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Healthcare
Operational
Management
AHMAD THANIN
OBJECTIVES
Define
operations
management
Explain the
distinction
between
goods and
services
Explain the
difference
between
production
and
productivity.
Compute
single-factor
productivity
Identify the
critical
variables in
enhancing
productivity
Operations Management
Operations management (OM) is the set of activities that create value in the form of
goods and services by transforming inputs into outputs.
OM is one of three major functions of any organization; we want to study how people
organize themselves for productive enterprise.
We want (and need) to know how goods and services are produced.
We want to understand what operations managers do.
OM is such a costly part of an organization
What is
Operations
Management
in health care?
Operations management is the overall coordination of
processes required for the creation and distribution of
products and services. For example, managing costs
while delivering quality services is a major component
of healthcare operations management.
Health care operations are certain administrative,
financial, legal, and quality improvement activities
of a covered entity that are necessary to run its
business and to support the core functions of
treatment and payment.
What are the
core functions
of operations
management?
Planning, Scheduling.
Purchasing. Controlling.
Quality
Control
Inventory
Control
General Functions and Roles in Healthcare Operations
Management
Planning, Planning
information systems
Managing projects
Helping to design and
develop services
Managing inventory
through the supply chain
Optimizing quality
control
Conducting
procurement/purchasing
Managing logistics
Managing and
maintaining facilities
Conducting enterprise
resource planning (ERP)
Forecasting for planning
Planning for capacity
Navigating industrial
labor relations
Analyzing the value
chain
Optimizing resource
usage
Eliminating waste and
bottlenecks
Continuously improving
processes
Executing a company’s
strategic plan
10 Decision Areas of Healthcare OM
Design of
Services.
Quality
Management.
Process and
Capacity
Design.
Location
Strategy.
Layout Design
and Strategy.
Human
Resources and
Job Design.
Supply Chain
Management.
Inventory
Management.
Scheduling Maintenance
The Strategic Decisions
• Defines what is required of operations
• Product design determines quality, sustainability and human resources
Design of Services
• Determine the customer’s quality expectations
• Establish policies and procedures to identify and achieve that quality
Managing Quality
The Strategic Decisions
• How is a service produced?
• Commits management to specific technology, quality, resources, and
investment.
Process and Capacity Design
• Nearness to customers, suppliers, and talent.
• Considering costs, infrastructure, logistics, and government.
Location Strategy
The Strategic Decisions
• Integrate capacity needs, personnel levels, technology, and inventory
• Determine the efficient flow of materials, people, and information.
Layout Strategy
• Recruit, motivate, and retain personnel with the required talent and skills.
• Integral and expensive part of the total system design.
Human Resources and Job Design
The Strategic Decisions
• Integrate supply chain into the firm’s strategy.
• Determine what is to be purchased, from whom, and under what conditions.
Supply-Chain Management
• Inventory ordering and holding decisions.
• Optimize considering customer satisfaction, supplier capability, and production
schedules.
Inventory Management
The Strategic Decisions
• Determine and implement intermediate- and short-term schedules.
• Utilize personnel and facilities while meeting customer demands.
Scheduling
• Consider facility capacity, production demands, and personnel.
• Maintain a reliable and stable process.
Maintenance
Major Challenges of Hospital
Financial
Challenges.
Patient
Safety.
Government
Mandates.
Access to
Care.
Facility
Security.
Technology
Upgradation.
Personal
Shortages
The Input-
Output Model
If we want to improve
outputs, we must
increase inputs
If we want to increase
patient volume in a
clinic By 20%, we need
more personnel, space,
advertising, etc.
If we want to improve
(decrease) waiting time
for patients, we need
more personnel and
equipment
Strategies of
Operations
Management
Operations management functions as the
company’s engine room.
Since operations managers are involved in
many roles and functions, they have developed
several important strategies and tactics to
ensure the smooth implementation of their
obligations and responsibilities.
The main
strategic and
tactical
methods
Leveraging Data
• Savvy operations managers depend on quality, accurate, and reliable
data for planning, strategic marketing and decision making.
• Two types of data analysis commonly used are efficiency and
effectiveness metrics.
Controlling Data Challenges
• Sometimes, data can be very large, and the results vary, making it
difficult to compare.
• Fortunately, with the help of advanced systems and software,
managers can see, manage and analyze data more easily and
organized.
Analyzing Inventory
• The inventory will easily analyze if the company uses inventory
management software.
• This tool will also make it easier for managers to categorize their
products (known as the ABC analysis).
The main
strategic and
tactical
methods
• Operations managers work hard in making the best
research, accurate estimates, and the right development of
good processes.
• All these efforts will eventually lead to long-lasting results
Designing Processes
• Setting goals provides direction and motivation to the
company and its employees.
• Forecasting gives hope as well as provides an opportunity
for the company to prepare for bad results.
• Forecasting requires complete and accurate historical data.
Forecasting and Setting Goals
• Collaboration between departments is needed so that the
finance, marketing and human resources teams can work
together in harmony to make improvements for the
company.
• Any ERP system enables inter-departmental collaboration
by providing centralized information for all departments,
making communication easier and more transparent.
Collaboration Between Departments
The main
strategic and
tactical
methods
• Being responsible for the environment as
well as the communities that are directly
affected by the business are the main
concerns that must be taken care of by the
company.
• This is especially true for services that often
deal with medical waste issues.
Social Responsibility
• Managing employees is very important for
your business success since employees are
the backbone of your company
• Without these people, daily business
activities will cease, and your company won’t
be able to produce quality goods or services.
HR Management
Strategies of Operations Management
The health information system
• (HIS) is broadly defined as a system that
integrates data collection, processing,
reporting, and use of the information
necessary for improving health service
effectiveness and efficiency through
better management at all levels of
health services.
Importance of a Health Information System
Produces information needed by
• Patients, communities, service providers,
programme managers, policy-makers,
providers of funds, global agencies and
organizations
Information used for
• Better management, assess coverage and
quality of services; costs and expenditures.
• Detect and control emerging and endemic
health problems
• Monitor progress towards health goals; and
promote equity.
