C H A P T E R

14
MANAGEMENT’S ROLE IN

MAJOR IT INITIATIVES

LEARNING OBJECTIVES

■ To be able to understand the different types of organizational change associated
with IT initiatives.

■ To be able to discuss the strategies for effecting organizational change.

■ To review the structures and processes used to manage IT projects.

■ To review the factors that contribute to IT project failures.

387

388 Management’s Role in Major IT Initiatives

Health care organizations routinely undertake projects or initiatives designed to
improve the performance of the organization or advance its strategies through the use of
new or existing information technologies. Many of these projects involve the implemen-
tation of a major application system, and often these projects are labeled “IT projects.”
Examples of such projects include implementing computerized provider order entry,
streamlining the front-end processes of registration and scheduling, and enhancing the
discharge process.

This chapter discusses the role of management in these IT projects. The strategy
may have been defined and the IT agenda may have been aligned; now it is time
to execute the plan. What role should management play during the execution of IT
initiatives? What structures, processes, and roles should be in place to make sure that
the initiatives are well managed?

This chapter covers three major topics:

■ Managing organizational change due to IT initiatives

■ Managing IT projects

■ Understanding factors that contribute to IT initiative failures

MANAGING CHANGE DUE TO IT

A majority of IT initiatives involve or require organizational change — change in pro-
cesses or organizational structure or change in the form of expansion or contraction of
roles or services. IT-enabled change and IT-driven change have several possible origins:

■ The new IT system has capabilities different from those of the previous sys-
tem and hence the workflow that surrounds the system has to change and the
tasks that staff perform have to change. For example, if a new electronic medical
record system automatically generates letters for patients with normal test results,
then the individuals who used to generate these letters will no longer have to do
this task.

■ The discussion surrounding the desired capabilities of a new application can lead to
a reassessment of current processes, workflow, and distribution of tasks across staff
and a decision to make changes in processes that extend well beyond the computer
system. For example, the analysis surrounding a new patient accounting system
might highlight problems that occur during registration and scheduling (such as
failure to check insurance coverage during appointment check-in) that hinder the
optimal performance of patient accounting. In this way a new system becomes a
catalyst for a comprehensive set of changes.

■ The health care organization’s strategy may call for significant changes in the
way the organization operates and delivers care. For example, the organization
may decide to move aggressively to protocol-driven care. This transformation has
extensive ramifications for processes, roles, and workflow and for the design of
applications. New IT systems will be critical contributors to the changes needed,
but they are not the epicenter of the change discussion.

Managing Change Due to IT 389

Change management is an essential skill for the leaders of health care organiza-
tions. Although the need for this skill is not confined to situations that involve the
implementation of major applications, change management is a facet of virtually all
implementations of such applications.

Types of Organizational Change

Keen (1997) identified four categories of organizational change:

■ Incremental

■ Step-shift

■ Radical

■ Fundamental

Incremental Change Incremental change occurs through a series (at times contin-
uous) of small to medium-sized changes to processes, tasks, and roles. Each change
carries relatively low risk, can be completed quickly, and is often accomplished with-
out the need for substantial analysis or leadership intervention. At times, organizations
establish an overall emphasis on continuous change and create groups to help depart-
ments make changes and measure change impact. Techniques such as LEAN and Six
Sigma emphasize continuous, incremental change. Continuous, incremental change can
be seen as plodding and lacking bold vision. However, this perception misses the power
of such change over the course of time and the occurrence of such change across many
facets of the organization. One should remember that the Grand Canyon was formed
from continuous, incremental erosion.

The implementation of an application can involve change that is incremental. This
is particularly true when the application is an upgrade of an existing application and
has new reports and features that require modest alterations to existing workflow.

One outcome of continuous change may be the recognition that current application
systems are progressively becoming a poor fit with the evolving organization. After
several years of dealing with a growing gap between the capabilities of an application
and the direction of an evolving organization, the organization may decide to purchase
a new application; one that is a better fit.

Step-Shift Change In step-shift change the leadership is committed to making sig-
nificant changes but is not changing the basic direction of the organization or how
it generates value. Examples of such change include a focused effort to significantly
reduce the cost of care or improve patient safety, the addition of a nonacute business
line in an organization that has previously focused on acute care, and a major effort
to improve the patient service experience in the outpatient clinics. Step-shift change
involves an intense focus on a critical aspect of the organization and, for the areas
within that focus, major changes in processes, roles, and tasks. Step-shift change is
often driven by a strategic realization that the basis of competition has evolved to the
point that in the absence of such change, the organization’s success is in some degree
of peril.

390 Management’s Role in Major IT Initiatives

This type of change invariably leads to the implementation of major new applica-
tions. An emphasis on patient safety may lead to the implementation of computerized
provider order entry, and an effort to improve the patient experience in outpatient care
may result in the implementation of a new registration and scheduling application.
At times the leadership responsible for implementing a new application will realize
that this implementation creates the opportunity to effect step-shift change, asking, for
example, Why don’t we take advantage of this new outpatient system to make significant
improvements in the service experience?

