Technology expenditures for health and human service organizations used to be an afterthought. A few decades ago, the technology required was focused on administrative functions and it was relatively inexpensive but that has changed (see The Tech-Enabled Provider Organization: The 2019 OPEN MINDS Health & Human Services Technology Survey). Technology is now strategic and mandatory – the ability to leverage technology is now essential to competitive advantage and strategic success (see Do It Now! and Navigating The Tech Dichotomy: How To Do It Now And Get A Competitive Advantage Today). And it’s expensive. Stats on implementing an electronic health record (EHR) range from $15,000 to $70,000 per clinical professional (see How Much Is This Going To Cost Me?). The median organizational investment in technology ranges from 2% of agriculture budgets to 7% in the banking sector while health care falls at 3.5% of budget (see How Do You Compare On Tech Spending & Adoption?). In fact, cost continues to deter executives, according to our new data Beyond The Core 4: What You Need To Survive A Value-Based World – Results Of The 2019 National Behavioral Health Electronic Health Record Survey and shows that 32% of respondents haven’t implemented an EHR due to cost.
Yet despite its growing importance, approaches to tech budgeting in health and human service organizations are all over the map. Executive teams need to accept that budgeting for technology is no longer optional – and shouldn’t be done in isolation by tech staff. That was a key theme of Ray Wolfe, J.D., OPEN MINDS senior associate during his Tech Budgeting For Integrated Care & Value-Based Reimbursement session at the 2020 OPEN MINDS Performance Management Institute in Clearwater, during which he outlined best practices for budgeting. The first step is to assess what technology functionality is mandatory for current operations and what investments are required for future strategy. “Whether we think we can afford it or not, whether we can manage it—technology, and especially an EHR—is a mandatory purchase. “This is something we simply have to do,” he said.
One big question that comes with any investment is whether there will be a “return” to the organization. When it comes to technology, there are two scenarios. The first scenario – the technology is a mandatory cost of doing business. In that case the return-on-investment is a “sunk cost” and a fixture of administrative overhead. But, even with those mandatory technologies – like an EHR, a human resource information system, or performance reporting technology, I would recommend a simple return-on-investment (ROI) analysis. Even seemingly standard technology products have a range of functions and prices. For the second scenario – a technology investment that supports a new strategic initiative – the ROI analysis should be part of the overall cost/benefit assessment of the strategy.
This raises a second question, does your organization have the capital required to make those investments? Major technology investments and organizational changes in technology infrastructure may require borrowing money if an organization can’t pay for the products and related vendors out of their operating budgets. To answer that question of capital and debt, executives should review their financial ratios to make sure they don’t borrow more than they should. This capital issue raises the big strategic questions for many executive teams – are we big enough to afford the technology we need to be competitive?
And, one final note on tech budgeting. Many of the assumptions around the ROI and strategic advantages of technology investments a sound implementation of the technology and optimal leverage of the technology to improve market capabilities and reduce operating costs. Keep in mind that when your team purchases new technology, it’s only the start of making those budget assumptions a reality.
To learn more about budgeting and return-on-investment, check out these OPEN MINDS Circle Library resources:
- Prioritizing Innovation: It’s About Discipline & Thinking Creatively To Solve Challenges
- Bringing New Tech To Scale Means Moving Beyond IT
- Have You Mastered These 4 Financial Management Skills For VBR?
- If You Have No Data Security Plan, The Cost Is?
- Are You Doing Enough? The Role Of Technology In Social Impact Organizations
- The Tech-Enabled Provider Organization: The 2019 OPEN MINDS Health & Human Service Technology Survey
- Making The Right Tech Investments For Your Organization: An OPEN MINDS Executive Seminar On Technology Budgeting & Planning
- Small Scale Technology Planning & Budgeting: A Roundtable Discussion For Organizations Under $25M
- Solve For The Payer: How To Use Outcomes Tools To Calculate Data-Driven ROI That Payers Can’t Ignore
- How To Build Your Tech Infrastructure For Value-Based Reimbursement
Watch the Program Live!
Please join me April 2 for the live executive webinar Technology Budgeting For Integrated Care & Value-Based Reimbursement with OPEN MINDS Senior Associate Ray Wolfe, J.D., for more on this topic.