• Strengthen the evidence base for effective
health policies.
• Improve management related to mobilizing
new resources and ensure accountability of
their use.
Definition of Enterprise Resource Planning
(ERP)
ERP stands for "Enterprise
Resource Planning" and refers to
a type of software or system
used by a business to plan and
manage daily activities such as
Enterprise Resource Planning
software can be used to
automate and simplify individual
activities across a business or
organization, such as
• Supply chain
• Manufacturing
• Services
• financials and other processes.
• Accounting
• Procurement
• project management
• customer relationship management
• risk management
• Compliance
• supply chain operations.
What is
medical
practice
management
software?
Medical practice management software is
designed to help medical facilities run more
efficiently.
It’s a technology solution that can be used for
scheduling appointments, tracking
appointment times, managing billing cycles
and organizing patient information.
it allows healthcare organizations to stay
organized and ensure high-level patient care.
Electronic
Medical
Record
(EMR)
An electronic record of health-related
information on an individual that can be
created, gathered, managed, and
consulted by authorized clinicians and
staff within one health care organization.
Can facilitate workflow and improve the
quality of patient care and patient safety
What are the benefits of health information system?
Promoting quality
of care through
optimized access
to and adherence
to guidelines
Tracking, and
reporting
Improving
medication safety
Facilitating
communication
between health
care providers
Operation
Management
Strategies for
Competitive
Advantage
Differentiation – better, or at least
different.
Cost leadership – cheaper.
Response – more responsive
Operations
Management
Decision
Making
Models.
Quantitative approaches.
Performance metrics.
Analysis of trade- offs.
System approach
Establishing priorities
Ethics
Models
Modeling is a key tool used by all
decision makers.
• an abstraction of reality; a simplification of
something.
Common features of models:
• They are simplifications of real-life phenomena
• They omit unimportant details of the real-life
systems they mimic so that attention can be
focused on the most important aspects of the
real-life system
Type of
Models
• Look like their real-life counterparts.
Physical Models
• Look less like their real-life counterparts
than physical models
Schematic Models
• Do not look at all like their real-life
counterparts
Mathematical Models
Understanding Models
Keys to
successfully
using a model
in decision
making
What is the purpose?
How is it used to generate results?
How are the results interpreted
and used?
What are the model’s assumptions
and limitations?
Benefits of
Models
Models are generally easier to use and less expensive than
dealing with the real system.
Require users to organize and sometimes quantify
information.
Increase understanding of the problem.
Enable managers to analyze “What if?” questions.
Serve as a consistent tool for evaluation and provide a
standardized format for analyzing a problem.
Enable users to bring the power of mathematics to bear on
a problem.
Limitations of
Models
Quantitative information may be emphasized
at the expense of qualitative information.
Models may be incorrectly applied, and the
results misinterpreted
• This is a real risk with the widespread availability of
sophisticated, computerized models are placed in the
hands of uninformed users.
The use of models does not guarantee good
decisions.
Nonqualified users may not comprehend the
rules on how to use the model
Quantitative
Methods
A decision-making approach that
frequently seeks to obtain a
mathematically optimal solution:
• Linear programming
• Queuing techniques
• Inventory models
• Project models
• Forecasting techniques
• Statistical models
Performance
metrics &
Analysis of
trade- offs
• All managers use metrics to manage and
control operations:
• Profits, costs, productivity and forecast
accuracy.
Performance Metrics
• A trade off is giving up one thing in return
for something else.
• Carrying more inventory (an expense) in
order to achieve a greater level of
customer service.
Analysis of Trade – Offs
Systems
Approach
System - a set of interrelated parts that must work
together
The business organization is a system composed of
subsystems
• marketing subsystem
• operations subsystem
• finance subsystem
• Medical Record System
The systems approach
• Emphasizes interrelationships among subsystems
• Main theme is that the whole is greater than the sum of its parts
• The output and objectives of the organization take precedence
over those of any one subsystem
Establishing Priorities
In nearly all cases,
certain issues or items
are more important than
others
Recognizing this allows
managers to focus their
attention to those efforts
that will do better
Pareto Phenomenon
•a few factors account for a high percentage of
occurrence of some event(s)
•80–20 Rule: 80% of problems are caused by
20% of the activities.
•The critical few factors should receive the
highest priority
•This is a concept that is appropriately applied
to all areas and levels of management
Ethical Issues in Operations
Ethical issues
arise in many
aspects of
operations
management:
Financial statements
Worker safety
Product safety
Quality
The environment
The community
Hiring and firing workers
Closing facilities
Workers rights
Ten Steps to
Close the Gap
• Care based on continuous healing relationships.
• Customization based on patient needs and values.
• The patient as the source of control.
• Shared knowledge and the free flow of information.
• Evidence-based decision making.
• Safety as a system property.
• The need for transparency
• Anticipation of needs.
• Continuous decrease in waste.
• Cooperation among clinicians.
Care based on
continuous
healing
relationships
Patients should receive care whenever they
need it and, in many forms, not just face-to-
face clinic visits. ( home healthcare,
telemedicine)
This rule implies that the healthcare system
should be always responsive (24 hours a day,
every day), and that access to care should be
provided over the Internet, by telephone, and
by other means in addition to face-to-face
visits
Customization based on patient needs and
values
The system of care
should be designed
to meet the most
common types of
needs but have the
capability to respond
to individual patient
choices and
preferences.
The patient as
the source of
control
Given all relevant information and the
opportunity to exercise whatever
degree of control they choose over
healthcare decisions that affect them.
The health system should be able to
accommodate differences in patient
preferences and encourage shared
decision making.
Shared
knowledge and
the free flow
of information
Patients should have unfettered
access to their own medical
information and to clinical
knowledge.
Clinicians and patients should
communicate effectively and
share information.
Evidence-
based decision
making
Patients should receive care
based on the best available
scientific knowledge.
Care should not vary illogically
from clinician to clinician or
from place to place.
Safety as a
system
property
Patients should be safe from
injury caused by the care
system.
Reducing risk and ensuring
safety require greater attention
to systems that help prevent
and mitigate errors.