Radical Change Radical change leaves the organization and its core assumptions
intact but significantly alters the way the organization carries out its business. The
creation of an integrated delivery system from a collection of previously independent
organizations is an example of radical change. The movement from fee-for-service
reimbursement to full capitation (that is, fixed fee per patient per year) is radical change.
Radical change always requires some changes, at times extensive changes, in the IT
application portfolio. Because the way work is done has changed significantly across
many facets of the organization, applications that fit the way work was previously done
may no longer be helpful.

In health care it is rare that IT will cause or lead to a decision to undergo radical
organizational change. The Internet frenzy that occurred in the early part of this century
led many health care organizations to wonder whether the Internet would cause radical
change. For example, if patients could look up medical information on the Internet
would this significantly reduce their need for physicians? This radical change did not
occur, although use of the Internet has led to incremental change and some step-shift
change.

Fundamental Change With fundamental change the leadership is committed to cre-
ating what will in effect be a new organization that is in a different business from
the one the current organization engages in. This fundamental change has occurred for
some companies. For example, the now deservedly maligned Enron changed its core
business from acquiring and managing natural gas pipelines to managing a complex
web of businesses that included a global broadband network and the trading of paper
products. A health care example would be an acute care provider that closes all its beds
and becomes a diagnostic imaging center. Fundamental change is risky, and the failure
rate is very high.

Clearly, in these cases the entire IT application suite may need to be jettisoned and
replaced with new applications that support the new business.

Effecting Organizational Change

The management strategies required to manage change depend on the type of change.
As one moves from incremental to fundamental change, the magnitude and risk of the
change increases enormously, as does the uncertainty about the form and success of the
outcome.

Managing Change Due to IT 391

In this section we will present some normative approaches to managing a blend of
step-shift and radical change. Fundamental change is rare in health care. Incremental
change carries less risk and hence requires less management. Note, however, that a
program of continuous incremental change is in effect a form of step-shift change.

Managing change of this magnitude (step-shift to radical) is deceptively simple and
quite hard at the same time. It is the same duality encountered in raising children. At one
level it is easy; all you have to do is feed, teach, protect, and love them. At another level,
especially during the teenage years, it can be an exceptionally complicated, exasperating,
and scary experience.

Managing change has several necessary aspects (Keen, 1997):

■ Leadership

■ Language and vision

■ Connection and trust

■ Incentives

■ Planning, implementing, and iterating

Leadership Change must be led. Leadership, often in the form of a committee of
leaders, will be necessary to

■ Define the nature of the change.

■ Communicate the rationale for and approach to the change.

■ Identify, procure, and deploy necessary resources.

■ Resolve issues, and alter direction as needed.

■ Monitor the progress of the change initiative.

This leadership committee needs to be chaired by an appropriate senior leader. If
the change affects the entire organization, the CEO should chair the committee. If the
change is focused on a specific area, the most senior leader who oversees that area
should chair the committee.

Language and Vision The staff who are experiencing the change must understand
the nature of the change. They must know what the world will look like (to the degree
that this is clear) when the change has been completed, how their roles and work life
will be different, and why making this change is important. The absence of this vision
or a failure to communicate the importance of the vision elevates the risk that staff will
resist the change and through subtle and not-so-subtle means cause the change to grind
to a halt. Change is hard for people. They must understand the nature of the change
and why they should go through with what they will experience as a difficult transition.

Leaders might describe the vision, the desired outcome of efforts to improve the
outpatient service experience, in this way:

■ Patients should be able to get an appointment for a time that is most convenient
for them.

392 Management’s Role in Major IT Initiatives

■ Patients should not have to wait longer than ten minutes in the reception area before
a provider can see them.

■ We should communicate clearly with patients about their disease and the treatment
that we will provide.

■ We should seek to eliminate administrative and insurance busywork from the pro-
fessional lives of our providers.

These examples illustrate a thoughtful use of language. They first and foremost
focus on patients. But the organization also wants to improve the lives of its providers.
The examples use the word should rather than the word must because it is thought that
staff won’t believe the organization can pull off 100 percent achievement of these goals
and leaders do not want to establish goals seen as unrealistic. The examples also use the
word we rather than the word you. We means that this vision will be achieved through
a team effort, rather than implying that those hearing this message have to bear this
challenge without leadership’s help.

Connection and Trust Achieving connection means that leadership takes every
opportunity to present the vision throughout the organization. Leaders may use depart-
ment head meetings, medical staff forums, one-on-one conversations in the hallway,
internal publications, and e-mail to communicate the vision and to keep communicating
the vision. Even when they start to feel ill because they have communicated the vision
one thousand times, they have to communicate it another one thousand times. A lot of
this communication has to be done in person, where others can see the leaders, rather
than hiding behind an e-mail. The communication must invite feedback, criticism, and
challenges.

The members of the organization must trust the integrity, intelligence, compassion,
and skill of the leadership. Trust is earned or lost by everything that leaders do or don’t
do. The members must also trust that leaders have thoughtfully come to the conclusion
that the difficult change has excellent reasons behind it and represents the best option for
the organization. Organizational members are willing to rise to a challenge, often to
heroic levels, if they trust their leaders. Trust requires that leaders act in the best interests
of the staff and the organization and that leaders listen and respond to the organization’s
concerns.

Incentives Organizational members must be motivated to support significant change.
At times, excitement with the vision will be sufficient incentive. Alternatively, fear of
what will happen if the organization fails to move toward the vision may serve as an
incentive. Although important, neither fear nor rapture is necessarily sufficient.

