What Are the Potential Benefits?
Why This Matters
Before adopting an innovation, organizational decisionmakers should consider both tangible and intangible benefits that the innovation might generate for patients, staff, and other stakeholders. Decisionmakers often seek an innovation that will yield tangible results, such as cost savings. In other cases, an innovation may be adopted for its anticipated effect on team cohesion or morale, which may subsequently lead to improvements that are more tangible (e.g., staff retention).
Key Questions to Consider
- What benefits will the innovation generate?
- Will the benefits be visible to those who have to implement the innovation, to those who have to support it, and to patients and their families?
Question 1. What benefits will the innovation generate?
The innovation may benefit patients, staff, and other stakeholders. Consider each perspective as part of the adoption decisionmaking process.
Potential benefits to patients and families may include:
- Enhanced satisfaction.
- Increased involvement in the care process.
- Improved quality of care.
- Easier access to care.
- Reduced wait times.
- Increased safety.
Potential benefits to staff may include:
- Increased autonomy.
- Better working conditions.
- Reduced stress.
- Enhanced teamwork.
- Easier care processes.
Potential benefits to other stakeholders may include:
- Increased market penetration/volume.
- Increased revenue.
- Decreased costs.
- Greater efficiency.
- Reduced lawsuits.
- Enhanced reputation.
- Greater receptivity to innovation.
N.C. Children’s Hospital expected that adopting Pediatric Rapid Response Teams would yield various benefits in addition to the main benefit of reducing cardiac and respiratory arrests. These additional benefits included increased nursing staff satisfaction and improved communication and cooperation among caregivers. Please refer to Section 4.4 of the Appendix for more details about the other kinds of benefits senior leadership expected this innovation to generate for their patients and staff.
Question 2. Will the benefits be visible to those who have to implement the innovation, to those who have to support it, and to patients and their families?
Once the intended benefits have been established, consider how observable those benefits will be:
- Will staff members who implement the innovation recognize the benefits? Will they receive recognition for implementing the innovation?
- Will leadership, governing bodies, and other stakeholders see the benefits?
- Will patients and families notice the benefits?
The more observable an innovation and its benefits are, the greater the chances of success. Consider steps that can be taken to ensure that benefits are observable. Specific actions taken during the planning and implementation stages may increase the likelihood of success.
Plans for rollout and dissemination should consider methods to highlight successes to multiple stakeholder groups. It is important to be able to measure the success of the innovation. Refer to the discussion of measurement.
What Are the Potential Costs?
Why This Matters
Innovations invariably involve at least some initial implementation costs, and generally entail costs for their continued operation. These costs can be offset by savings that innovations generate. Decisionmakers will need to consider these costs, as well as the cost of any opportunities forgone when the innovation is adopted.
Key Questions to Consider
- What resources will we need to implement the innovation and what do they cost?
- What are the potential cost offsets?
- What are the opportunity costs of adopting the innovation?
Question 1. What resources will we need to implement the innovation and what do they cost?
When determining the level of resources needed to adopt an innovation, you should evaluate the organization’s capacity to support the innovation under consideration, including organizational structure, systems, and physical/technological infrastructure. Capacity assessment tools, such as the McKinsey Grid, can be useful.
You can find the McKinsey Capacity Assessment Grid at http://www.vppartners.org/learning/reports/capacity/assessment.pdf. (If you don’t have the software to open this PDF, download free Adobe Acrobat Reader® software.)
Once an organization’s capacity to support a candidate innovation has been determined, consider the costs of resources needed to implement the innovation successfully:
- Do we have the in-house capacity to plan, monitor, and evaluate the innovation? What will it cost to augment our capacity (e.g., hire consultants)?
- Do we have the human resources to implement the innovation?
- Will new staff be required? If so, do we have the capacity to recruit new staff? How much will new staff cost?
- Will current staff need to acquire new skills? If so, what training will be required and how much will it cost? (Keep in mind that although training costs are often budgeted as an initial one-time expense, training is often an ongoing expense because of staff turnover and the need to reinforce training objectives.)