The need for
transparency
The healthcare system should make available
to patients and their family's information that
allows them to make informed decisions when
selecting a health plan, hospital, or clinical
practice, or when choosing among alternative
treatments.
This should include information describing the
system’s performance on safety, evidence-
based practice, and patient satisfaction
• The health system should anticipate patient needs rather than simply
react to events.
Anticipation of needs.
• The health system should not waste resources or patient time.
Continuous decrease in waste.
• Clinicians and institutions should actively collaborate and
communicate to ensure an appropriate exchange of information and
coordination of care.
Cooperation among clinicians.
Metrics to Measure Performance from the
Financial Perspective
Percent of
budget—revenue
Percent of
budget—expense
Days in accounts
receivable
Days of cash on
hand
Collection rate
Return on assets
Expense per
relative value unit
(RVU)
Cost per surgical
case
Case-mix index Payer mix
Growth, revenue,
expense, and
profit—product
line
Growth, revenue,
expense, and
profit—
department
Growth, revenue,
and cost per
adjusted patient
day
Growth, revenue,
and cost per
physician full-time
equivalent (FTE)
Price
competitiveness
on selected
services
Research grant
revenue
Metrics to
Measure
Performance
from the
Customer
Perspective
• By service, type, and physician.
• Turnover—new patients and those exiting the system.
Patient care volumes
• Referral and admission rates.
• Satisfaction.
• Availability of resources (e.g., operating suite time).
Physician
• Readmission rates.
• Complication rates.
• Compliance with evidence-based guidelines.
• Medical errors
Clinical Measures
Metrics to
Measure
Performance
from the
Customer
Perspective
• Patient Satisfaction
• Waiting Time.
• Cleanliness – Ambience
• Ease of navigation
• Parking
• Billing Complaints
Customer Services
Reputation
Market Share by Product line.
Price Comparisons relative to competitors
Metrics to
Measure
Performance
from the
Operational
Perspective
• Average length of stay—case-mix adjusted.
• FTE/adjusted patient day.
• FTE/diagnosis-related group (DRG).
• FTE/RVU.
• FTE/clinic visit.
• Waiting time inside clinical systems.
• Access time to appointments.
• Percent value-added time.
• Utilization of resources (e.g., operating room, imaging suite).
• Patients leaving emergency department without being seen.
• Operating room cancellations.
• Admitting process performance.
• Billing system performance.
• Medication errors.
• Nosocomial infections.
• National Quality Forum (2002) “never events”
Undesirable health care situations
An emergency department has average wait time of 80 minutes for nurse examination and 6 hours for discharge or hospital
admission, hardly “emergency support.”
Patient customer feedback surveys indicate an average 3.9 satisfaction level, with scale of 0 (fully dissatisfied) to 7 (fully
satisfied).
A hospital’s surgical complication rate has been “worse than the national rate” for the last three assessments.
The gastroenterology ward “can’t go a day” without an accidental needle stick…and all the related medical follow-up,
documentation, stress, and very real health risks.
A state inspection identified serious flaws in the hospital’s biohazard waste program.
Nursing staff members complain of endless—or not enough—overtime.
A department’s operating costs have increased by 15% year-on-year, without clear explanation of the reason(s).
What is a good bed occupancy rate?
Market data from
universal database,
resulting from
comprehensive global
research on this KPI,
indicates that 85-
90% is the ideal range
for % Hospital bed
occupancy rate,
as a rate higher than
90% may induce the
danger of
overcrowding,
indicating that
hospitals may have to
turn away patients
and postpone the
provision of ...
Six Skills of
Effective CEOs
Getting Results Creating Culture Attracting Talent
Driving Innovation Setting Strategy Communicating
with Stakeholders
The Modern Health Care and Business Environment
New managerial approaches are needed
Why?
• Massive increases in health care costs
• Rapid changes in the business environment
• Transition from sellers’ market to buyers’ market
What is a
Sellers’
Market?
Supplier or service provider
largely dictates terms
• Customer is charged for full costs
plus a reasonable profit.
• Response time: We are doing our
best
• Quality: We are doing our best
• Performance: We know what our
customers need
Today’s business market is
more of a buyers’ market
What is a
Buyers’
Market?
A buyers’ market is characterized by
• Globalization of the world economy
• Fierce competition
• Global excess capacities (production, services, etc.)
• New managerial approaches
• Access to data and knowledge
• Cheap and rapid communication
• Timely availability of materials and services
• Ease of global travel and transport
• Advanced technologies for production
• Extensive use of advanced IT & communications
• Shortened life cycles of products and services
• Customer empowerment
What is a Buyers’ Market?
Price
Determined by
the market
Response
time
Determined by
response time of
best in the market
Quality
Determined by
quality of best in
the market.