If organizational members will lose their jobs or have their roles changed signif-
icantly, education that prepares them for new roles and or new jobs must be offered.
Bonuses may be offered to key individuals, awarded according to the success of the
change and each person’s contribution to the change. At times, frankly, support is
obtained through old-fashioned horse-trading — if the other person will support the
change, you will deliver something that is of interest to him or her (space, extra staff,
a promotion). Incentives may also take the form of awards — for example, plaques

Managing IT Projects 393

and dinners for two — to staff who go above and beyond the call of duty during the
change effort.

Planning, Implementing, and Iterating Change must be planned. These plans
describe the tasks and task sequences necessary to effect the change. Tasks can range
from redesigning forms to managing the staged implementation of application systems
to retraining staff. Tasks must be allotted resources, and staff accountable for task
performance must be designated.

Implementation of the plan is obviously necessary. Because few organizational
changes of any magnitude will be fully understood beforehand, problems will be
encountered during implementation. New forms may fail to capture necessary data.
The estimate of the time needed to register a patient may be wrong and long lines may
form at the registration desk. The planners may have forgotten to identify how certain
information would flow from one department to another.

These problems are in addition to the problems that occur, for example, when
task timetables slip and dependent tasks fall idle or are in trouble. The implementation
of the application has been delayed and will not be ready when the staff move to
the new building — what do we do? Iteration and adjustment will be necessary as the
organization handles problems created when tasks encounter trouble, and learns about
glitches with the new processes and workflows.

MANAGING IT PROJECTS

Within the overall change agenda, projects will be formed, managed, and completed.
In large change initiatives, the IT project may be one of several projects. For several
step-shift changes, the change management agenda may be composed almost entirely
of the implementation of an application system.

Change management places an emphasis on many of the “softer,” although still
critical, aspects of management and leadership: communicating vision, establishing trust,
and developing incentives. Project management is a “harder” aspect of management.
Project management centers on a set of management disciplines and practices that when
executed well, increase the likelihood that a project will deliver the desired results.
Project management has several objectives:

■ Clearly define the scope and goals of the project.

■ Identify accountability for the successful completion of the project and associated
project tasks.

■ Define the processes for making project-related decisions.

■ Identify the project’s tasks and task sequence and interdependencies.

■ Determine the resource and time requirements of the project.

■ Ensure appropriate communication with relevant stakeholders about project status
and issues.

Different projects require different management strategies. Projects that are pilots or
experiments require less formal oversight (and are not helped by large amounts of formal

394 Management’s Role in Major IT Initiatives

oversight) than large, multiyear, multimillion-dollar undertakings. Projects carried out
by two or more organizations working together will have decision-making structures
different from those found in projects done by several departments in one organization.

In this chapter we discuss a normative approach to managing relatively large
projects within one organization. (Much of the following discussion is adapted from
Spurr, 2003.) This approach is put in place once the need for the project has been estab-
lished (through the IT strategy, for example), the project objectives have been defined,
the budget has been approved, and the major stakeholders have been identified.

Project Roles

Four roles are important in the management of large projects:

■ Business sponsor

■ Business owner

■ Project manager

■ IT manager

Business Sponsor The business sponsor is the individual who holds overall account-
ability for the project. The sponsor should represent the area of the organization that is
the major recipient of the performance improvement that the project intends to deliver.
For example, a project that involves implementing a new claims processing system may
have the chief financial officer as the business sponsor. A project to improve nursing
workflow may ask the chief nursing officer to serve as business sponsor. A project that
affects a large portion of the organization may have the chief executive officer as the
business sponsor.

The sponsor’s management or executive level should be appropriate to the magni-
tude of the decisions and the support that the project will require. The more significant
the undertaking, the higher the organizational level of the sponsor.

The business sponsor has several duties; he or she

■ Secures funding and needed business resources: for example, the commitment of
people’s time to work on the project.

■ Has final decision-making and sign-off accountability for project scope, resources,
and approaches to resolving project problems.

■ Identifies and supports the business owner(s) (discussed in the next section).

■ Promotes the project internally and externally, and obtains the buy-in from business
constituents.

■ Chairs the project steering committee and is responsible for steering committee
participation during the life of the project

■ Helps define deliverables, objectives, scope, and success criteria with identified
business owners and the project manager.

■ Helps remove business obstacles to meeting the project timeline and producing
deliverables, as appropriate.

Managing IT Projects 395

Business Owner A business owner generally has day-to-day responsibility for run-
ning a function or a department: for example, a business owner might be the director
of the clinical laboratories. A project may need the involvement of several business
owners. For example, the success of a new patient accounting system may depend on
processes that occur during registration and scheduling (and hence the director of outpa-
tient clinics and the director of the admitting department will both be business owners)
and may also depend on adequate physician documentation of the care provided (and
hence the administrator of the medical group will be another business owner).

Business owners often work on the project team. Among their several responsibil-
ities they

■ Represent their department or function at steering committee and project team
meetings.

■ Secure and coordinate necessary business and departmental resources.

■ Remove business obstacles to meeting the project timeline and producing deliver-
ables, as appropriate.

■ Work jointly with the project manager on several tasks (as described in the next
section).

