Designing a Successful Business Plan

Positioning the Lab for Success

Haddon Carryer
Mayo Clinic
Rochester, MN

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Learning Objectives

After this presentation, you should be able to

1. Define Strategic Planning and Understand Some

of its Major Components
2. Complete a SWOT Analysis For Your Laboratory
3. Understand the Balanced Scorecard and Explain
Why it Provides a Balanced View of the
Organizations Performance

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Managing the Curve Gap
Volume-Based First Curve
Fee-for-Service reimbursement
High quality not rewarded
No shared financial Risk
Acute inpatient hospital focus
Limited IT investment incentives
Standalone Care Systems can thrive
Regulatory Actions impede collaboration
Value-Based Second Curve
Rewards for quality & efficiency
Quality impacts reimbursement
Gap Shared Risk
Increased patient severity
IT capabilities are essential
Scale increase in importance
Realigned incentives,
coordination encouraged
American Hospital Association Sept 2013
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What is Planning?
How We Get From Here to There
1. Evaluate Current State
2. Clarify Vision of Future state
3. Collect Data
4. Identify Alternatives
5. Select Path Forward & Create Action Plan
6. Communicate Plan
7. Execute Plan
8. Analyze Results
9. Repeat

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Evaluate Current State
Get Input From Many Sources (Employees, Customers,
Focus Groups, etc.), Not Just the Planning Team!
S & W (Internal Factors) Consider SWOT Analysis: Subject
Human Resources Positive Negative
Strengths Weakness
Board Members
Population You Serve

Internal
Financial Resources
Current Programs
Past Experience
O & T (External Factors) Consider
Opportunities Threats
Who or What is Competing With You?
Future Trends in the Field
Economic and Regulatory Changes External
Demographics
(Customer and Employee)
Local and National Events
http://articles.bplans.com/how-to-perform-swot-analysis/

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Clarify Future State

Mission Statement

Clear Vision Statement

Goals

Quantifiable Objectives

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Collect Data
Solicit Feedback From Physicians
Tests Which They Want Quicker Turn-Around?
Tests With High Clinical Utility Brought In-House?
Review Send-Out Menu for Highest Spend
Understand Reimbursement for Tests Being Considered
Understand Capacity in Your Lab

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Identify Alternatives
Which Tests Should You Start With?
Break-Even Analysis
BE Occurs When Volumes Cover Fixed
Costs
Use Existing Total Cost and Volumes
to Calculate BE
Build vs Buy
Test Volume When In-house Margin =
Send-Out Margin

** Tools available in appendix

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Select a Path & Create Action Plan
Does the Plan Align With Your Vision/Goals?
Is it Financially Sustainable?
What Actions or Changes Will Occur?
Who Will Carry Out These Changes?
By When?
What Resources are Necessary?
Communication (Who Should Know)?

http://ctb.ku.edu/en/table-of-contents/structure/strategic-planning/develop-action-plans/main

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Communicate Plan
Simple Mission/Purpose - Center of All
Communications
Inspire, Educate and Reinforce
Inspire: Showcase Benefits
Educate: Provide Job-Specific Tools
Reinforce: Repeat Message Through
a Variety of Channels
Dont Announce and Disappear
Provide Regular Follow-up Communications

Source: Harvard Business Review Blog Network - Eight Ways to Communicate Your Strategy
More Effectively. Georgia Everse. August 22, 2011
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Execute Plan
Focus Employees on Results
Be Clear About Accountability
Treat Your Employees Like Owners
Use Project Managers and Tools Where
Appropriate

Source: Forbes. The Right Way to Execute Your Strategic Plan. Dorie Clark. May 8, 2013.

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 Analyze Results
Financial

KPIs/Measures
Objectives
To succeed

Initiatives
Targets
financially, how
should we
appear to our
shareholders? Owner

Internal Business
Customer
Processes

KPIs/Measures
KPIs/Measures

Vision

Objectives
To satisfy our
Objectives

To achieve

Initiatives
Initiatives

Targets
shareholders
Targets

our vision, how

should we and and customers,
appear to our what business
customers? Owner
Strategy process must Owner
we excel at?