Performance
Driven by
customers
The Health Care Market
In health care today, demand for services is up while budgets are being reduced
Customers know more
Customers demand more
Technology is developing rapidly
Life expectancy is increasing
System Optimization and Suboptimization
The performance of the whole system depends on a few factors like the
system constraints
In a hospital, the operating rooms are often system constraints or bottlenecks
If every subunit in an organization strives to function optimally, the entire
organization may suffer
This is called suboptimization or local optimization
Example of
Suboptimization
Purchasing Dept. in Hospital
was judged based on
purchasing costs
It bought lower-cost, inferior-
quality products
Clinical and service failures
resulted along with repeat
hospitalizations
The Optimizer
Optimizer:
A decision maker who
wants to make the best
possible decision without
consideration of time
constraints
To reach the
optimal decision
One must generate all
alternatives
Gather all the information
Build a model that will
evaluate the alternatives
Choose the best one
This requires time,
effort, and money
Challenges for the Optimizer
Building the optimal model to evaluate alternatives is time and labor-intensive
The optimizer may find the perfect solution, but it may come too late
In a dynamic world, changes are frequent
Timely decisions must be made
This makes life challenging for the optimizer
The Pareto Rule, Focusing Table and Focusing Matrix
Pareto discovered that approx. 20% of the population has approx. 80% of
world wealth
This is called the “20-80 rule” and it describes many phenomena
20% of the patients in a hospital ward consume 80% of caregivers’ time
20% of patients consume 80% of medications
Other Examples of the Pareto Rule
20% of medications account for 80% of pharmaceutical costs
20% of laboratory tests account for 80% of laboratory costs
20% of suppliers provide about 80% of the value of products, materials, and
components
20% of hospital inventory items constitute about 80% of the total inventory
value
ABC Classification
20% of factors are responsible for 80% of outcomes
Group A
30% of factors are responsible for 10% of outcomes
Group B
50% of factors are responsible for 10% of outcomes
Group C
ABC Classification: An Example
Group A:
20% of patients in
a ward account
for 80% of ward
expenses
Group B:
30% of patients in
a ward account
for 10% of ward
expenses
Group C:
50% of patients in
a ward account
for 10% of ward
expenses
Pareto Analysis of Drug Use in a Hospital
Pareto Analysis of Drug Use in a Hospital
Pareto Diagram of Analysis of Drug Costs
Classification of
Suppliers by
Purchasers
• Group A suppliers: The big
suppliers are 20% of all suppliers
and account for 80% of the dollar
value of all purchases
• Group B suppliers: The 30%
medium-size suppliers account
for 10% of the total value of
purchases
• Group C suppliers: The small
suppliers constitute 50% of all
suppliers but only 10% of
purchase value
A Differential Policy for Each
Supplier Group
Group A suppliers: Comprehensive negotiations at the beginning of
the year, detailed negotiations on the largest purchasing orders
throughout the year
Group A
Group B suppliers: A group of selected suppliers will be chosen,
comparative price follow-up performed periodically
Group B
Group C suppliers: Price discounts will be negotiated annually
Group C
Resource Allocation
Most resources should be devoted to negotiations
with group A suppliers
Few resources should be invested in dealing with
group B suppliers
Group C suppliers will be evaluated occasionally
It may not always make sense to focus on
monetary contribution --one alternative is item
criticality
What is Forecasting?
Process of
predicting a
future event
Underlying basis
of all business
decisions
Production
Inventory
Personnel
Facilities
Forecasting
Time
Horizons
• Up to 1 year, generally less than 3 months
• Purchasing, job scheduling, workforce levels,
job assignments, production levels
Short-range forecast
• months to 3 years
• Sales and production planning, budgeting
Medium-range forecast
• +3 years
• New product planning, facility location,
research and development
Long-range forecast
Seven Steps in Forecasting
Determine the
use of the
forecast
Select the items
to be forecasted
Determine the
time horizon of
the forecast
Select the
forecasting
model(s)
Gather the data
needed to make
the forecast
Make the
forecast
Validate and
implement
results
Forecasting Approaches
Qualitative Methods
Quantitative Methods
Qualitative Methods
• New products
• New technology
Used when situation is vague and little data exist
• e.g., forecasting sales on Internet ( telemedicine consultations)
Involves intuition, experience
Overview of Qualitative Methods
Jury of Executive
Opinion
Method:
• A method of forecasting using a composite
forecast prepared by a number of individual
experts.
• Involves small group of high-level experts and
managers.
• Group estimates demand by working together.
• Combines managerial experience with statistical
models.
• Relatively quick
• ‘Group-think’ disadvantage
Benefits of Jury of executive
opinion
Quick and
easy method.
Pool's opinion
of
experienced,
well-informed
people.
For a young
company, it
may be the
only way.
When
statistics are
missing, there
can be no
other option
Overview of Qualitative Methods
Delphi Method
• Iterative group process, continues until consensus is
reached.
• 3 types of participants:
• Decision makers: Evaluate responses and make decisions
• Staff: Administering survey
• Respondents: People who can make valuable judgments
Overview of Qualitative Methods
Sales Force Composite
•Each salesperson projects his or her sales
•Combined at district and national levels
•Sales reps know customers’ wants
•May be overly optimistic
Overview of Qualitative Methods
Market Survey
• Ask customers about purchasing plans
• Useful for demand and product design and
planning
• What consumers say, and what they actually do
may be different
• May be overly optimistic
Quantitative Methods
Used when situation is ‘stable' and historical data exist
• Existing products
• Current technology
Involves mathematical techniques
Overview of Quantitative Approaches
Time series
models
Naive
approach.
Moving
averages.
Exponential
smoothing
Associative
model
Trend
projection
Linear
regression
Time-Series Forecasting
Set of evenly spaced numerical data
• Obtained by observing response variable at regular time periods
Forecast based only on past values; no other variables
important.
• Assumes that factors influencing past, and present will continue
influence in future
Trend Component
Persistent, overall upward or downward
pattern
Changes due to population, technology,
age, culture, etc.
Typically, several years duration
Time-Series
Components
Trend
Cyclical
Seasonal
Random
Seasonal
Component
Regular pattern of up
and down fluctuations
Due to weather,
customs, etc.
Occurs within a single
year
PERIOD
LENGTH
“SEASON”
LENGTH
NUMBER OF “SEASONS” IN
PATTERN
Week Day 7
Month Week 4 – 4.5
Month Day 28 -31
Year Quarter 4
Year Month 12
Year Week 52
Cyclical
Component
Repeating up and down
movements
Affected by business cycle,
political, and economic factors
Multiple years duration
Often causal or associative
relationships
Random
Component
Erratic, unsystematic, ‘residual’
fluctuations
Due to random variation or
unforeseen
events
Short duration and nonrepeating
Naive Approach
Assumes demand in next period is the same as demand in most
recent period
• e.g., If January sales were 68, then February sales will be 68
Sometimes cost effective and efficient
Can be good starting point
Forecasting in the Service Sector
Presents unusual
challenges
Special need for short term
records
Needs differ greatly as
function of industry and
product
Holidays and other
calendar events
Unusual events
Bottleneck Analysis and the Theory of Constraints
Each work area can have its own unique capacity
Capacity analysis determines the throughput capacity of workstations in a
system
A bottleneck is a limiting factor or constraint
A bottleneck has the lowest effective capacity in a system
Bottleneck Analysis and the Theory of Constraints
The bottleneck time is the time of the slowest workstation (the one that takes the longest) in a
production system.