Project Manager The project manager does just that — manages the project. He or
she is the person who provides the day-to-day direction setting, conflict resolution, and
communication needed by the project team. The project manager may be an IT staffer
or a person in the business, or function, benefiting from the project. Among their several
responsibilities, project managers

■ Identify and obtain needed resources.

■ Deliver the project on time, on budget, and according to specification.

■ Communicate progress to sponsors, stakeholders, and team members.

■ Ensure that diligent risk monitoring is in place and appropriate risk mitigation plans
have been developed.

■ Identify and manage the resolution of issues and problems.

■ Maintain the project plan.

■ Manage project scope.

The project manager works closely with the business owners and business sponsor
in performing these tasks. Together they set meeting agendas, manage the meetings,
track project progress, communicate project status, escalate issues as appropriate, and
resolve deviations and issues related to the project plan.

IT Manager The IT manager is the senior IT person assigned to the project. He or
she may be the boss of the project manager. In performing his or her responsibilities,
the IT manager

■ Represents the IT department.

■ Has final IT decision-making authority and sign-off accountability.

396 Management’s Role in Major IT Initiatives

■ Helps remove IT obstacles to meeting project timelines and producing deliverables.

■ Promotes the project internally and externally, and obtains buy-in from IT con-
stituents.

Project Committees

These four roles may employ two or three major committees to provide project guidance
and management: a project steering committee, a project team, and a project review
committee.

Project Steering Committee The project steering committee provides overall guid-
ance and management oversight of the project. The steering committee has the authority
to resolve changes in scope that affect the budget, milestones, and deliverables. This
committee is expected to resolve issues and address risks that cannot be handled by the
project team. It also manages communications with the leadership of the organization
and the project team. The project steering committee may be the same committee that
leads the overall change process or a subcommittee of that group.

The business sponsor should chair this committee. Its members should be repre-
sentatives of the major areas of the organization that will be affected by the project and
whose efforts are necessary if the project is to succeed. Returning to an earlier example,
a steering committee overseeing the implementation of a new patient accounting system
might include the director of outpatient clinics, the director of the admitting department,
and the medical group administrator as members. The senior IT manager should also
be on this committee. Depending on the size and importance of the project, this person
could be the CIO. It is rare for the chair of the steering committee to be an IT person
although having an IT person as a cochair is not uncommon.

Project Team The project team may not be called a committee, but it will meet
regularly and it does have responsibilities. The project manager chairs the project team.
This team

■ Manages the performance of the project work.

■ Resolves day-to-day project issues.

■ Manages and allocates resources as necessary to do the work.

■ Works with the steering committee and business owners, as necessary, to resolve
problems; assess potential changes in scope, timeline, or budget; and communicate
the status of the project.

Project team members may be business owners, business owners’ staff, IT man-
agers, or IT managers’ staff.

Project Review Committee If the organization has a relatively large number of
simultaneously active IT projects (say, fifty or so), a project review committee can be
helpful. The project review committee focuses on a subset of all IT projects, those
deemed to be the most important to the organization or the riskiest, or both. The review

Managing IT Projects 397

committee checks the status of each project in this subset to determine if the project
is proceeding well or likely to be heading into trouble. If trouble is on the horizon,
the committee discusses ways to reduce the threats to the project. The committee also
looks for opportunities to leverage the work from one project across other projects and
checks for areas where redundant work or work at cross-purposes may be occurring.
For example, two projects may need large numbers of workstations deployed during
the same interval of time. The IT group that deploys workstations cannot handle this
volume. The project review committee would discuss ways to resolve this problem.

The review committee serves as a second pair of eyes on critical projects and has
the ability to move resources between projects. For example, if Project A is experiencing
instability with its core infrastructure, the review committee can pull network engineers
and database server team members from Project B to help out on Project A. The review
committee is often chaired by a senior IT person and is composed largely of IT project
managers.

Key Project Elements

Over the course of decades and millions of projects, a set of management disciplines
and processes has been developed to help ensure that projects succeed. This collected
set of practices is referred to as project management. One will see these disciplines
and processes in action in any well-run project. Excellent project management does
not ensure project success. However, without such project management the risks of
failure skyrocket, particularly for large projects. The elements of project management
(above and beyond the roles just described) are reviewed in the following sections.
These elements are created or established after the project proposal has been approved.

Project Charter The project charter is a document that describes the purpose, scope,
objectives, costs, and schedule for the project. This document also discusses the roles
and responsibilities of the individuals and functions that must contribute to the project.
The project charter serves three basic objectives:

■ It ensures that planning assumptions or potentially ambiguous objectives are dis-
cussed and resolved (this occurs during development of the charter).

■ It prevents participants from developing different understandings of the project
intent, timeline, or cost.

■ It enables the project leadership to communicate as necessary with the organization
about the project.

The project charter sets out these project elements:

■ Project overview and objectives

■ Application features and capabilities (vision of the solution)

■ Project scope and limitations

■ Metrics for determining project success

■ Budget and overall timetable

398 Management’s Role in Major IT Initiatives

■ Project organization

■ Project management strategies

Appendix B contains an example of a project charter.

