Five Key Guidelines for Successful Workforce Planning in Healthcare

Key Takeaways:

• Workforce management is an essential task as labor costs are the biggest operating expense for healthcare organizations.
• Health systems should establish an effective workforce management program that uses both benchmarks and labor productivity if they want to improve their financial performance.
• Labor productivity data aims to ensure there is sufficient staff in each essential department to provide high-quality care.

Salaries, wages and benefits are the biggest operating costs for healthcare organizations and therefore have a disproportional impact on the overall financial stability of the organization. As a result, workforce management (WFM) must be actively and consistently monitored by the health system leadership. Many of those same executives often report that labor expenses, particularly in the wake of the COVID-19 pandemic, are unsustainably high and, as a result, margins are shrinking.

These factors are driving the need for healthcare leaders to more consistently incorporate labor productivity data into their budgets. However, having a budget target and achieving that target are two completely different things, which highlights the essential component of operational process improvement. If expenses are reduced (especially drastically) without changes in the underlying process, often those costs creep back in over time. Therefore, it’s important to think about how a performance improvement opportunity, in this case a labor expense opportunity, is identified.

Implementing a Strong Process Improvement Program

There are two potential drivers of labor expense: cost of labor and labor efficiency. Labor costs are frequently increased by factors like a competitive skill mix, tenured employees, overtime or contract staff.

In terms of labor productivity drivers, it’s critical to think about operational differences, throughput issues, bottlenecks or waste. Healthcare executives should focus on the variables they can control when the factors driving labor expense are identified.

Performance improvement tools like the Process Payoff Matrix below can be useful to department managers.

With this matrix, department managers can think about all the different processes that might impact labor productivity (e.g., staff or skill mix allocation, technology systems or lack thereof, employee training, etc.) and plot them on the matrix using a scale from 1-10. The x-axis represents degree of effort – or how difficult this process will be to change. The y-axis shows whether changing that particular process would have a low or high benefit. Once the various processes are plotted, it’s time to focus on aspects in the upper left quadrant that are within a manager’s control, are simple to improve (i.e., won’t take a lot of time or resources) and have a high benefit.

These opportunities are quick wins that can generally be completed within 90 days. Ultimately, the goal is to go beyond the data. When a department manager looks at a lengthy benchmark report for the first time, it can be quite overwhelming. However, they should adopt the approach of "peeling back the layers of the onion" in order to identify the fundamental factors that are increasing their labor costs. Department managers will then be able to make better sense of the data and create informed action plans.

Utilizing Benchmark and Labor Productivity Data

Implementing and maintaining an effective WFM program – using both benchmarks and labor productivity – can be easy if healthcare leaders create the right infrastructure and governance. Here are five keys to a successful program:

1. Executive Team Support: If a hospital doesn’t have a strong, cohesive, dynamic leadership team, the program likely won’t go well. Department managers employ benchmark and labor productivity data because the entire executive team deems it an important part of the WFM strategy. As part of this strong leadership support, executives should be frequently and consistently communicating across the entire organization (not just direct reports, but down to the front line as these workers are often implementing the process changes).
2. Develop and Execute a Plan: As part of developing an action plan, departmental targets should be set as a collaborative effort between managers and executives. For example, it’s not practical for a Chief Financial Officer (CFO) to say everyone needs to be at the 25^th percentile, because not every department will (or should) be able to get there. Instead, incremental improvements are advised, such as a 10 percent improvement if performance is above the 75th percentile, a seven percent improvement if it’s between the 50th and 75th percentiles, and a five percent improvement if it’s between the 25th and 50th percentiles. It’s also important to track the same unit of service across all measurement platforms – labor productivity, budget and benchmarks. When assessing operating room hours for labor productivity, avoid utilizing operating room cases for benchmarks or as a budgeting tool.
3. Performance Improvement IS the Culture: Healthcare organizations should foster a culture of performance improvement where employees are encouraged to excel in everything they do. Quality, safety, productivity and satisfaction are some examples of the outcomes that healthcare leaders should focus on. Employee engagement, satisfaction and productivity increases when decision-makers focus on departmental progress as a whole.
4. Establish Accountability Mechanisms: Accountability mechanisms are critical to the success of any WFM program. It’s recommended to create some sort of labor council consisting of a cross-function of members – finance, decision support and senior leadership. Setting up regular review cycles with this council to conduct variance analysis is crucial, especially if a department manager sees deviations from budgeted goals. Objectives should include working though data denial, removing barriers, identifying automation opportunities (particularly using IT and/or decision support) and establishing a 30/60/90-day rolling action plan.
5. Recognize and Reward Achievements: When it comes to performance improvement it’s important to utilize positive reinforcement. For example, a Premier member hospital in the Midwest was very successful in meeting their desired performance outcomes, so executives created a “wall of fame” with photos and associated results of each team. It worked so well that department managers started volunteering to participate in a development workshop so they could make it onto the wall of fame.

Final Thoughts

There is no question that health systems are challenged with increasing costs and tighter margins. The ability of healthcare organizations to deliver safe, efficient and patient-focused care rests on a sufficient pool of motivated staff utilizing service delivery strategies that enhance their performance. By employing benchmarking and labor productivity data, healthcare organizations can set themselves up for success in providing high-quality care while reducing costs and boosting efficiency.

For more on this topic:

• Contact us to learn how we can help ensure your workforce management goals align with your action plans and financial objectives.

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