The throughput time is the time it takes a unit to go through production from start to end
Theory of Constraints
Five-step process for recognizing and managing limitations
Step 5 Once overcome, go back to Step 1 and find new constraints
Step 4 Reduce the effects of constraints by offloading work or expanding capability
Step 3 Focus resources on accomplishing Step 2
Step 2 Develop a plan for overcoming the constraints
Step 1 Identify the constraints
Bottleneck Management
Release work orders to the system at the pace of or set by the bottleneck
Lost time at the bottleneck represents lost time for the whole system
Increasing the capacity of a non-bottleneck station is a mirage
Increasing the capacity of a bottleneck increases the capacity of the whole
system
Thank you
Ahmad Thanin

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Healthcare Operation Management

  • 2. OBJECTIVES Define operations management Explain the distinction between goods and services Explain the difference between production and productivity. Compute single-factor productivity Identify the critical variables in enhancing productivity
  • 3. Operations Management Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs. OM is one of three major functions of any organization; we want to study how people organize themselves for productive enterprise. We want (and need) to know how goods and services are produced. We want to understand what operations managers do. OM is such a costly part of an organization
  • 4. What is Operations Management in health care? Operations management is the overall coordination of processes required for the creation and distribution of products and services. For example, managing costs while delivering quality services is a major component of healthcare operations management. Health care operations are certain administrative, financial, legal, and quality improvement activities of a covered entity that are necessary to run its business and to support the core functions of treatment and payment.
  • 5. What are the core functions of operations management? Planning, Scheduling. Purchasing. Controlling. Quality Control Inventory Control
  • 6. General Functions and Roles in Healthcare Operations Management Planning, Planning information systems Managing projects Helping to design and develop services Managing inventory through the supply chain Optimizing quality control Conducting procurement/purchasing Managing logistics Managing and maintaining facilities Conducting enterprise resource planning (ERP) Forecasting for planning Planning for capacity Navigating industrial labor relations Analyzing the value chain Optimizing resource usage Eliminating waste and bottlenecks Continuously improving processes Executing a company’s strategic plan
  • 7. 10 Decision Areas of Healthcare OM Design of Services. Quality Management. Process and Capacity Design. Location Strategy. Layout Design and Strategy. Human Resources and Job Design. Supply Chain Management. Inventory Management. Scheduling Maintenance
  • 8. The Strategic Decisions • Defines what is required of operations • Product design determines quality, sustainability and human resources Design of Services • Determine the customer’s quality expectations • Establish policies and procedures to identify and achieve that quality Managing Quality
  • 9. The Strategic Decisions • How is a service produced? • Commits management to specific technology, quality, resources, and investment. Process and Capacity Design • Nearness to customers, suppliers, and talent. • Considering costs, infrastructure, logistics, and government. Location Strategy
  • 10. The Strategic Decisions • Integrate capacity needs, personnel levels, technology, and inventory • Determine the efficient flow of materials, people, and information. Layout Strategy • Recruit, motivate, and retain personnel with the required talent and skills. • Integral and expensive part of the total system design. Human Resources and Job Design
  • 11. The Strategic Decisions • Integrate supply chain into the firm’s strategy. • Determine what is to be purchased, from whom, and under what conditions. Supply-Chain Management • Inventory ordering and holding decisions. • Optimize considering customer satisfaction, supplier capability, and production schedules. Inventory Management
  • 12. The Strategic Decisions • Determine and implement intermediate- and short-term schedules. • Utilize personnel and facilities while meeting customer demands. Scheduling • Consider facility capacity, production demands, and personnel. • Maintain a reliable and stable process. Maintenance
  • 13. Major Challenges of Hospital Financial Challenges. Patient Safety. Government Mandates. Access to Care. Facility Security. Technology Upgradation. Personal Shortages
  • 14.
  • 15. The Input- Output Model If we want to improve outputs, we must increase inputs If we want to increase patient volume in a clinic By 20%, we need more personnel, space, advertising, etc. If we want to improve (decrease) waiting time for patients, we need more personnel and equipment
  • 16.
  • 17. Strategies of Operations Management Operations management functions as the company’s engine room. Since operations managers are involved in many roles and functions, they have developed several important strategies and tactics to ensure the smooth implementation of their obligations and responsibilities.
  • 18. The main strategic and tactical methods Leveraging Data • Savvy operations managers depend on quality, accurate, and reliable data for planning, strategic marketing and decision making. • Two types of data analysis commonly used are efficiency and effectiveness metrics. Controlling Data Challenges • Sometimes, data can be very large, and the results vary, making it difficult to compare. • Fortunately, with the help of advanced systems and software, managers can see, manage and analyze data more easily and organized. Analyzing Inventory • The inventory will easily analyze if the company uses inventory management software. • This tool will also make it easier for managers to categorize their products (known as the ABC analysis).
  • 19. The main strategic and tactical methods • Operations managers work hard in making the best research, accurate estimates, and the right development of good processes. • All these efforts will eventually lead to long-lasting results Designing Processes • Setting goals provides direction and motivation to the company and its employees. • Forecasting gives hope as well as provides an opportunity for the company to prepare for bad results. • Forecasting requires complete and accurate historical data. Forecasting and Setting Goals • Collaboration between departments is needed so that the finance, marketing and human resources teams can work together in harmony to make improvements for the company. • Any ERP system enables inter-departmental collaboration by providing centralized information for all departments, making communication easier and more transparent. Collaboration Between Departments
  • 20. The main strategic and tactical methods • Being responsible for the environment as well as the communities that are directly affected by the business are the main concerns that must be taken care of by the company. • This is especially true for services that often deal with medical waste issues. Social Responsibility • Managing employees is very important for your business success since employees are the backbone of your company • Without these people, daily business activities will cease, and your company won’t be able to produce quality goods or services. HR Management
  • 22. The health information system • (HIS) is broadly defined as a system that integrates data collection, processing, reporting, and use of the information necessary for improving health service effectiveness and efficiency through better management at all levels of health services.
