example for the case study. Its emerging automation and esoteric and outreach testing potential made it a challenging department to discuss financially.

For the case problem, we produced financial data sheets that highlighted revenues, expenses, budgets, labor, volume, and other statistics from actual reports. We also constructed charts defining charges, productivity, and payment assumptions. The scenario for the case study is shown in Figure II.

Three months after the pilot program, we conducted the revised finance class for supervisors. This time the evaluations praised the new format as right on target. Most participants commented that a case study specific to their own departments would have been more helpful. All along, however, we had urged the members of the mixed group to address the underlying problem: the financial situation.

* Lessons for the teacher. As a result of our pilot program, I reached an important conclusion: Before supervisors request new services, they need the financial skills to answer questions like those in our case study. I was convinced that a basic finance class should be an integral part of the hospital's management orientation program.

We will revise and condense the format again before implementing it permanently. We may decide to substitute a videotape of the case scenario or use a more generic case study. In any case, our efforts have paid off in more ways than we had first imagined they could.

Before the basic finance class, supervisors complained that they were always being given confusing computer printouts. Few took the time to review what they considered impenetrable financial verbiage. Now, when the vice president of administration asks questions about their reports or requests, supervisors have a frame of reference from which to speak. And at last they are prepared to respond.

Objectives for basic finance course

1. Principles of cost accounting

A. Define cost-accounting terminology

B. Calculate the unit costs for a procedure

C. Identify controllable and uncontrollable costs D. Conduct a break-even analysis ot a given procedure

II. The budget process and strategic planning

A. Prepare a capital request justification

B. Identify potential areas for growth

III. Periodic financial reports

A. Define the purpose ot comparing:

1 . Labor and productivity

2. Revenues and workload

3. Expenses and budgets

B. Identify significant positive and negative variances;

assess their impact on the budget

Figure II

The case study we used

The administrative director of laboratory services and the chairman of the pathology department ask to implement three new tests in the immunovirology laboratory. All will require additional Labor and capital equipment. The vice president reviews current financial and productivity reports of the department and assesses its present budget status. To determine which tests, if any, should be added, he asks you the following questions:

1. Is the section productive, and how could it improve?

2. Is the section spending within its budget?

3. What do any variances indicate?

4. How should the new tests be priced?

5. Where is the break-even point for each test?

6. What is the overhead of each test?

7. Are discounts and allowances significant in this case?

8. Is the request justified, and how does it affect the budget?
COPYRIGHT 1989 Nelson Publishing
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Copyright 1989 Gale, Cengage Learning. All rights reserved.

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Author:Berte, Lucia M.
Publication:Medical Laboratory Observer
Date:Sep 1, 1989
Previous Article:Recruitment and retention strategies to cut turnover.
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