Health Care Information Systems: A Practical Approach for Health Care Management

Karen A. Wager I Frances Wickham Lee I John P. Glaser

Chapter Seven
Assessing and Achieving Value in Health Care Information Systems
 Learning Objectives
• Discuss the nature of IT-enabled value
• Review the components of the IT project proposal
• Understand steps to improve IT project value realization
• Discuss factors that ensure value delivery

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 Outline
• Definition of IT-enable value
• Differing objectives for projects
• Scoring objectives
• Reducing the budget
• Common proposal problems
• Ensuring the delivery of value
• The IT value challenge
• Digital maturity

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 Definition
IT-Enabled Value
• Tangible (measurable value) & intangible (difficult to measure value)
– Tangible: Increases in revenue, fewer errors, reduction in turnover, etc.
– Intangible: Improved decision making, communication, compliance, etc.
• Significant
• Variable across organizations
– Organizations may focus on different objectives
• Diverse across IT proposals
• Diverse value in a single investment
• Different analyses for different objectives (see next slide)
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 IT Objectives
National Research Council (NRC)
1. Infrastructure
– Enables other investments or applications to be implemented and deliver
desired capabilities (e.g., data communication networks, workstations,
clinical data repositories)
2. Mandated
– May be necessary in order to comply with initiatives of accrediting bodies
3. Cost reduction

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 IT Objectives
4. Specific new products and services
– Involves consumer utilization, competitor response, and impact on related
businesses
5. Quality improvement
– E.g., reduce waiting times, improve the ability of physicians to locate
information, improve treatment outcomes, reduce errors in treatment
6. Major strategic initiative
– Intended to significantly change the competitive position of the
organization or redefine the core nature of the enterprise

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 Source: Ross and Beath (2002, p.54)

Classes of Investment
1. Transformation – Improve the quality of IT services
– Effect a significant improvement 1. Process improvement
in overall performance
– Improve the operations of a
– Change the nature of the specific business entity
organization
2. Experiments
2. Renewal – Evaluate new information
– Upgrade core IT infrastructure and technologies and test new types
applications of applications
– Reduce the costs

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 Sources of Value Information
• Conferences
• Industry publications
• Industry research organizations (e.g., Gartner and the Advisory Board)
• Consultants
• Vendors
• Formal financial analysis
– Net present value
– Internal rate of return

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 Formal Financial Analysis
• Net present value
– Calculated by subtracting the initial investment from the future cash flows
that result from the investment
• Formal financial analysis
– Discount rate at which the present value of an investment’s future cash flow

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 Scoring
Comparing Different Types of Value
• Select key proposal areas for scoring
• Assign a score for each area & total the scores
– Range: 1 (minimal or no contribution) to 5 (significant contribution)
• Benefits
– Forces leadership to discuss why team members assigned different scores
– Forces leadership to defend any decision not to fund a project with a high
score or to fund one with a low score

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 Reducing the Budget
Deciding which Proposals to Fund
• Is it mandatory due to a regulation (e.g., a new Medicare rule)?
• Can the project be put off until next year?
• Does the IT staff have time to take on another project?
• Does the user department have stable management?
• Are the value proposition and resource estimate complete?
• Is there a less expensive application or non-It approach?
• Can the progress occur at a slower pace?

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 Common Proposal Problems
1. Fractions of effort
– Saving fractions of staff effort does not always lead to salary savings!
2. Reliance on complex behavior
– People do not always behave as we expect or want them to.
3. Unwarranted optimism
– Nothing will go wrong
– You’re in control of all variables that might affect the project
– You know exactly what changes in work processes are needed and what system
features must be present
– Everyone can give full time to the project

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 Common Proposal Problems
4. Shaky extrapolations
– Assuming that gains in the first year will continue during the remaining life
of the project
5. Underestimating the effort
– Forgetting to account for the time users and managers devote to system
design, developing workflow changes, and training
6. Fairy-tale savings
– Redeploying expenses instead of reducing the budget
7. Failing to account for post implementation costs
– Maintenance contacts, hardware upgrades, etc.
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 Ensuring Delivery of Value
• Make sure the homework was done
• Require formal project proposals
• Increase accountability for investment results
– Business owner should defend the investment
– Project sponsors and business owners must understand the accountability
for successful completion of the project
– Present projects in a forum that routinely reviews such requests
• Manage the project well
• Manage outcomes

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 Ensuring Delivery of Value
• Conduct post-implementation audits
– Value is NOT automatically achieved because the implementation is over.
• Celebrate value achievement
• Leverage organizational governance
• Shorten the deliverables cycle
• Benchmark value
– Benchmark performance against the performance of peers
• Communicate value
– Develop a communication plan for the 12 months ahead

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 Source: Weill and Aral (2006)

Portfolio
Types of Portfolio Investments
1. Infrastructure
– The core information technology that serves as the foundation for all applications
2. Transactional
– Supports the core operations processes
3. Informational
– Supports the decision making such as clinical decision support, quality
measurement and analyses, market assessment, and budget performance
4. Strategic
– Critical to the furthering of an organization’s strategy

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 The IT Value Challenge
• Factors that hinder value return
– The overall strategy is wrong or its assessment of its competitive
environment is inadequate
– The necessary IT applications and infrastructure are not defined
appropriately
– The organization fails to identify all the investments and initiatives necessary
to carry out its plans
– The organization fails to execute the IT plan well
– External factors (e.g., competitors’ actions, customers’ reactions, etc.)

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 The IT Value Challenge
• The investment-performance relationship
– Spending more money on IT is no guarantee that the organization will be
better off
– Factors other thank the appropriateness of the tool to the task also
influence the relationship
• The value of the overall investment
– Difficult to assess the value of its overall investments in IT

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 The IT Value Challenge
• Progressive realization of IT value
– Requires innovation in business practices
– Economic value comes from incremental innovations rather than “big
bang” initiatives
– The strategic impact comes from the cumulative effect of sustained
initiatives to innovate business practices

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 Digital Maturity
• Defined by CapGemini as
– Digital intensity: the extent to which the company had invested
technology-enabled initiatives to change how the company operates
– Transformation management intensity: the extent of the leadership
capabilities necessary to drive digital transformation through the company
• Transformation management intensity is more important than digital
intensity.

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 Summary
• Definition of IT-enable value • Reducing the budget
• Differing objectives for projects • Common proposal problems
– Infrastructure • Fractions of effort
– Mandated • Reliance on complex behavior
– Cost reduction • Unwarranted optimism
– Specific new products and • Shaky extrapolations
services
• Underestimating the effort
– Quality improvement
• Fairy-tale savings
– Major strategic initiative
• Failure to account for post-
• Scoring objectives implementation costs

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 Summary
• Ensuring the delivery of value – Shorten the deliverables cycle
– Make sure homework was done – Benchmark value
– Require formal project proposals – Communicate value
– Increase accountability • The IT value challenge
– Manage the project well – How to measure?
– Manage outcomes – Progressive realization
– Conduct post-implementation • Digital maturity
audits
– Digital intensity
– Celebrate value achievement
– Transformation management
– Leverage organizational intensity
governance

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