  • 23. Importance of a Health Information System Produces information needed by • Patients, communities, service providers, programme managers, policy-makers, providers of funds, global agencies and organizations Information used for • Better management, assess coverage and quality of services; costs and expenditures. • Detect and control emerging and endemic health problems • Monitor progress towards health goals; and promote equity. • Strengthen the evidence base for effective health policies. • Improve management related to mobilizing new resources and ensure accountability of their use.
  • 24. Definition of Enterprise Resource Planning (ERP) ERP stands for "Enterprise Resource Planning" and refers to a type of software or system used by a business to plan and manage daily activities such as Enterprise Resource Planning software can be used to automate and simplify individual activities across a business or organization, such as • Supply chain • Manufacturing • Services • financials and other processes. • Accounting • Procurement • project management • customer relationship management • risk management • Compliance • supply chain operations.
  • 25. What is medical practice management software? Medical practice management software is designed to help medical facilities run more efficiently. It’s a technology solution that can be used for scheduling appointments, tracking appointment times, managing billing cycles and organizing patient information. it allows healthcare organizations to stay organized and ensure high-level patient care.
  • 26. Electronic Medical Record (EMR) An electronic record of health-related information on an individual that can be created, gathered, managed, and consulted by authorized clinicians and staff within one health care organization. Can facilitate workflow and improve the quality of patient care and patient safety
  • 27. What are the benefits of health information system? Promoting quality of care through optimized access to and adherence to guidelines Tracking, and reporting Improving medication safety Facilitating communication between health care providers
  • 28. Operation Management Strategies for Competitive Advantage Differentiation – better, or at least different. Cost leadership – cheaper. Response – more responsive
  • 30. Models Modeling is a key tool used by all decision makers. • an abstraction of reality; a simplification of something. Common features of models: • They are simplifications of real-life phenomena • They omit unimportant details of the real-life systems they mimic so that attention can be focused on the most important aspects of the real-life system
  • 31. Type of Models • Look like their real-life counterparts. Physical Models • Look less like their real-life counterparts than physical models Schematic Models • Do not look at all like their real-life counterparts Mathematical Models
  • 32. Understanding Models Keys to successfully using a model in decision making What is the purpose? How is it used to generate results? How are the results interpreted and used? What are the model’s assumptions and limitations?
  • 33. Benefits of Models Models are generally easier to use and less expensive than dealing with the real system. Require users to organize and sometimes quantify information. Increase understanding of the problem. Enable managers to analyze “What if?” questions. Serve as a consistent tool for evaluation and provide a standardized format for analyzing a problem. Enable users to bring the power of mathematics to bear on a problem.
  • 34. Limitations of Models Quantitative information may be emphasized at the expense of qualitative information. Models may be incorrectly applied, and the results misinterpreted • This is a real risk with the widespread availability of sophisticated, computerized models are placed in the hands of uninformed users. The use of models does not guarantee good decisions. Nonqualified users may not comprehend the rules on how to use the model
  • 35. Quantitative Methods A decision-making approach that frequently seeks to obtain a mathematically optimal solution: • Linear programming • Queuing techniques • Inventory models • Project models • Forecasting techniques • Statistical models
  • 36. Performance metrics & Analysis of trade- offs • All managers use metrics to manage and control operations: • Profits, costs, productivity and forecast accuracy. Performance Metrics • A trade off is giving up one thing in return for something else. • Carrying more inventory (an expense) in order to achieve a greater level of customer service. Analysis of Trade – Offs
  • 37. Systems Approach System - a set of interrelated parts that must work together The business organization is a system composed of subsystems • marketing subsystem • operations subsystem • finance subsystem • Medical Record System The systems approach • Emphasizes interrelationships among subsystems • Main theme is that the whole is greater than the sum of its parts • The output and objectives of the organization take precedence over those of any one subsystem
  • 38. Establishing Priorities In nearly all cases, certain issues or items are more important than others Recognizing this allows managers to focus their attention to those efforts that will do better Pareto Phenomenon •a few factors account for a high percentage of occurrence of some event(s) •80–20 Rule: 80% of problems are caused by 20% of the activities. •The critical few factors should receive the highest priority •This is a concept that is appropriately applied to all areas and levels of management
  • 39. Ethical Issues in Operations Ethical issues arise in many aspects of operations management: Financial statements Worker safety Product safety Quality The environment The community Hiring and firing workers Closing facilities Workers rights
  • 40. Ten Steps to Close the Gap • Care based on continuous healing relationships. • Customization based on patient needs and values. • The patient as the source of control. • Shared knowledge and the free flow of information. • Evidence-based decision making. • Safety as a system property. • The need for transparency • Anticipation of needs. • Continuous decrease in waste. • Cooperation among clinicians.
  • 41. Care based on continuous healing relationships Patients should receive care whenever they need it and, in many forms, not just face-to- face clinic visits. ( home healthcare, telemedicine) This rule implies that the healthcare system should be always responsive (24 hours a day, every day), and that access to care should be provided over the Internet, by telephone, and by other means in addition to face-to-face visits
  • 42. Customization based on patient needs and values The system of care should be designed to meet the most common types of needs but have the capability to respond to individual patient choices and preferences.
  • 43. The patient as the source of control Given all relevant information and the opportunity to exercise whatever degree of control they choose over healthcare decisions that affect them. The health system should be able to accommodate differences in patient preferences and encourage shared decision making.
  • 44. Shared knowledge and the free flow of information Patients should have unfettered access to their own medical information and to clinical knowledge. Clinicians and patients should communicate effectively and share information.
  • 45. Evidence- based decision making Patients should receive care based on the best available scientific knowledge. Care should not vary illogically from clinician to clinician or from place to place.
  • 46. Safety as a system property Patients should be safe from injury caused by the care system. Reducing risk and ensuring safety require greater attention to systems that help prevent and mitigate errors.