Project Plan The project charter provides an overview of the project. The project
plan provides the details of the tasks, phases, and resources needed, by task and phase
and timeline. The project plan is the tool used by the project team during the day-to-day
management of the project. The project plan has several components:

■ Project phases and tasks. A phase may have multiple tasks. For example, there may
be a phase called “conduct analysis,” and it may involve such tasks as …

C H A P T E R

15
ASSESSING AND ACHIEVING

VALUE IN HEALTH CARE
INFORMATION SYSTEMS

LEARNING OBJECTIVES

■ To be able to discuss the nature of IT-enabled value.

■ To review the components of the IT project proposal.

■ To be able to understand steps to improve IT project value realization.

■ To be able to discuss why IT investments can fail to deliver returns.

■ To review factors that challenge the realization of IT value.

413

414 Assessing and Achieving Value in Health Care Information Systems

Virtually all the discussion in this book has focused on the knowledge and manage-
ment processes necessary to achieve one fundamental objective: organizational invest-
ments in IT resulting in a desired value. That value might be the furtherance of
organizational strategies, improvement in the performance of core processes, or the
enhancement of decision making. Achieving value requires the alignment of IT with
overall strategies, thoughtful governance, solid information system selection and imple-
mentation approaches, and effective organizational change.

Failure to achieve desired value can result in significant problems for the organiza-
tion. Money is wasted. Execution of strategies is hamstrung. Organizational processes
can be damaged.

This chapter carries the IT value discussion further. Specifically, it covers the
following topics:

■ The definition of IT-enabled value

■ The IT project proposal

■ Steps to improve value realization

■ Why IT investments may fail to deliver returns

■ Analyses of the IT value challenge

DEFINITION OF IT-ENABLED VALUE

We can make several observations about IT-enabled value:

■ IT value can be both tangible and intangible.

■ IT value can be significant.

■ IT value can be diverse across IT proposals.

■ A single IT investment can have a diverse value proposition.

■ Different IT investments have different objectives and hence different value propo-
sitions and value assessment techniques.

These observations will be discussed in more detail in the following sections.

Both Tangible and Intangible

Tangible value can be measured whereas intangible value is very difficult, perhaps prac-
tically impossible, to measure.

Some tangible value can be measured in terms of dollars:

■ Increases in revenue.

■ Reductions in labor costs: for example, through staff layoffs, overtime reductions,
or shifting work to less expensive staff.

■ Reductions in supplies needed: for example, paper.

■ Reductions in maintenance costs for computer systems.

Definition of IT-Enabled Value 415

■ Reductions in use of patient care services: for example, fewer lab tests are performed
or care is conducted in less expensive settings.

Some tangible value can be measured in terms of process improvements:

■ Fewer errors

■ Faster turnaround times for test results

■ Reductions in elapsed time to get an appointment

■ A quicker admissions process

■ Improvement in access to data

Some tangible value can be measured in terms of strategically important operational
and market outcomes:

■ Growth in market share

■ Reduction in turnover

■ Increase in brand awareness

■ Increase in patient and provider satisfaction

■ Improvement in reliability of computer systems

In contrast, intangible value can be very difficult to measure. The organization is
trying to measure such things as

■ Improving in decision making

■ Improving in communication

■ Improving in compliance

■ Improving in collaboration

■ Increasing in agility

■ Becoming more state of the art

■ Improving in organizational competencies — for example, becoming better at man-
aging chronic disease

■ Becoming more customer friendly

Significant

Glaser, DeBor, and Stuntz (2003) describe the return achieved by replacing the man-
ual approach to determining patient eligibility for coverage with an electronic data
interchange (EDI) based approach. One hospital estimated that for an initial invest-
ment of $250,000 in eligibility interface development and rollout effort, plus an annual
maintenance fee of $72,000, it could achieve ongoing annual savings of approximately
$485,000. This return on its EDI investment was achieved within one year of operation.

Wang et al. (2003) performed an analysis of the costs and benefits of the electronic
medical record (EMR) system in primary care. This sophisticated analysis explored

416 Assessing and Achieving Value in Health Care Information Systems

the return over a range of EMR capabilities (from basic to advanced), practice sizes
(small to large), and reimbursement structures (from entirely fee-for-service to extensive
risk-sharing arrangements). On average the net estimated benefit was $86,000 per
provider over five years.

Bates et al. (1998) found that a 55 percent reduction in serious medication errors
resulted from implementing inpatient provider order entry at the Brigham and Women’s
Hospital. This computerized order entry system highlighted, at the time of ordering,
possible drug allergies, drug-drug interactions, and drug–lab result problems.

Bu et al. (2007) estimated that the implementation of a range of telehealth tech-
nologies nationwide would save $14.5 billion in diabetes-related costs over ten years.

Diverse Across Proposals

Consider three proposals (real ones from a large integrated delivery system) that might
be in front of organizational leadership for review and approval: a disaster notifica-
tion system, a document imaging system, and an e-procurement system. Each offers a
different type of value to the organization.

The disaster notification system would enable the organization to page critical
personnel, inform them that a disaster — for example, a train wreck or biotoxin
outbreak — had taken place, and tell them the extent of the disaster and the steps they
would need to take to help the organization respond to the disaster. The system would
cost $520,000. The value would be “better preparedness for a disaster.”

The document imaging system would be used to electronically store and retrieve
scanned images of paper documents, such as payment reconciliations, received from
insurance companies. The system would cost $2.8 million, but would save the organi-
zation $1.8 million per year ($9 million over the life of the system) due to reductions
in the labor required to look for paper documents and in the insurance claim write-offs
that occur because a document cannot be located.