- Will current staff have to take on new duties? If so, is there slack that can be absorbed, or will some of their current duties be displaced?
- Do we have the physical infrastructure to support the innovation?
- Do we have the space to house the innovation? If not, how much will necessary changes or additions to buildings and space cost? (Consider capital investments as well as operation and maintenance costs.)
- Do we have the equipment or other materials needed to implement the innovation? If not, how much will they cost?
- Do we have the information technology infrastructure to support the innovation?
- Will we need new information technology? If so, how much will new information technology and the ongoing maintenance and technical support for staff who use it cost? What are the costs of transitioning to the new information technology?
- Do we have in place the partnerships or collaborations needed to implement the innovation? If not, what resources will it take to establish them?
- Will adopting the innovation interfere with normal operations? If so, for how long and what costs are associated with the disruption?
- Who will monitor the implementation and impact of the innovation? What will ongoing evaluation cost?
It can be useful to obtain multiple perspectives on estimated costs, since those prepared by champions for an innovation may be different from those developed by individuals who are not yet committed to it. Conducting a financial analysis that looks at fixed and variable costs over several years can provide information on an innovation’s affordability.
The article “How to Decide Whether to Buy New Medical Equipment” in the March 2004 issue of Family Practice Management provides a downloadable financial analysis worksheet that can be adapted for innovation adoption decisions: http://www.aafp.org/fpm/20040300/53howt.html
Training needs analysis (TNA) uses a variety of methods to gather information about training needs, including direct observation, questionnaires, interviews, focus groups, and tests. More information on TNA and links to questionnaires and other TNA resources are available at How to Conduct a Training Needs Analysis (http://www.dirjournal.com/guides/how-to-conduct-a-training-needs-analysis/).
Decisionmakers at N.C. Children’s Hospital dedicated significant attention to staff availability in assessing what resources they would need to adopt Pediatric Rapid Response Teams. Please refer to Section 4.2.1 of the case studies in the Appendix for more details on how they addressed staffing needs for this innovation.
Faced with a limited budget, decisionmakers at Clinica Campesina carefully considered the costs of implementing group visits. Costs included those associated with physical restructuring, additional staff commitments, and added labor hours. For a description of how anticipated financial costs affected this decisionmaking process, please refer to Section 1.2 of the case studies in the Appendix.
Question 2. What are the potential cost offsets?
Although innovations have upfront and continuing costs, they may generate savings or revenues that offset or exceed the costs. Cost reductions and savings may accrue by:
- Substituting less expensive services for more expensive services (in a capitated environment).
- Minimizing payroll, by matching responsibilities to employees’ capabilities and licensure.
- Diminishing the need for services as a result of effective prevention, early treatment, or self-management (in a capitated environment).
- Lowering uncompensated services (e.g., services to uninsured or disallowed by payer, such as services related to “never events”).
- Increasing staff retention, thereby reducing recruitment, hiring, and training costs.
- Lessening lawsuits and insurance costs.
- Decreasing paperwork, downtime (e.g., cancelled appointments or surgeries), duplication, and other waste.
- Streamlining regulatory compliance activities.
Sources of increased revenue include:
- Greater productivity (delivering more services while costs stay constant).
- Higher volume of billable services.
- Increased payment for services (e.g., negotiated rate increase, payment for previously unbillable services).
- Bigger market share.
- More income from bonuses or pay-for-performance incentives.
- Improved billing accuracy and collections.
At Mt. Carmel, most Six Sigma projects were required to demonstrate that they would achieve substantial cost savings. Please refer to Section 2.3 of the Appendix to learn more about Mt. Carmel’s project selection.
Question 3. What are the opportunity costs of adopting the innovation?
Adoption of an innovation will generally involve some opportunity costs. It could delay, preclude, or interfere with other initiatives. Questions to consider include the following:
- If the innovation is to be implemented with existing staff, what can the staff no longer do because of the innovation?
- Are there alternative innovations that could be adopted? If so, how does this one compare with those?