  • 47. The need for transparency The healthcare system should make available to patients and their family's information that allows them to make informed decisions when selecting a health plan, hospital, or clinical practice, or when choosing among alternative treatments. This should include information describing the system’s performance on safety, evidence- based practice, and patient satisfaction
  • 48. • The health system should anticipate patient needs rather than simply react to events. Anticipation of needs. • The health system should not waste resources or patient time. Continuous decrease in waste. • Clinicians and institutions should actively collaborate and communicate to ensure an appropriate exchange of information and coordination of care. Cooperation among clinicians.
  • 49. Metrics to Measure Performance from the Financial Perspective Percent of budget—revenue Percent of budget—expense Days in accounts receivable Days of cash on hand Collection rate Return on assets Expense per relative value unit (RVU) Cost per surgical case Case-mix index Payer mix Growth, revenue, expense, and profit—product line Growth, revenue, expense, and profit— department Growth, revenue, and cost per adjusted patient day Growth, revenue, and cost per physician full-time equivalent (FTE) Price competitiveness on selected services Research grant revenue
  • 50. Metrics to Measure Performance from the Customer Perspective • By service, type, and physician. • Turnover—new patients and those exiting the system. Patient care volumes • Referral and admission rates. • Satisfaction. • Availability of resources (e.g., operating suite time). Physician • Readmission rates. • Complication rates. • Compliance with evidence-based guidelines. • Medical errors Clinical Measures
  • 51. Metrics to Measure Performance from the Customer Perspective • Patient Satisfaction • Waiting Time. • Cleanliness – Ambience • Ease of navigation • Parking • Billing Complaints Customer Services Reputation Market Share by Product line. Price Comparisons relative to competitors
  • 52. Metrics to Measure Performance from the Operational Perspective • Average length of stay—case-mix adjusted. • FTE/adjusted patient day. • FTE/diagnosis-related group (DRG). • FTE/RVU. • FTE/clinic visit. • Waiting time inside clinical systems. • Access time to appointments. • Percent value-added time. • Utilization of resources (e.g., operating room, imaging suite). • Patients leaving emergency department without being seen. • Operating room cancellations. • Admitting process performance. • Billing system performance. • Medication errors. • Nosocomial infections. • National Quality Forum (2002) “never events”
  • 53. Undesirable health care situations An emergency department has average wait time of 80 minutes for nurse examination and 6 hours for discharge or hospital admission, hardly “emergency support.” Patient customer feedback surveys indicate an average 3.9 satisfaction level, with scale of 0 (fully dissatisfied) to 7 (fully satisfied). A hospital’s surgical complication rate has been “worse than the national rate” for the last three assessments. The gastroenterology ward “can’t go a day” without an accidental needle stick…and all the related medical follow-up, documentation, stress, and very real health risks. A state inspection identified serious flaws in the hospital’s biohazard waste program. Nursing staff members complain of endless—or not enough—overtime. A department’s operating costs have increased by 15% year-on-year, without clear explanation of the reason(s).
  • 54. What is a good bed occupancy rate? Market data from universal database, resulting from comprehensive global research on this KPI, indicates that 85- 90% is the ideal range for % Hospital bed occupancy rate, as a rate higher than 90% may induce the danger of overcrowding, indicating that hospitals may have to turn away patients and postpone the provision of ...
  • 55. Six Skills of Effective CEOs Getting Results Creating Culture Attracting Talent Driving Innovation Setting Strategy Communicating with Stakeholders
  • 56. The Modern Health Care and Business Environment New managerial approaches are needed Why? • Massive increases in health care costs • Rapid changes in the business environment • Transition from sellers’ market to buyers’ market
  • 57. What is a Sellers’ Market? Supplier or service provider largely dictates terms • Customer is charged for full costs plus a reasonable profit. • Response time: We are doing our best • Quality: We are doing our best • Performance: We know what our customers need Today’s business market is more of a buyers’ market
  • 58. What is a Buyers’ Market? A buyers’ market is characterized by • Globalization of the world economy • Fierce competition • Global excess capacities (production, services, etc.) • New managerial approaches • Access to data and knowledge • Cheap and rapid communication • Timely availability of materials and services • Ease of global travel and transport • Advanced technologies for production • Extensive use of advanced IT & communications • Shortened life cycles of products and services • Customer empowerment
  • 59. What is a Buyers’ Market? Price Determined by the market Response time Determined by response time of best in the market Quality Determined by quality of best in the market. Performance Driven by customers
  • 60. The Health Care Market In health care today, demand for services is up while budgets are being reduced Customers know more Customers demand more Technology is developing rapidly Life expectancy is increasing
  • 61. System Optimization and Suboptimization The performance of the whole system depends on a few factors like the system constraints In a hospital, the operating rooms are often system constraints or bottlenecks If every subunit in an organization strives to function optimally, the entire organization may suffer This is called suboptimization or local optimization
  • 62. Example of Suboptimization Purchasing Dept. in Hospital was judged based on purchasing costs It bought lower-cost, inferior- quality products Clinical and service failures resulted along with repeat hospitalizations
  • 63. The Optimizer Optimizer: A decision maker who wants to make the best possible decision without consideration of time constraints To reach the optimal decision One must generate all alternatives Gather all the information Build a model that will evaluate the alternatives Choose the best one This requires time, effort, and money
  • 64. Challenges for the Optimizer Building the optimal model to evaluate alternatives is time and labor-intensive The optimizer may find the perfect solution, but it may come too late In a dynamic world, changes are frequent Timely decisions must be made This makes life challenging for the optimizer
  • 65. The Pareto Rule, Focusing Table and Focusing Matrix Pareto discovered that approx. 20% of the population has approx. 80% of world wealth This is called the “20-80 rule” and it describes many phenomena 20% of the patients in a hospital ward consume 80% of caregivers’ time 20% of patients consume 80% of medications
