Reducing and Recovering your IT spend

By Jake Dorst, Chief Information and Innovation Officer, Tahoe Forest Health System

Jake Dorst, Chief Information and Innovation Officer, Tahoe Forest Health System

The much-discussed transformation of the hospital CIO from the technically focused, to a role that now encompasses those functions as well as vendor and project management, biomedical/clinical engineering, customer service, enhancing the patient experience, and contract negotiation. These responsibilities continue to evolve and extend with the ever-expanding universe of the Internet of Things and connectivity of assets from hospital beds to the patients themselves.

With the expanded responsibilities of the CIO’s role, it’s sometimes difficult to establish priorities. We have found it helpful to focus our concentration on three major areas.

1. Patient Care
2. Security
3. Financial Management

Of these three I have found that financial management responsibilities of the information services team are not provided the level of attention and importance that they truly require. I have yet to have a fiscal budget approved where all the projects and funding requests were summarily given a green light. Every year Information Services is faced with more and more projects (and growing support and maintenance charges) as well as constrained budgets due to smaller and smaller margins.

Instead of overlooking this ever more important area of focus, I realized that if we were already using outside experts to help us with complex network architecture, virtual platforms, information security solutions, etcetera. It made sense to investigate the possibilities of finding some resource that could fulfill our imperative to control and reduce our technology procurement spend. Surprisingly there were very few organizations that fit this criterion; we found only one who worked 100percent on a contingency basis and was able to help recover past overspend as well.

"In taking a strategic approach to managing our technology procurement expenses, we have been able to consistently do more and stay within our constrained budget"

By working with professionals in this area whose sole responsibility is to deeply understand terms and conditions, pricing models, and sales tactics, they helped us understand that what we had been using to measure whether our purchases were a good value were erroneous and completely playing into the hands of our vendors. For example, we would use Return on Investment (ROI) as one of the ways to evaluate whether to move ahead with a project or not. These are almost always constructed by the seller and unsurprisingly they are both highly favorable for the project and not at all objective. Sounds obvious in hindsight – but not so much when trying to get budgets and projects approved. The use of research organizations as well turns out to be a bit of a misguided path. We were not aware these organizations were using data that was so dated that it materially affected the actual cost of what we were evaluating and it took no account of our size, our location, our support requirements etc. In other words, it did not represent our true fully burdened costs.

As we began to dig further and refine our purchasing processes, we were exposed to the fallacy of discount off the ‘list price’. We began to realize there was no such thing as a static list price. The discounts–which of course were designed to seem incredibly generous masked the real cost–and consequently the sizeable profit margins our vendors were enjoying. Probably the most eye-opening of all was how we were being manipulated by agreements that exist between manufacturers or publishers and their resellers. While some of us had heard of and had a perfunctory understanding of the deal registration, we had no idea of the depth and breadth the machinations that transpired behind the scenes to effectively create an opaque curtain that prevented us from securing truly competitive prices.

Working with our partner, we were able to have our proposals for hardware, software, support, services etc. processed through what they call the Virtual Vendor Index–which I think of as now our secret weapon that pierces the curtain and exposes what the true market competitive rates should be. When we find that there is a significant difference in what our actual costs are, we usually request our partner to engage in the negotiation on our behalf to bring to bear their strong expertise and persuasive strategies in order to expose the sales tactics that are employed to hide the true costs.

In taking a strategic approach to managing our technology procurement expenses, we have been able to consistently do more and stay within our constrained budget. Instead of having to make a decision on whether to proceed with a project that would significantly improve our customer and/or patient experience, or implement a new service that would enhance our cyber security; we can effectively do both. Rather than treating our budget and financial restrictions as constraints, we make it a strategic imperative to manage this correctly so as to deliver what our end users require. Uncovering these sales tactics and understanding the sales process is an ever more important skill that every CIO needs to either learn or acquire with the right partner. If we are being asked to do more with less then so should the vendors we partner with.