- Could the need that the innovation addresses be met in other ways?
- How else could the resources spent on the innovation be used to improve quality and efficiency?
- Will implementing this innovation mean that we forgo pursuing other opportunities or initiatives?
Mt. Carmel Health System decisionmakers weighed the continuous quality improvement strategies they were currently employing against the promise of Six Sigma. For details on which aspects they compared, please refer to Section 2.2 of the Appendix.
Can We Build a Business Case?
Why This Matters
In today’s environment, health care organizations have to watch their bottom lines. They are unlikely to adopt innovations, even those proven to improve quality, without a business case (Leatherman et al., 2003). A business case can be purely financial (i.e., the innovation saves as much or more money than it costs in a reasonable timeframe), or it can address other business imperatives.
Key Questions to Consider
- How do we prepare a business case?
- How can we calculate the return on investment?
- Is there a business imperative or strategic advantage for adoption?
Question 1. How do we prepare a business case?
A business case is the justification for adopting an innovation. To build a business case, you need to document how the innovation:
- Reduces costs.
- Increases revenues.
- Addresses business imperatives or strategic advantages.
A successful business case does not have to show a profit. It may be sufficient to demonstrate that an innovation will improve quality and be budget neutral. In some cases, an innovation addresses such vital issues that it will be adopted even at a net cost to the organization.
To establish a business case, you need to understand both the direct and indirect effects the innovation will have on your organization. To assess these effects, you can:
- Build a logic model of how the innovation works. Refer to How does the innovation work?.
- Map out the financial and nonfinancial benefits and costs of the innovation. Refer to What are the potential benefits? and What are the potential costs?.
- Consider how impacts that appear not to be financial (e.g., increased patient satisfaction) could translate into financial impacts (e.g., increased market share and revenues).
- Consider who will benefit and who will bear the costs. It is harder to make a convincing business case when costs are incurred by one part of the organization and benefits accrue elsewhere.
- Quantify costs and benefits and calculate the return on investment (ROI).
- Articulate justifications for adopting the innovation based on business imperatives or strategic advantage for adoption.
- Compare the business case for the innovation with alternatives.
- Present the case to those who need to approve of adopting the innovation.
Impact Technical Publications has published a Business Case Primer that details eight phases of building a business case:http://www.impactonthenet.com/bcprimer.pdf
Question 2. How can we calculate the return on investment?
Calculating the ROI of an innovation requires advanced financial skills and detailed data. Though estimating the ROI is not a prerequisite to making an adoption decision, health care organizations are increasingly calling for such analyses.
To calculate the ROI of an innovation you must decide the period of time over which you will compute the costs and revenues.
- The shorter the time horizon (e.g., 1 year), the less likely the innovation will be considered cost-effective.
- A longer time horizon (e.g., 5 years) allows more time to fully implement the innovation and recover expenses, but may be at odds with shorter cycles for fiscal accountability.
You will need to estimate the costs and financial benefits (i.e., cost savings and increased revenues) of the innovation.
- Many innovators do not report on the fixed and variable costs associated with the innovation. Refer to What resources will we need to implement the innovation and what do they cost? to help you approximate these costs.
- Benefits of innovations are often documented by the original innovators and earlier adopters of the innovation.
- Use rules of thumb to make estimates when no data are available. For example, the cost of recruiting, hiring, and training a nurse is approximately 25 percent of the nurse’s salary.
- Include a low-end and a high-end estimate so that you can examine how sensitive your calculation is to the assumptions you are making about costs and benefits.
- Conduct a financial analysis, calculating the financial ROI.
- Compare the ROI of the innovation with the ROI of alternative investments. Organizations have many business opportunities, and investing in one innovation means not using those resources to pursue other options.
Calculation of ROI will be specific to the innovation in question, but several online tools illustrate how such calculations can be made.
The Institute for Healthcare Improvement has developed an Events Prevented Calculator that computes the ROI and lives saved by quality improvement efforts focused on reducing adverse events: http://www.ihi.org/knowledge/Pages/Tools/AdverseEventsPreventedCalculator.aspx
The Center for Health Care Strategies has an ROI Calculator to help Medicaid agencies and health plans forecast the financial impact of quality improvement activities. You can find it at http://www.chcsroi.org.