The e-procurement system would enable users to order supplies, ensure that the
ordering person had the authority to purchase supplies, transmit the order to the sup-
plier, and track the receipt of the supplies. Data from this system could be used to
support the standardization of supplies: that is, to reduce the number of different sup-
plies used. Such standardization might save $500,000 to $3 million per year. The actual
savings would depend on physician willingness to standardize. The system would cost
$2.5 million.

These proposals reflect a diversity of value, ranging from “better disaster response”
to a clear financial return (document imaging) to a return with such a wide potential
range (e-procurement) that it could be a great investment (if you really could save
$3 million a year) or a terrible investment (if you could save only $500,000 a year).

Diverse in a Single Investment

Picture archiving and communication systems (PACS) are used to store radiology (and
other) images, support interpretation of images, and distribute the information to the
physician providing direct patient care. A PACS can

Definition of IT-Enabled Value 417

■ Reduce costs for radiology film and the need for film librarians.

■ Improve service to the physician delivering care, through improved access to
images.

■ Improve productivity for the radiologists and for the physicians delivering care
(both groups reduce the time they spend looking for images).

■ Generate revenue, if the organization uses the PACS to offer radiology services to
physician groups in the community.

This one investment has a diverse value proposition; it has the potential to deliver
cost reduction, productivity gains, service improvements, and revenue gains.

Different for Different Objectives

The Committee to Study the Impact of Information Technology on the Performance of
Service Activities (1994), organized by the National Research Council, has identified
six categories of IT investments, reflecting different objectives. The techniques used to
assess IT investment value should vary by the type of objective that the IT investment
intends to support. One technique does not fit all IT investments.

FOUR TYPES OF IT INVESTMENT

Jeanne Ross and Cynthia Beath studied the IT investment approaches of thirty
companies from a wide range of industries. They identified four classes of invest-
ment:

■ Transformation. These IT investments had an impact that would affect the
entire organization or a large number of business units. The intent of
the investment was to effect a significant improvement in overall performance
or change the nature of the organization.

■ Renewal. Renewal investments were intended to upgrade core IT infrastruc-
ture and applications or reduce the costs or improve the quality of IT services.
Examples of these investments include application replacements, upgrades of
the network, or expansion of data storage.

■ Process improvement. These IT investments sought to improve the operations
of a specific business entity — for example, to reduce costs and improve service.

■ Experiments. Experiments were designed to evaluate new information tech-
nologies and test new types of applications. Given the results of the experi-
ments, the organization would decide whether broad adoption was desirable.

(Continued )

PERSPECTIVE

418 Assessing and Achieving Value in Health Care Information Systems

PERSPECTIVE (Continued )

Different organizations will allocate their IT budgets differently across these
classes. An office products company had an investment mix of experiments
(15 percent), process improvement (40 percent), renewal (25 percent), and trans-
formation (20 percent). An insurance firm had an investment mix of experiments
(3 percent), process improvement (25 percent), renewal (18 percent), and transfor-
mation (53 percent).

The investment allocation is often an after-the-fact consideration — the alloca-
tion is not planned, it just ‘‘happens.’’ However, ideally, the organization decides
its desired allocation structure and does so before the budget discussions. An
organization with an ambitious and perhaps radical strategy may allocate a very
large portion of its IT investment to the transformation class whereas an orga-
nization with a conservative, stay-the-course strategy may have a large process
improvement portion to its IT investments.

Source: Ross & Beath, 2002, p. 54.

Infrastructure IT investments may be for infrastructure that enables other invest-
ments or applications to be implemented and deliver desired capabilities. Examples of
infrastructure are data communication networks, workstations, and clinical data repos-
itories. A delivery system–wide network enables a large organization to implement
applications to consolidate clinical laboratories, implement organization-wide collabo-
ration tools, and share patient health data between providers.

It is difficult to quantitatively assess the impact or value of infrastructure invest-
ments because

■ They enable applications. Without those applications, infrastructure has no value.
Hence infrastructure value is indirect and depends on application value.

■ The allocation of infrastructure value across applications is complex. When millions
of dollars are invested in a data communication network, it may be difficult or
impossible to determine how much of that investment should be allocated to the
ability to create delivery system–wide EMRs.

■ A good IT infrastructure is often determined by its agility, its potency, and its
ability to facilitate integration of applications. It is very difficult to assign return
on investment numbers or any meaningful numerical value to most of these char-
acteristics. What, for instance, is the value of being agile enough to speed up the
time it takes to develop and enhance applications?

Information system infrastructure is as hard to evaluate as other organizational
infrastructure, such as having talented, educated staff. As with other infrastructure:

■ Evaluation is often instinctive and experientially based.

■ In general, underinvesting can severely limit the organization.

Definition of IT-Enabled Value 419

■ Investment decisions involve choosing between alternatives that are assessed based
on their ability to achieve agreed-upon goals. For example, if an organization wishes
to improve security, it might ask whether it should invest in network monitoring
tools or enhanced virus protection. Which of these investments would enable it to
make the most progress toward its goal?

