RUNNING HEAD: ORGANIZATIONAL IS BUDGETING

Article Paper: Organizational IS Budgeting Criteria and Solutions

Ashley Winans
CIS 101
May 30, 2015
Professor Rell Snyder

RUNNING HEAD: ORGANIZATIONAL IS BUDGETING

Article Paper: Organizational IS Budgeting Criteria and Solutions

When tasked with assessing the value of an Information System project, it is essential to
first calculate both the costs and potential benefits. Even in cases where the benefits outweigh the
costs additional financial analysis is required to determine whether the project represents a good
return on the firms invested capital (Laudon & Laudon, 2014, P.539). One method of
determining this is by using a capital budgeting model, which relies upon the measures of cash
flow in and out of a firm. Investing in an information system is an immediate cash outflow;
however, information systems can also generate an inflow of cash if they prove to be beneficial
to the company. In the healthcare industry, information technology and information systems have
been essential in not only been effective in reducing costs, IT has gone beyond cost saving and
has numerous benefits for facilities as well as patients.
Information Systems
Information systems have been defined as online, interactive tools deeply involved in
the minute-to-minute operations and decision making of large organization (Laudon & Laudon,
P. 89). Information Technology, in business as well as in other industries, has the power to
change the costs of information and capital. The amount that a company can spend on IT is often
less than the expenses that would be allocated elsewhere. The cost of IT tends to decrease with
time, and has been associated with saving on the cost of more expensive costs of capital such as
machinery and buildings. Information technology has also played an important role in helping
medical facilities as well as corporations lower the cost of market participation, which will allow
for outsourcing and ultimately saving money. However, financial models can sometimes
overlook and overshadow the social and organizational dimensions of information systems that
may affect the true costs and benefits of the investment (Laudon & Laudon, 2014, P.541).

RUNNING HEAD: ORGANIZATIONAL IS BUDGETING

Cost-Benefit Analysis
Cost-Benefit Analysis, or CBA, is the process of estimating and calculating the
equivalent money value of the benefits and costs of projects to establish whether they are
worthwhile from a financial perspective. CBA is used in planning for numerous fields, including
health care. One example of cost-benefit analysis is utilized as a tool to decide whether a practice
should invest in an electronic health record or other information system. Although CBA assists in
budgeting and planning (where the most financial gains will be had), it fails to measure more
intangible factor, such as provider and patient satisfaction. The long-term benefits of an EHR are
also difficult to project. CBA also underestimates the risks of doing nothing. Especially in health
care, the cost of doing nothing may be the most harmful choice of all. (Tan, 2010).
If a medical practice had not adopted and implemented an EHR, they may have seen
additional costs in some other ways. For example, average monthly revenues increased by 11
percent in the first year following EHR implementation and 20 percent in the second year,
compared with the baseline year (Tan, 2010, P. 367). There are numerous other profits that a
practice may miss out upon. For example, providers and facilities who see Medicare and
Medicaid patients are eligible for Meaningful Use funding to help offset the cost of adopting an
EHR system. However, if these same facilities do not use an EHR system at all, they will start to
face government penalties that will increase every year. (Tan, 2010)
Practice Fusion. One EHR company, Practice Fusion, offers their services for free with
ad banners. This allows smaller practices an affordable way to adopt an EHR when it wouldve
been an unrealistic possibility for them otherwise. Practice Fusion, as of 2014, is one of the top
20 EHR systems used in the United States. According to Ryan Howard, CEO and Founder of

RUNNING HEAD: ORGANIZATIONAL IS BUDGETING

Practice Fusion, "Not only do we remove the cost barriers to technology adoption for doctors, we
also help them pocket $44,000 or more in EMR incentives" (Practice Fusion). Practice Fusions
goal has even been called the catalyst that will enable the 90 percent of US doctors who are still
using paper health records to modernize; leading to more efficiency, enabling greater access to
patient information and empowering doctors to take the best care of patients (Practice Fusion,
2010).
Integrated Billing
InJulyof2009,thestateofMinnesotaimplementedelectronicbillingforallhealthcare
agencies.KeybillingfeatureswithinEHRsystemsorbyclearinghousesmaywellhavesetthe
stageforprovidersacrossthenation.TheMinnesotaDepartmentofHealthstatesthateach
year,morethan55millionmedicalbills,knownashealthcareclaims,fromthesehealthcare
providersareprocessedinMinnesota,resultinginsignificanttransactionscostsand
opportunitiesforsavings(Eisele,2009).
AccordingtoEisele,therearetenkeybillingfeatureswithinasuccessfulEHRthatcan
helppracticesrealizesimilarsavingstothoseofMinnesota.ThesefeaturesareConsiderthese10
billingsystemfeatures:
1. Adaptivesoftwareemphasizingpracticespecifications
2. Conversionof"superbills"toclaims
3. Electronicsubmissionandverificationofclaims
4. Comprehensiveaccounting/billingreports
5. Electronictrackingofpayments;transparentpaymentprocess
6. Claimsrejectionanalysisinrealtimedisplayingclearerrorcodes
7. Integrationofcopaymentsintoschedulingfeatures
8. BillingcodespulleddirectlyfromEHRdocumentation
9. Multiuser,secure,anduserfriendlyinterfacecapabilities
10. Servermonitoring,backups,anddatarecovery

