Budgeting is a key part to any business. Whether you participate in your department’s budget building or not, it is important to know about its limitations and opportunities existing within it. Budgets are a part of everyone’s life, no matter how you look at it. Maybe you don’t track your spending in a program or spreadsheet, but everyone knows their spending limits at any given time. You have a limited amount of funds coming in and the goal is to not exceed them. It’s rather straight forward. The approach is the same for a clinical technology budget.
Budgeting is something everyone must go through at least once a year. It is the event that seems to drag on for months for us in the finance section, and we often only have a couple of weeks to complete the data sheets for our budget submissions. Considering that it is a quick event in the building of budgets, it is something that every clinical technology manager should prep for throughout the year. This way when the data sheets come out, you are ready to go with all the needed data.
What kind of data should you be looking at? There are a lot of moving pieces that everyone should focus on. The big four are always:
- Outside vendors
- Service contracts (the dreaded, conservational, and sometimes necessary evil)
There are, of course, other items out there but no other accounts control your budget like these four. In clinical technology, we fix equipment using our own hands, or those of vendors. In my experience, these four areas will probably make up over 80 percent of your total budget.
When looking at salaries, always consider what it is you want for your staff. Promotions, off cycle equity adjustments or other types of adjustments need to be considered at the time of budgeting. Us “bean counters” can get rather grumpy if you are always asking for things, when it’s not budgeted. The first question will be, “Is it budgeted?” If the answer is “no” then many accountants will tell you it can wait until next budget cycle. You might get around this with a strong business case, with a solid plan on return on investment for the requested adjustment. If you can prove it will not have a negative impact on the budget, you have a good chance of getting it passed. However, solid planning and foresight in the budgeting process is the best way to go.
Parts and vendor labor is difficult to predict sometimes. Unless you can see into the future, there is a good chance you will not know when something is going to fail or if a vendor is needed. When dealing with these accounts, it is good to look at trend reports for the parts and labor accounts. Look at the trend for 12 to 24 months, if applicable, to look at the spending. Second, look at the months that are extremely high and eliminate any outliers of the norm. An example would be if one month you had to buy a tube for $180,000, making the parts exceptionally high for one month out of 12. By eliminating that blimp, it will bring the spend down into normal expectations.
Lastly, look at where the money went and budget accordingly. You will know which department needs more attention or which one burns through parts quicker. Keep your eye on the glassware. If you know the life of the tube and know how the machine is being used, budget accordingly for glass. Accounting will not like those large blimps but, if you plan accordingly and proactively, you will end up on the good side of accounting!
The dreaded service contract is where a big piece of the spending pie sits. In my career, I have this ratio of budget being from down in the teens all the way up to 75 percent of the total budget! When budgeting for contracts, it is straight forward. You have a locked price for a certain amount of years. However, those numbers can change. When budgeting, think about training for your staff. What contracts can be reduced or eliminated by training staff to do it? What types of services are no longer needed? Do you only need a service key type of agreement? Do I have a machine popping a tube every 9 months, so it is cheaper for a glassware agreement than taking it at risk? These are examples of questions you need to ask yourself when preparing budgets.
Service contracts are going to be a big part of your overall budget. A tip I have seen, and hopefully it helps, is the 60/40 rule. If you decide to eliminate a service contract, budget 60 percent of the spend of the contract under parts or T&M, as you should see a reduction or savings to your budget of 40 percent. I have seen this work and it is simple enough to understand when budgeting.
Budgeting is not something to be afraid of. I have talked to people and watched how they react when they hear the word budget or realize it is budget time. They want to curl up in a corner and hide. Being leaders in clinical technology and partners with your facilities, you should want to know what is in the clinical technology budget. As a technician, you should know your financial perimeters and where dollars are going.
Whether the budget falls under you or it’s pieced out to departments, understanding where every dollar is going is powerful knowledge. Knowledge that helps you grow personally and professionally. Understanding the ins and outs of your budget is what makes you stand out to accounting as a true partner!
Jeffery Niederhausen is the Chief Financial Officer of Tech Knowledge Associates, a clinical technology management provider that was formed to bring unique value to its clients by guaranteeing savings, capping their expenses and protecting them from catastrophic failures. For more information, contact TKA at firstname.lastname@example.org or visit ii-techknow.com.