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Section 1.

2 Adopt - Plan

Business Case: Total Cost of Ownership and Return on


Investment
Developing a business case is a process that helps determine the readiness for making a specific investment, creates a value proposition, and describes how an
investment will be executed. For an investment of HIT or EHR, the business case needs to identify the costs and benefits to determine the feasibility of acquiring such
technology. Once documented, the business case can serve as a means to evaluate products against expectations and available funding, serves as a budget during
implemenation, and helps evaluate whether you are achieving your return on investment.

Total cost of ownership refers to the fact that the cost of acquiring technology is only part of the total expenditures you may need to make in order to acquire and
maintain HIT or EHR. For example, you may pay a software vendor for the application, a hardware vendor for input devices, and pay overtime or at least additional
straight time for nurse training. Often the costs not associated directly with software and hardware are overlooked in calculating a return on investment. These costs
often lead to unexpected cost overruns.

Use this spreadsheet to estimate the total cost of ownership (TCO) and return on investment (ROI) for a single application or group of
HIT applications being considered for acquisition. Initially, estimates will provide a good idea of how much financing you may
require. When actual costs become known, a better picture of your financing needs will emerge. Also use this tool to manage your
project budget and to post actual benefits as you identify them each year to evaluate benefits realized.

Instructions for Use

1. Complete the two worksheets in this spreadsheet. Record information in the Analysis worksheet. Use the Page Setup feature in File to annotate who compiled the
information and the date compiled in the document footer. (The project manager, with assistance from the chief financial officer or other equivalent individual and the
HIT steering committee, should complete this tool.)

2. Record estimates for all potential costs. Record initial costs when there is a one-time cost; record costs in each year when there are annual costs or when costs are
spread over time (e.g., ASP/SaaS payments or annual subscriptions).

Section 1.2 Adopt – Plan – Total Cost of Ownership and Return on Investment - 1
3. Record estimates for all potential benefits. Year 0 is the year in which you implement. There may be benefits in that year, but only a portion of normal benefits for a
full year. Benefits may grow over time or become stable at some point. Be sure to document your assumptions so you can go back and estimate actual benefits.

4. The spreadsheet calculates totals. The year in which the payback period value is positive is the payback period. For example, if the payback period becomes positive
in year 3, the payback period is roughly three years. (You may calculate a more exact payback period if desired.)

5. As solid information is obtained from vendors, adjust the entries until you have all known costs.

Copyright © 2009, Margret\A Consulting, LLC. Used with permission of author.

For support using the toolkit


Stratis Health Ÿ Health Information Technology Services
952-854-3306 Ÿ info@stratishealth.org
www.stratishealth.org.

Section 1.2 Adopt – Plan – Total Cost of Ownership and Return on Investment - 2
Total Cost of Ownership and Return on Investment

Costs Assumptions Qty Initial Cost Year 1 Year 2 Year 3 Year 4 Year 5
HARDWARE
Database Server(s) & List if not using an
Devices ASP or SaaS
model
Other Server(s) & Back up servers &
Associated Devices as media
Applicable Fax server &
devices
E-mail server &
devices
Other:
Input Devices Workstations
(including desktops
and mobile
devices)

Peripherals (e.g.,
wireless cards)
Storage Devices Devices, media,
services if not
Other Devices using an ASP or
Printers
SaaS model
Document
scanners
Card scanners
Wireless access
points
Docking stations
Battery chargers

Section 1.2 Adopt – Plan – Total Cost of Ownership and Return on Investment - 3
Copyright © 2009, Margret\A Consulting, LLC. Used with permission of author.
Total Cost of Ownership and Return on Investment

Other:
Communications ISP
Telecom fees
Data Center Furnishings Racks, carts, etc.
as Applicable
Other Describe

Hardware subtotal 0 0 0 0 0 0
SOFTWARE
Operating System Describe license
Application Describe license

Additional Modules or Identify and


Components describe license
Upgrades to Existing Identify
Applications as Needed
Interfaces Describe
Other Software (e.g., List
code sets, drug
databases, MS Office,
other third party)

Software subtotal 0 0 0 0 0 0
IMPLEMENTATION AND TRAINING
Vendor Implementation, List
Training, Support, Other
Services
Vendor Travel Costs Describe

Project Manager % time allocated


Staff Training Time Amount

Section 1.2 Adopt – Plan – Total Cost of Ownership and Return on Investment - 4
Copyright © 2009, Margret\A Consulting, LLC. Used with permission of author.
Total Cost of Ownership and Return on Investment

System Selection Registration fees


and travel
expenses
Selection Consultant Fees
IT Contractor Fees
Attorney Fees
Electrician Fees
Physical Facility Fees
Contractor
Implementation Fees
Consultant/Support
Contractor
Trainer (if different than Fees
above)
Temporary Space & Rental
Furnishings (for training
& chart conversion)
New Furniture Cost
Data Conversion Cost
Chart Conversion: Rate
Temporary Staff or
Outsourced Services
Chart Conversion: Fees
Loaner Scanner
Webmaster Fees
Implementation 0 0 0 0 0 0
subtotal
MAINTENANCE
Hardware Service List and describe
Maintenance
Agreements