Mandated Information system investment may be necessary because of mandated
initiatives. Mandated initiatives might involve reporting quality data to accrediting orga-
nizations, making required changes in billing formats, or improving disaster notification
systems. Assessing these initiatives is generally approached by identifying the least
expensive and the quickest to implement alternative that will achieve the needed level
of compliance.

Cost Reduction Information system investments directed to cost reduction are gener-
ally highly amenable to return on investment (ROI) and other quantifiable dollar-impact
analyses. The ability to conduct a quantifiable ROI analysis is rarely the question. The
ability of management to effect the predicted cost reduction or cost avoidance is often
a far more germane question.

Specific New Products and Services IT can be critical to the development of new
products and services. At times the information system delivers the new service, and at
other times it is itself the product. Examples of information system–based new services
include bank cash-management programs and programs that award airline mileage for
credit card purchases. A new service offered by some health care providers is a per-
sonal health record that enables a patient to communicate with his or her physician
and to access care guidelines and consumer-oriented medical textbooks. The value of
some of these new products and services can be quantifiably assessed in terms of a
monetary return. These assessments include analyses of potential new revenue, either
directly from the service or from service-induced use of other products and services.
A return-on-investment analysis will need to be supplemented by techniques such as
sensitivity analyses of consumer response. Despite these analyses the value of this IT
investment usually has a speculative component. This component involves consumer
utilization, competitor response, and impact on related businesses.

Quality Improvement Information system investments are often directed to improv-
ing the quality of service or medical care. These investments may be intended to reduce
waiting times, improve the ability of physicians to locate information, improve treat-
ment outcomes, or reduce errors in treatment. Evaluation of these initiatives, although
quantifiable, is generally done in terms of service parameters that are known or believed
to be important determinants of organizational success. These parameters might be mea-
sures of aspects of organizational processes that customers encounter and then use to
judge the organization: for example, waiting times in the physician’s office. A quantifi-
able dollar outcome for the service of care quality improvement can be very difficult
to predict. Service quality is often necessary to protect current business and the effect
of a failure to continuously improve service or medical care can be difficult to project.

420 Assessing and Achieving Value in Health Care Information Systems

Major Strategic Initiative Strategic initiatives in information technology are intended
to significantly change the competitive position of the organization or redefine the
core nature of the enterprise. In health care it is rare that information systems are
the centerpiece of a redefinition of the organization. However, other industries have
attempted IT-centric transformations. Amazon.com is an effort to transform retailing.
Schwab.com is an undertaking intended to redefine the brokerage industry through
the use of the Internet. There can be an ROI core or component to analyses of such
initiatives, because they often involve major reshaping or reengineering of fundamental
organizational processes. However, assessing the ROIs of these initiatives and their
related information systems with a high degree of accuracy can be very difficult. Several
factors contribute to this difficulty:

■ These major strategic initiatives usually recast the organization’s markets and its
roles. The outcome of the recasting, although visionary, can be difficult to see with
clarity and certainty.

■ The recasting is evolutionary; the organization learns and alters itself as it pro-
gresses, over what are often lengthy periods of time. It is difficult to be prescriptive
about this evolutionary process. Most integrated delivery systems (IDS) are con-
fronting this phenomenon.

■ Market and competitor responses can be difficult to predict.

IT value is diverse and complex. This diversity indicates the power of IT and the
diversity of its use. Nonetheless, the complexity of the value proposition means that it
is difficult to make choices between IT investments and also difficult to assess whether
the investment ultimately chosen delivered the desired value or not.

THE IT PROJECT PROPOSAL

The IT project proposal is a cornerstone in examining value. Clearly, ensuring that
all proposals are well crafted does not ensure value. To achieve value, alignment with
organizational strategies must occur, factors for sustained IT excellence must be man-
aged, budget processes for making choices between investments must exist, and projects
must be well managed. However, the proposal (as discussed in Chapter Thirteen) does
describe the intended outcome of the IT investment. The proposal requests money and
an organizational commitment to devote management attention and staff effort to imple-
menting an information system. The proposal describes why this investment of time,
effort, and money is worth it — that is, the proposal describes the value that will result.

In Chapter Thirteen we also discussed budget meetings and management forums
that might review IT proposals and determine whether a proposal should be accepted.
In this section we discuss the value portion of the proposal and some common problems
encountered with it.

Sources of Value Information

As project proponents develop their case for an IT investment they may be unsure of
the full gamut of potential value or of the degree to which a desired value can be

The IT Project Proposal 421

truly realized. The organization may not have had experience with the proposed appli-
cation and may have insufficient analyst resources to perform its own assessment. It
may not be able to answer such questions as, What types of gains have organiza-
tions seen as a result of implementing an electronic health record (EHR) system? To
what degree will IT be a major contributor to our efforts to streamline operating room
throughput?

Information about potential value can be obtained from several sources (discussed
in Appendix A). Conferences often feature presentations that describe the efforts of
specific individuals or organizations in accomplishing initiatives of interest to many
others. Industry publications may offer relevant articles and analyses. Several industry
research organizations — for example, Gartner and Forrester — can offer advice. Consul-
tants can be retained who have worked with clients who are facing or have addressed
similar questions. Vendors of applications can describe the outcomes experienced by
their customers. And colleagues can be contacted to determine the experiences of their
organizations.

