Managing the Labor Budget

Free Software Download: Staffing_Check.xls immediately shows the labor budget impact of any department or nursing unit employee work schedule. This powerful free resource will help hospital managers meet their labor budget challenges. Right-click here to download Staffing_Check.xls and then save it to a local directory on your hard drive. Please feel free to share this page with other hospital executives and managers.

Staffing_Check.xls was designed to help managers overcome the common disconnect between the employee work scheduling process and labor budget management. Department employee scheduling processes that are driven by staff-to-patient ratios or static staffing templates typically do not reveal the labor budget consequences of a proposed work schedule. By using Staffing_Check.xls, the manager can immediately determine in advance the impact a proposed employee work schedule will have on labor budget target performance. The manager can even play "what if" games, comparing the potential budget impact at different levels of anticipated workload.

After downloading the file, open it and go to the "Staffing Check" worksheet (the 2nd tab on the Staffing_Check.xls workbook). Examine its layout. A few simple set-up steps are necessary before use.

• Determine your department's budgeted paid hours per unit of service. If you don't know this value, either ask financial services or calculate it as follows:

• First, identify the unit of service indicator used for your department during the budgeting process. This will typically be something like "patient days" for inpatient nursing units, "visits" for Emergency Departments, "billed tests" for Laboratory, "examinations" for Radiology, "meal equivalents served" for Dietary, "laundry pounds" for Laundry, "gross square feet serviced" for Maintenance/Engineering and "net square feet serviced for Housekeeping, etc.
• Certain administrative and support service departments such as health Information Management, Materials Management, Patient Accounting, Nursing Administration and Information Systems will use "adjusted discharge units" or "adjusted patient days" as surrogate unit of service indicators. The formulas for adjusted discharge units and adjusted patient days are:

• Total Acute Patient Revenue/(Acute Inpatient Revenue/Acute Inpatient Discharges) = Adjusted Discharge Units.
• Total Acute Patient Revenue/(Acute Inpatient Revenue/Acute Patient Days) = Adjusted Patient Days.
  
• Second, determine how many units of service were estimated for your department in creating the budget. You will probably have to obtain this number from Finance if yours is an adjusted discharge unit or adjusted patient day-type administrative or support service department.
• Third, identify the number of paid hours authorized in your labor budget. If you cannot determine this but know the number of FTEs, multiply the number of FTEs by the number of hours one FTE will work as used in the labor budget development process. Depending upon your hospital, this number will most likely be either 2,080 hours or 2,085.71 (That is, (365/7) x 40 = 2,085.71.
• Fourth, divide the total budgeted units of service by the number of labor budget paid hours to calculate your department's budgeted paid hours per unit of service. Enter this value in cell "B3" of the Staffing_Check.xls worksheet and save the file.

Determine the historic percentage relationship between productive hours (worked hours) and paid hours for your department. In U.S. acute care hospital departments, this value will typically range between 87% and 91% depending upon such things as the structure of the benefit program and the average tenure of department employees. If you cannot readily determine the historic value, use 89% as an estimate. Multiply the number of paid hours authorized in your labor budget (see above) by the historic value or .89. Enter the resulting value in cell "B4" of the Staffing_Check.xls worksheet and save the file.

You are now ready to begin using Staffing_Check.xls.

• Estimate the number of units of service (patient days, visits, billed tests, examinations, adjusted discharge units, etc.) you expect the department to experience during the period covered by the work schedule.
• Now divide that estimate by the number of calendar days in the work schedule period to obtain the "Average Units of Service Per Day." Enter the result of this calculation in cell "B2" of Staffing_Check.xls" and save the file.
• Now fill out your schedule as shown in the instructions beginning in cell "B8" and going across the page to cell "D8". You will notice that all other values Columns "E" through "G" will be automatically generated.
• After completing the information required on Line 8, repeat the process from Line 9 through the number of lines required to list all positions scheduled to work during the period.

Result:

Examine the table displayed in cells "A30" through "B34" to determine the labor budget impact of your schedule. If the number appearing in cell "B32" is greater than the number appearing in cell "B31", your schedule is over budget. The size of the variance for the schedule period is shown in paid hours per unit of service in cell "B33" Importantly, the annual impact of maintaining a variance of that size in terms of paid FTEs is shown in cell "B34."

If you are over budget, first examine your unit of service estimate. If it appears to be realistic (and it is best to error on the conservative side), experiment by changing your schedule until you arrive at a satisfactory result. Note that the further into the year you go over budget, the more difficult it becomes to get back on track.

FJB