How To Use a Variable Labor Budget to Quickly Adjust Staffing To Match Volume

C. Ryan Sprinkle, JD
Practice Leader, Performance Improvement

Lan Nguyen, MBA, MHA, CVA

Ron Hughes
Senior Advisor, Labor Productivity Specialists

For many healthcare organizations, the annual budgeting process can often be one part science and two parts art. This alchemy requires hospital leadership teams to reflect upon prior year volumes, make best guesses on volumes for the next 365 days, and then anticipate the resource and personnel costs required to help deliver that projected volume. The challenge with this approach to budgeting is managing expenses in the face of ever-changing volumes over the course of the year.

Not surprisingly, the largest expense category for healthcare organizations is labor and staffing costs. Knowing that volumes may not match projected and budgeted levels, healthcare organizations that follow best practices pair the annual budget forecast with a Variable Labor Budget. This Variable Labor Budget allows leadership teams, in partnership with front-line managers, to quickly adjust staffing as volumes fluctuate over the course of each pay period.

In Stroudwater’s experience, developing and implementing a Variable Labor Budget is a critical first step in helping an organization adopt a demand-based approach to labor staffing and productivity.

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