Garnering an understanding of the results of others is useful but insufficient. It is
worth knowing that Organization Y adopted computerized provider order entry (CPOE)
and reduced unnecessary testing by X percent. However, one must also understand the
CPOE features that were critical in achieving that result and the management steps
taken and the process changes made in concert with the CPOE implementation.

Formal Financial Analysis

Most proposals should be subjected to formal financial analyses regardless of their value
proposition. Several types of financial measures are used by organizations. An orga-
nization’s finance department will work with leadership to determine which measures
will be used and how these measures will be compiled.

Two common financial measures are net present value and internal rate of return:

■ Net present value is calculated by subtracting the initial investment from the future
cash flows that result from the investment. The cash can be generated by new
revenue or cost savings. The future cash is discounted, or reduced, by a standard
rate to reflect the fact that a dollar earned one or more years from now is worth less
than a dollar one has today (the rate depends on the time period considered). If the
cash generated exceeds the initial investment by a certain amount or percentage,
the organization may conclude that the IT investment is a good one.

■ Internal rate of return (IRR) is the discount rate at which the present value of an
investment’s future cash flow equals the cost of the investment. Another way to
look at this is to ask, Given the amount of the investment and its promised cash,
what rate of return am I getting on my investment? On the one hand a return
of 1 percent is not a good return (just as one would not think that a 1 percent
return on one’s savings was good). On the other hand a 30 percent return is very
good.

Table 15.1 shows the typical form of a financial analysis for an IT application.

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The IT Project Proposal 423

Comparing Different Types of Value

Given the diversity of value, it is very challenging to compare IT proposals that
have different value propositions. How does one compare a proposal that promises
to increase revenue and improve collaboration to one that offers improved compliance,
faster turnaround times, and reduced supply costs?

At the end of the day, judgment is used to choose one proposal over another.
Health care executives review the various proposals and associated value statements and
make choices based on their sense of organizational priorities, available monies, and
the likelihood that the proposed value will be seen. These judgments can be aided by
developing a scoring approach that allows leaders to apply a common metric across
proposals. For example, the organization might decide to score each proposal according
to how much value it promises to deliver in each of the following areas:

■ Revenue impact

■ Cost reduction

■ Patient or customer satisfaction

■ Quality of work life

■ Quality of care

■ Regulatory compliance

■ Potential learning value

In this approach, each of these areas in each proposal is assigned a score, ranging
from 5 (significant contribution to the area) to 1 (minimal or no contribution). The
scores are then totaled for each proposal, and in theory, one picks those proposals with
the highest aggregate scores. In practice, IT investment decisions are rarely that purely
algorithmic. However, such scoring can be very helpful in sorting through complex and
diverse value propositions:

■ Scoring forces the leadership team to discuss why different members of the team
assigned different scores — why, for example, did one person assign a score of 2 for
the revenue impact of a particular proposal and another person assign a 4? These
discussions can clarify people’s understandings of proposal objectives and help the
team arrive at a consensus on each project.

■ Scoring means that the leadership team will have to defend any decision not to
fund a project with a high score or to fund one with a low score. In the latter case,
team members will have to discuss why they are all in favor of a project when it
has such a low score.

The organization can decide which proposal areas to score and which not to score.
Some organizations give different areas different weights: for example, reducing costs
might be considered twice as important as improving organizational learning. The result-
ing scores are not binding, but they can be helpful in arriving at a decision about which
projects will be approved and what value is being sought. (A form of this scoring
process was displayed earlier in Figure 12.1).

424 Assessing and Achieving Value in Health Care Information Systems

Tactics for Reducing the Budget

Proposals for IT initiatives may originate from a wide variety of sources in an organi-
zation. The IT group will submit proposals as will department directors and physicians.
Many of these proposals will not be directly related to an overall strategy but may nev-
ertheless be “good ideas” that if implemented would lead to improved organizational
performance. So it is common for an organization to have more proposals than it can
fund. For example, during the IT budget discussion the leadership team may decide that
although it is looking at $2.2 million in requests, the organization can afford to spend
only $1.7 million, so $500,000 worth of requests must be denied. Table 15.2 presents
a sample list of requests.

TABLE 15.2. Requests for New Information System Projects

Community General Hospital

Project Name Operating Cost

TOTAL $2,222,704

Clinical portfolio development 38,716

Enterprise monitoring 70,133

HIPAA security initiative 36,950

Accounting of disclosure — HIPAA 35,126

Ambulatory Center patient tracking 62,841

Bar-coding infrastructure 64,670

Capacity management 155,922

Chart tracking 34,876

Clinical data repository — patient care
information system (PCIS) retirement

139,902

CRP research facility 7,026

Emergency Department data warehouse 261,584

Emergency Department order entry 182,412

Medication administration system 315,323

Order communications 377,228

Transfusion services replacement system 89,772

Wireless infrastructure 44,886

Next generation order entry 3,403

Graduate medical education duty hours 163,763

The IT Project Proposal 425

Reducing the budget in situations like this requires a value discussion. The lead-
ership is declaring some initiatives to have more value than others. Scoring initiatives
according to criteria is one approach to addressing this challenge.

In addition to such scoring, other assessment tactics can be employed, prior to the
scoring, to assist leaders in making reduction decisions.

■ Some requests are mandatory. They may be mandatory because of a regulation
requirement …