Learning and
Growth KPIs/Measures
Objectives

To achieve
Initiatives
Targets
our vision, how
will we sustain
our ability to
change and Owner
improve?

Source: https://www.balancedscorecardreview.com

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Repeat
Quarterly Formal Reviews of the Process
Share the Balanced Scorecard
Assess the Plan Annually
Has Physician Demand Changed?
Have the Needs of our Patients Changed?

Planning is a Process Not an Event

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Self-Assessment Questions
1. An Organizations Planning Process Should Include Which
of the Following Steps
a. Evaluate Current State
b. Clarify Future State
c. Communicate the Plan
d. All of the above

2. A SWOT Analysis Outlines

a. Strengths, Weaknesses, Opportunities, Threats
b. Internal and External Factors of Influence
c. Positive and Negative Factors of Influence
d. All of the above

3. A Balanced Scorecard Helps an Organization Measure its Business

by Looking at Which Aspect(s)?
a. Financial, Customer, Internal Business Processes, and Learning and Growth
b. Strengths, Weaknesses, Opportunities, Threats
c. The Communication Plan
d. The Organizations Mission Statement and Values

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 Contact Information

Haddon Carryer
Director of Business Analytics
Mayo Medical Laboratories
507-266-9307
Carryer.Haddon@mayo.edu

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Appendix

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Fixed and Variable Cost

Variable: The incremental cost per volume.

The cost to produce each unit (Kit Cost, Staff
time to perform the test, sales tax, royalty, lab
consumables used to perform the test).

Fixed: Not related to level of production.

Remains unchanged as activity or .
(Equipment, Equip maintenance, OH
Allocation, Staff Training and Quality Control,
Facilities, Utilities).

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Determining Fixed and Variable Cost
Monthly Total Cost
Period Volume of Lab
1 80 9,300
2 100 11,400
3 200 11,900
4 95 10,300
If you know total volume and 5
6
130
125
12,600
12,400
total cost in your lab, 7 100 10,700
8 105 11,000
Variable Cost can be 9 100 10,500
10 90 10,000
estimated using the following 11 105 11,000
12 120 11,950
calculation:
Total 1,350 133,050

(Total Cost Highest Volume Month Total Cost Lowest Volume

Month)
(Volume Highest Month Volume Lowest Month)

(11,900 9,300) (200-80) = $21.67

Therefore, Variable Cost is estimated at $21.67/volume

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 Break-Even Calculator
Monthly Total Cost
Period Volume of Lab
1 80 9,300
Using VC of $21.67/volume, calculate 2 100 11,400
3 200 11,900
Total Variable Cost and Total Fixed Cost: 4 95 10,300
5 130 12,600
6 125 12,400
7 100 10,700
Total Variable Cost = $29,255 ($21.67*1,350) 8 105 11,000
9 100 10,500
Total Fixed Cost = $103,795 (TC TVC) 10 90 10,000
11 105 11,000
12 120 11,950

Total 1,350 133,050

Break-even volumes = Total Fixed Costs (Revenue per unit VC per unit)

Say, for example, Average Revenue/Test in your lab is $65.00

Then, annual break-even volumes = $103,795 ($65.00 - $21.67) or 2,396 tests

At 2,396 tests, enough Incremental Profit is earned

to cover the labs fixed costs of $103,795

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Build vs Buy
Know the volume when the in-house margin for a test equals the send-out margin

Example:
In-house Per Test Contribution Margin = $43.33 ($65 in Revenue less VC of $21.97)
Send-out margin = $25.00 ($65 in revenue billed less $40 in send-out cost)
New Equipment is $100,000 ($14,286 annual depreciation over 7 years)
FC equal $103,795

(Annual Fixed Cost + Annual Depreciation) $103,795 + $14,286 = 6,442

Incremental Profit Per Test ($43.33 - $25.00)

At 6,442 annual volumes, in-house margin per test = send out margin of $25
When volumes > 6,442, profit earned from performing the test in-house exceeds
profit earned from sending the test out.

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