IT as a strategic investment

Healthcare Financial Management, Feb, 2004 by Richard L. Clarke

This statement was made by John Glaser, the CIO of Partners HealthCare in Boston (and a columnist for this magazine).

In other words, IT investments should support the strategies of a healthcare organization and thus should be evaluated within the context of the benefits that accrue from these strategies.

Pam Arlotto supports this view in her article "Balancing IT Risks and Rewards" in this issue of hfm. She writes that IT investments must enhance, enable, or support the organization's ability to achieve strategic goals such as expanded market share and improved employee recruitment and retention. She developed a conceptual model that considers the value added from a technology investment and the perceived risk of that investment.

Although high-value, low-risk investments are always desirable, the organization's overall strategy and risk philosophy should drive the prioritization of IT projects. Healthcare CFOs, CIOs, and strategic planning executives therefore must work together to ensure that IT investments are evaluated according to how these investments support or enable key organizational strategies based on the level of risk the organization is willing to assume and capable of assuming.

The willingness and capability of an organization to assume risk are often directly related to the organization's financial position as reflected in its strategic capital plan. An organization's strategic capital plan generally defines the sources and uses of financial capital to meet the organization's capital investment demands. The key sources of financial capital include cash flow from operations, philanthropy, and debt and equity financing. Key uses include investments in property and plant enhancements, medical technology, and IT.

A number of pressing issues are facing the healthcare industry that affect capital planning and particularly access to capital. High costs and tight margins are making capital less easy to access, which in turn makes it crucial to carefully evaluate the value of each capital investment option. To help evaluate IT projects, CIOs and strategic planning executives should become familiar with these capital related issues and with best practices in capital access and allocation. An excellent resource on these complex issues is HFMA's Financing the Future project. This six-part series provides a comprehensive analysis of the issues that influence access to and use of financial capital. Copies of the first two installments were sent to healthcare CFOs in November 2003 and in January 2004. Additionally, a summary of each report appeared in the November 2003 and January 2004 issues of hfm. Copies of the reports are also available at www.financingthefuture.org.

A common understanding of capital finance issues can help CFOs, CIOs, and planning executives to better estimate the capability of their organizations to make the strategic IT investments being considered. This provides an effective framework for ROI or other evaluation techniques and hence better prioritization of resources--a desired goal of all healthcare executives.