Question 3. Is there a business imperative or strategic advantage for adoption?
Sometimes the business case rests not on a financial analysis but on a business imperative that does not easily translate into dollars and cents. Examples of instances when organizations may decide to adopt an innovation without a positive ROI include:
- Addressing major defects, such as intolerably high rates of adverse events.
- Fulfilling mandated requirements, such as state Medicaid program requirements.
- Enhancing inspection and accreditation status.
- Avoiding or settling lawsuits.
- Advancing the organization’s mission, such as serving indigent people.
Organizations may also adopt an innovation in the belief that it confers a strategic advantage on them, even if it is one that is difficult to quantify, such as:
- Securing or retaining market recognition for quality and innovation.
- Keeping up with or surpassing competitors.
- Earning a reputation for being a good employer.
The business case for innovations that respond to business imperatives or bestow a strategic advantage must be presented as a closely reasoned logical argument for adoption. There are several key steps in this process:
- Present the current state of affairs.
- Explain what’s possible with the innovation.
- Show how the innovation will close the gap between what exists and what is possible.
- Demonstrate that the benefits outweigh the costs.
What Are the Risks?
Why This Matters
Before any significant organizational change is decided on, it is important to anticipate any potential risks. Innovations associated with a perceived high degree of risk or uncertainty have a lower likelihood of adoption (Meyer, Johnson, and Ethington, 1997).
Key Questions to Consider
- What types of risk will we face?
- How do we assess potential risks?
Question 1. What types of risk will we face?
Change entails risk. Consider the range of risks you may face when adopting an innovation. Potential risks include:
- Strategic risks (e.g., a shift in market position, increased competition).
- Political risks (e.g., alienation of partnering organizations).
- Medical risks (e.g., delay in delivering needed care).
- Regulatory or legal risks (e.g., accusations of breached confidentiality).
- Operational risks (e.g., disruptions to business, administrative, or clinical care processes).
- Financial risks (e.g., decline in investor confidence).
When attempting to effectively manage potential risks, consider the following questions:
- What are the best and worst case scenarios?
- What can go wrong?
- How can we mitigate these risks?
- How likely is it that the innovation will fail or that we will be worse off than we are now?
- What risks are we unwilling to take?
- What risks would we be taking by not adopting the innovation?
Perform a thought exercise to project the risks associated with the project:
- Imagine explaining to the board of your organization why the innovation failed.
- Write the headline and first paragraph of a newspaper story that describes the disastrous results of the innovation.
- Draft bullets for a postmortem presentation to your staff about what went wrong with the innovation.
In assessing operational risks that might accompany Pediatric Rapid Response Teams, decisionmakers at N.C. Children’s Hospital considered potential disruptions in the culture of patient ownership. Please refer to Section 4.2.3 of the case studies in the Appendix for more details about these concerns and how they were addressed. Mt. Carmel realized they were taking a tremendous financial risk in the decision to implement Six Sigma. Please refer to Section 2.2 of the case studies in the Appendix for more information on Mt. Carmel’s identification of the risk.
Question 2. How do we assess potential risks?
Various factors will affect potential risk of failure of an innovation. These include how long it will take to complete implementation, how complex the innovation is, and whether the innovation has been well established or is still evolving.
A variety of tools are available to support careful analysis of risks.
One way to assess risk is to look at strengths, weaknesses, opportunities, and threats (SWOT analysis). A SWOT analysis tool is available at http://idcontent.bellevue.edu/content/BELLEVUE/generic/SWOT_healthcare/.
The New South Wales, Australia, Department of State and Regional Development’s Risk Management Guide for Small Business contains tools for identifying, assessing, and managing risks. It can be accessed at http://www.significanceinternational.com/Portals/0/Documents/2005-sme-risk-management-guide-global-risk-alliance-nsw-dsrd.pdf.