  • 66. Other Examples of the Pareto Rule 20% of medications account for 80% of pharmaceutical costs 20% of laboratory tests account for 80% of laboratory costs 20% of suppliers provide about 80% of the value of products, materials, and components 20% of hospital inventory items constitute about 80% of the total inventory value
  • 67. ABC Classification 20% of factors are responsible for 80% of outcomes Group A 30% of factors are responsible for 10% of outcomes Group B 50% of factors are responsible for 10% of outcomes Group C
  • 68. ABC Classification: An Example Group A: 20% of patients in a ward account for 80% of ward expenses Group B: 30% of patients in a ward account for 10% of ward expenses Group C: 50% of patients in a ward account for 10% of ward expenses
  • 69. Pareto Analysis of Drug Use in a Hospital
  • 70. Pareto Analysis of Drug Use in a Hospital
  • 71. Pareto Diagram of Analysis of Drug Costs
  • 72. Classification of Suppliers by Purchasers • Group A suppliers: The big suppliers are 20% of all suppliers and account for 80% of the dollar value of all purchases • Group B suppliers: The 30% medium-size suppliers account for 10% of the total value of purchases • Group C suppliers: The small suppliers constitute 50% of all suppliers but only 10% of purchase value
  • 73. A Differential Policy for Each Supplier Group Group A suppliers: Comprehensive negotiations at the beginning of the year, detailed negotiations on the largest purchasing orders throughout the year Group A Group B suppliers: A group of selected suppliers will be chosen, comparative price follow-up performed periodically Group B Group C suppliers: Price discounts will be negotiated annually Group C
  • 74. Resource Allocation Most resources should be devoted to negotiations with group A suppliers Few resources should be invested in dealing with group B suppliers Group C suppliers will be evaluated occasionally It may not always make sense to focus on monetary contribution --one alternative is item criticality
  • 75. What is Forecasting? Process of predicting a future event Underlying basis of all business decisions Production Inventory Personnel Facilities
  • 76. Forecasting Time Horizons • Up to 1 year, generally less than 3 months • Purchasing, job scheduling, workforce levels, job assignments, production levels Short-range forecast • months to 3 years • Sales and production planning, budgeting Medium-range forecast • +3 years • New product planning, facility location, research and development Long-range forecast
  • 77.
  • 78. Seven Steps in Forecasting Determine the use of the forecast Select the items to be forecasted Determine the time horizon of the forecast Select the forecasting model(s) Gather the data needed to make the forecast Make the forecast Validate and implement results
  • 80. Qualitative Methods • New products • New technology Used when situation is vague and little data exist • e.g., forecasting sales on Internet ( telemedicine consultations) Involves intuition, experience
  • 81. Overview of Qualitative Methods Jury of Executive Opinion Method: • A method of forecasting using a composite forecast prepared by a number of individual experts. • Involves small group of high-level experts and managers. • Group estimates demand by working together. • Combines managerial experience with statistical models. • Relatively quick • ‘Group-think’ disadvantage
  • 82. Benefits of Jury of executive opinion Quick and easy method. Pool's opinion of experienced, well-informed people. For a young company, it may be the only way. When statistics are missing, there can be no other option
  • 83. Overview of Qualitative Methods Delphi Method • Iterative group process, continues until consensus is reached. • 3 types of participants: • Decision makers: Evaluate responses and make decisions • Staff: Administering survey • Respondents: People who can make valuable judgments
  • 84. Overview of Qualitative Methods Sales Force Composite •Each salesperson projects his or her sales •Combined at district and national levels •Sales reps know customers’ wants •May be overly optimistic
  • 85. Overview of Qualitative Methods Market Survey • Ask customers about purchasing plans • Useful for demand and product design and planning • What consumers say, and what they actually do may be different • May be overly optimistic
  • 86. Quantitative Methods Used when situation is ‘stable' and historical data exist • Existing products • Current technology Involves mathematical techniques
  • 87. Overview of Quantitative Approaches Time series models Naive approach. Moving averages. Exponential smoothing Associative model Trend projection Linear regression
  • 88. Time-Series Forecasting Set of evenly spaced numerical data • Obtained by observing response variable at regular time periods Forecast based only on past values; no other variables important. • Assumes that factors influencing past, and present will continue influence in future
  • 89. Trend Component Persistent, overall upward or downward pattern Changes due to population, technology, age, culture, etc. Typically, several years duration
  • 91. Seasonal Component Regular pattern of up and down fluctuations Due to weather, customs, etc. Occurs within a single year PERIOD LENGTH “SEASON” LENGTH NUMBER OF “SEASONS” IN PATTERN Week Day 7 Month Week 4 – 4.5 Month Day 28 -31 Year Quarter 4 Year Month 12 Year Week 52
  • 92. Cyclical Component Repeating up and down movements Affected by business cycle, political, and economic factors Multiple years duration Often causal or associative relationships
  • 93. Random Component Erratic, unsystematic, ‘residual’ fluctuations Due to random variation or unforeseen events Short duration and nonrepeating
  • 94. Naive Approach Assumes demand in next period is the same as demand in most recent period • e.g., If January sales were 68, then February sales will be 68 Sometimes cost effective and efficient Can be good starting point
  • 95.
  • 96. Forecasting in the Service Sector Presents unusual challenges Special need for short term records Needs differ greatly as function of industry and product Holidays and other calendar events Unusual events
  • 97. Bottleneck Analysis and the Theory of Constraints Each work area can have its own unique capacity Capacity analysis determines the throughput capacity of workstations in a system A bottleneck is a limiting factor or constraint A bottleneck has the lowest effective capacity in a system
  • 98. Bottleneck Analysis and the Theory of Constraints The bottleneck time is the time of the slowest workstation (the one that takes the longest) in a production system. The throughput time is the time it takes a unit to go through production from start to end
  • 99. Theory of Constraints Five-step process for recognizing and managing limitations Step 5 Once overcome, go back to Step 1 and find new constraints Step 4 Reduce the effects of constraints by offloading work or expanding capability Step 3 Focus resources on accomplishing Step 2 Step 2 Develop a plan for overcoming the constraints Step 1 Identify the constraints
  • 100. Bottleneck Management Release work orders to the system at the pace of or set by the bottleneck Lost time at the bottleneck represents lost time for the whole system Increasing the capacity of a non-bottleneck station is a mirage Increasing the capacity of a bottleneck increases the capacity of the whole system