Section 1.2 Adopt – Plan – Total Cost of Ownership and Return on Investment - 5
Copyright © 2009, Margret\A Consulting, LLC. Used with permission of author.
Total Cost of Ownership and Return on Investment

Software License List and describe


Maintenance
Agreements
Ongoing education Fees and
expenses
Subscriptions List all
Telecom Fees Fees
IP Fees Fees
Maintenance 0 0 0 0 0 0
subtotal
STAFFING (Additional Permanent Staff)
IT Operations Staff Salary + benefits

Clinical Data Analyst Salary + benefits


Applications Analyst Salary + benefits
Other IT Staff Salary + benefits
Nurse/Health % time equivalent
Informaticist
Staffing subtotal 0 0 0 0 0 0
CONTINGENCY
Potential Additional Specify % (usually
Costs of software license)

Total Costs 0 0 0 0 0 0

Benefits Current Cost Goal Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Calculation %r
Paper Chart Supplies

Section 1.2 Adopt – Plan – Total Cost of Ownership and Return on Investment - 6
Copyright © 2009, Margret\A Consulting, LLC. Used with permission of author.
Total Cost of Ownership and Return on Investment

Assumptions:
Annual cost of file
folders, forms
printing, etc.
Paper Chart Storage
Assumptions:
Warehousing fees
Assumptions:
Revenue from chart
room conversion (be
careful to count only
once)
Clerical Chart Costs
Assumptions:
Clerical hours spent
pulling & filing charts
& copying
documents x
(Salary + Benefits)
lost through
discharge or attrition

Assumptions:
Courier costs
Transcription Cost
Assumptions:
Transcriptionist
hours x (Salary +
Benefits) lost
through discharge or
attrition

Assumptions: Cost
of transcription
services
Copy Service Cost

Section 1.2 Adopt – Plan – Total Cost of Ownership and Return on Investment - 7
Copyright © 2009, Margret\A Consulting, LLC. Used with permission of author.
Total Cost of Ownership and Return on Investment

Assumptions: Cost
of copy services
Paper Statement Costs
Assumptions: Staff
hours x (Salary +
benefits) lost
through discharge or
attrition
Paper supplies and
postage costs
Overtime Reduction Due
to Efficiencies
Assumptions: Staff
overtime hours x
(Salary + Benefits)

Outsourcing Reduction
Due to Incorporating
Task In-house (not
covered above)
Assumptions:
Identify annual fees
for such reduction
Other Productivity
Savings (not covered
above)
Assumptions: Staff
hours x (Salary +
Benefits) lost
through discharge or
attrition
Malpractice Premium

Section 1.2 Adopt – Plan – Total Cost of Ownership and Return on Investment - 8
Copyright © 2009, Margret\A Consulting, LLC. Used with permission of author.
Total Cost of Ownership and Return on Investment

Assumptions: %
reduction specified
by carrier
Impact on OASIS
Compliance
Assumptions:
Estimated % at risk
Lost Charges
Assumptions:
Estimated revenue
due to charges not
posted
Penalties/Denials
(avoided through
eligibility/prior
authorization checking)
Assumptions:
Estimated revenue
not lost through late
filing or denials
Incentives Due to Quality
Improvement
Opportunities
Assumptions:
Estimated % of
revenue impacted as
specified by health
plans
New Service Revenue
Assumptions: Value
of additional patients
due to better referral
management

Section 1.2 Adopt – Plan – Total Cost of Ownership and Return on Investment - 9
Copyright © 2009, Margret\A Consulting, LLC. Used with permission of author.
Total Cost of Ownership and Return on Investment

Avoidance of Non-
reimbursed Duplicate or
Contraindicated Services

Assumptions: Value
of number of
services identified
from sample of
those not
reimbursed

Other, specify:
Assumptions:

Other, specify:
Assumptions:

Total Benefits 0 0 0 0 0 0
Impact (Benefits – Costs) 0 0 0 0 0 0

Payback Period (Year in which benefits exceed 0 0 0 0 0


costs)

For support using the toolkit


Stratis Health Ÿ Health Information Technology Services
952-854-3306 Ÿ info@stratishealth.org
www.stratishealth.org.

Section 1.2 Adopt – Plan – Total Cost of Ownership and Return on Investment - 10
Copyright © 2009, Margret\A Consulting, LLC. Used with permission of author.
Total Cost of Ownership and Return on Investment

Copyright © 2009, Margret\A Consulting, LLC. Used with permission of author.


This toolkit was funded by Aging Services of Minnesota and its subsidiary, Alliance Purchasing for use by home health agencies
in Minnesota. Produced by Stratis Health.

Section 1.2 Adopt – Plan – Total Cost of Ownership and Return on Investment - 11
Copyright © 2009, Margret\A Consulting, LLC. Used with permission of author.
Total Cost of Ownership and Return on Investment

Section 1.2 Adopt – Plan – Total Cost of Ownership and Return on Investment - 12
Copyright © 2009, Margret\A Consulting, LLC. Used with permission of author.