FTE, utilization, and cost accounting … when PUNs equal CUEs

Cost accounting (whether standard costing or TDABC) is based on the concept that ‘bits’ of the cost of a resource can be allocated to any product (service) produced. FTE (Full Time Employee/Equivalent) tracking is based on the concept that the maximization of productivity is based solely on the cumulative number of employees hours and not on the timing and coordination of those hours worked.  Accountants use fixed cost allocations, utilization metrics and FTEs (all are reduced parameter models) to try to measure productivity costs instead of a more robust multiparameter model.
A common problem is the need to staff for peak resource requirements.  The use of  part-time employees — those who work for a few hours each day only during peak hours– is a way to decrease FTEs and still cover the peak hours.  Rarely have I seen significant effort in altering the other part of the equation—that of leveling the peaks. Occasionally, resource duties are expanded in an attempt to increase utilization of that resource, but one has to be careful not to make the resource become a constraint due to overlapping duties.
In constraint theory, you decide what you want your constraint to be which will then become the drumbeat for your activities.  In the OR, the surgeons’ scheduling of cases is the constraint.  But, in most ORs, the case load varies significantly throughout the day .  This implies that FTEs will have peak and slack periods of activity.  Unfortunately, the peak and slack periods are usually scattered randomly throughout the day which makes the use of part-time employees to decrease FTEs difficult to coordinate effectively.
Firefighters and electric companies are more extreme examples of very ‘peaked’ industries.  Firefighters have a lot of downtime; many communities even have volunteer firefighters with other jobs because the ‘peak’ activity required during a fire is a rare event.  Electric companies have to build capacity for the peak electric use (particularly during the summer) but could otherwise significantly decrease their capacity if electric use were constant (total use divided by capacity) or they could store electricity ( a lot of work being done on this, particularly in the solar energy industry).  Do the accounting measures  of ‘allocated costs’ and ‘FTEs’ adequately describe the resource requirements?
Maybe we should rename these accounting measures CUE (Constant Use Equivalent) and PUN (Peak Use Need) instead of ‘allocated cost’ and FTEs.  This would focus on the cause behind these two measurements and how to alter them to decrease negative cash flow related to the amount of product (megawatts, fires extinguished, patient throughput, revenue) produced. The need to ‘level’ the peaks by better scheduling (firefighters do not have this luxury) would become more apparent. (see for instance blog Graph of CRNA usage for Optimized Surgeon Schedule)
Many places in hospitals, particularly ORs, do not have scheduling software powerful and flexible enough to show how to alter the peaks that occur throughout the day.  Surgeons scheduling demands and variability in arrivals and lengths of cases makes constant resource use difficult, but adequate software and the knowledge of how to use it (not just the technical use, but also the theory and practice of how it applies to the OR) can significantly help clarify the causes and blunt the peaks which will decrease the required FTEs and allocated costs.  Someday, the ratio of PUN to CUE (PUN/CUE) might be followed with the goal of achieving unity.
In this discussion, FTE has represented a Full Time Equivalent.  It could also stand for Full Time Equipment.  The concept is the same and the problematic relationship of FTE, utilization, and fixed allocated costs to productivity and the bottom line is the same.

About Brian D Gregory MD, MBA

Board Certified Anesthesiologist for 30 years. TOC design and implement for 30 years. MBA from U of Georgia '90: Finance, Data Management, Risk Management. Practiced in multiple US states and Saudi Arabia at KFSH&RC and KFMC Taught residents in two locations. Worked with CRNAs for 20 years.
This entry was posted in Ambulatory Surgical Center, anesthesiologist, CEO, healthcare reform, scheduling, surgeon, Uncategorized and tagged , , , , , . Bookmark the permalink.

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