Budgeting for overtime

Medical Laboratory Observer, March, 2006 by Christopher S. Frings

Q My department went over the yearly budget last year. The department performance with respect to finances is very low compared to other departments within my hospital system. One cause is too much overtime (OT) has been paid out to FTEs. In addition, we have an inconsistent policy in terms of paid time off to our employees who go on extended leave for three or more weeks. Are there some strategies that I can use to cut my budget and operate within a restricted budget?

A Marti Bailey opines, "You have already detected several problems that need to be resolved. The first is your department's overtime. Regular overtime is just like a fever--it is a symptom of an underlying problem. Although some businesses operate regularly with a high level of overtime, it should be budgeted. The second problem you have identified is inconsistencies in paid-time-off policies. The risk you take in allowing paid-time-off policy to be inconsistently applied cannot be overemphasized. You need to work with your human resource (HR) specialists to understand exactly what the policy is, get a written copy, distribute it to all your staff, and follow it to the letter. If the inconsistencies are from department to department within the laboratory, now is the time to get with lab administration to clarify the policy and see that it is applied in an equitable manner to all lab employees. Resolving these two primary issues can go a long way towards correcting your budgetary problems."

Larry Crolla points out, "You answered part of your question in your statement that you need consistency in any financial system. You need a documented, well-thought-out policy for paid time off and extended leave. Secondly, you may need to instruct everyone that there is no overtime allowed without supervisor approval. You have to be prepared to say 'no' unless it is a real emergency. In this way, by restricting overtime to an approval process, you can get folks to focus on their job and get it done on time. Some work may carry over to other shifts, but that is acceptable. You may learn that if work just cannot get done because you are short staffed, you may have to ask administration to help you obtain correct staffing levels. You should also track to see if it is just one person, an entire shift, or a department that is generating the overtime. Once you know who is generating the overtime, you can analyze the situation to see how to correct it."

According to Alton Sturtevant, "In most laboratories, personnel and supply costs account for between 50% to 60% of the budget. Control of these two items will pay dividends in meeting your budget. Additionally, an accurate budget will also help you to 'make budget.' If you were to be compared to the other laboratories within your system, then it would be helpful to have all of the labs comply with the same paid-time-off guidelines. Comparison among laboratories is usually based upon costs per patient day, costs per test/CPT code, or costs per accession (patient order). Using a consistent metric with both the numerator (cost category) and denominator (patient day and so forth) among all of the labs will allow for a very useful comparison among the facilities.

"The first step in controlling overtime is scheduling personnel to match the workload. The second step in controlling OT is daily management of the OT through review of worked hours and mandatory approval in advance before OT is allowed. If OT is allowed during busy times, then the individual with OT should work fewer hours during the week or pay period to offset the worked hours. If you monitor and control your OT and demonstrate the continued need for the hours, then you should justify more staff and pay them at straight time rather than time-and-a-half.

"Closely monitor the use of supplies to ensure reduced costs. Use the financial monitors to identify areas of your lab that exceed supply usage based upon volume fluctuations. Closely monitor standing orders and discourage them in most cases. Sales representatives like to set up standing orders as a means to encourage supply usage. There are good reasons to use standing orders, but they must be monitored very closely to prevent overspending. Keep a close eye on office-supply usage to prevent unnecessary waste through stockpiling. Depending on the size of your operation, you should consider using a centrally controlled distribution point under your control for office supplies. Budget should be based on your parameters of growth or shrinkage, using the approved historical data of cost per day and so on to ensure an accurate budget. Once the new budget year begins, ruthlessly monitor and control the costs to ensure compliance with your agreed-upon budget."

Bottom line. Overtime significantly above what has been budgeted is a problem. The causes of overtime are varied, but the major reasons besides understaffing are inappropriate scheduling and overtime misuse. Frequently, overtime can be avoided simply by implementing one or two overlapping, non-standard work schedules to pick up the slack at the end of one shift and/or the beginning of another. You need to study the workflow and volumes that occur at different times of the day to determine if your scheduling needs tweaking. You also need to focus on exactly what your folks are doing when they work overtime. Are they simply finishing up testing that the next shift could assimilate? Are they doing instrument maintenance that they did not get to during their shift, or is it taking them longer to complete their work than it should? Another key question is what controls are in place for overtime? Does it have to be approved in advance, or can anyone work whatever overtime he feels is needed and then submit his time? These are issues that you need to investigate and handle as a first step toward controlling overtime. Management must be very diligent in setting and resetting the schedule as necessary to appropriately reflect changes in workload.