RUNNING HEAD: ORGANIZATIONAL IS BUDGETING

Return On Investment and Analysis

ROI analysis for EHRs is not always used as a management tool, but is instead frequently
used by a CFO to justify a project. These analyses benefit when they receive accurate input from
those responsible for achieving the results and should ideally be used in a formal benefit
realization study that holds people accountable for results. (Amatayakul, 2007)
True Costs and Benefits of EHRs. AccordingtoAmatayakul, identifying the costs and
benefits that contribute to the EHR ROI analysis should begin with defining measurable goals
and setting expectations (Amatayakul, 2007, P. 146).Mostorganizations do not anticipate the
longer-term effects of a single goal as well as its associated costs and do not at all address how
they will ensure that their intended users will actually use the systems that are being
implemented. Although the process of change must be accounted for as a cost, but preparing for
this in the long term can lead to better benefits.
Additionally, a medical organization may need to invest in computer skills building for
physicians, formal work flow analysis, physician activities to develop standing orders in support,
a clinical data analyst to build standing order templates and CDS rules, as well as
troubleshooting and backup plans for the new systems. When both end users and providers are
engaged in the process of defining the goals and understanding the expectations associated with
them, they are more likely to comply. (Amatayakul, 2007)
According to Amatayakul, when an organization develops an ROI without adequate
resources or specific expectations of the benefits it hopes to achieve, the organization is setting
itself up to fail (Amatayakul, 2007, P. 147). When it comes to EHR adoption, organizations
must be willing to address the true costs and benefits associated with effecting change. The best

RUNNING HEAD: ORGANIZATIONAL IS BUDGETING

way to achieve this is to devote the proper resources resources to it and setting expectations clear
for accomplishment of goals. (Amatayakul, 2007)
System Analysis. Likewise, system analysis creates road maps of existing organizations
and their systems. It would then be the job of the systems analyst to examine the problems of the
current system in order to better implement a new one. End users are often critical in redesigning
systems to flow properly in the workplace. For successful HER implementation, often times
organization will hire a System Analyst or similarly qualified individual in order to ease the
stress of the transition as well as impart knowledge and experience on the company. (Laudon &
Laudon, 2014)
EHR Implementation
Implementation is the process wherein organizational activities work towards the
adoption, management, and routinization of an innovation, such as a new formation system
(Laudon & Laudon, 2014, P.542). The implementation system greatly benefits from the active
role of end users.
EHR implementation also has a major effect on patient care, workflow, and an eventual
return on investment. There are several key factors to consider when implementing an EHR in
order to make to process as productive as possible. The first is to put together a multidisciplinary
team, as the EHR process involves numerous individuals and processes. It is better to get
perspective on the process from start to finish in order to troubleshoot and gain different
perspectives. A process analysis should also be not only drawn, but also reviewed by staff who
will actually be performing the tasks. This will also give everyone a chance to see how different
job duties have evolved and what tasks will be designated to different staff members. It is also

RUNNING HEAD: ORGANIZATIONAL IS BUDGETING

important NOT to adopt the workflow design, which is recommended by the EHR vendor, and to
remember that clinic employees are the best experts of overall workflow as well as job duty
specificity. A project manager or point person should also be put in change and empowered to
keep things moving and be aware of the need for continual updates. It is also important to match
your actual practice and workflow to the template you have designed for your office.
Perhaps most importantly, workflow analysis is a human interaction-driven process
which must also adhere to the belief that the fact that workflow and job duties are constantly
changing and evolving. The role of end users is often essential to a successful system
implementation as incorporating user knowledge and expertise leads to better solutions
(Laudon & Laudon, 2014, P. 542). There sometimes exists a user-designation gap, which
constitutes the differences between the end-users and information systems specialists. The
success of project implementation decreases with the larger the gap is between the technical
specialists and end users.
Decision-Support Systems
Many health information systems contain or are associated with a DSS, or DecisionSupport System, DSS, like other IS, is a tool that is effective only when the business context is
well understood (Tan, 2009, P. 381). The DSS provides structured decisions to providers, which
can be essential at times. By contrast, unstructured decisions are those in which the decision
maker must provide judgment, evaluation, and insight to solve the problem and this is often due
to the fact that unstructured decisions are novel, important, and nonroutine, and there is no wellunderstood or agreed-on procedure for making them (Laudon & Laudon, 2014, P. 456).
If a DSS can inform you to make better decisions, there can be a positive financial aspect
as well. Even thousands of smaller, but better informed decisions could add up to large savings.

RUNNING HEAD: ORGANIZATIONAL IS BUDGETING

Decision Support System ROI. Measuring the cost of a return on the investment in the
DSS is no small task. Information paradox is a term that refers to the lack of conclusive evidence
of IT payoff. Investing in IT can sometimes be an absolute necessity, but other times may seem
difficult to quantify. In recent times, there have been increased efforts towards analyzing IT pay
off, which include analyzing three years of monthly actual DSS usages at various hospitals where
it was implemented. This method has become a promising place to start in determining how to
measure this sort of investment. Some facilities have designed strategic formulas in order to
measure the financial outcome.
EHR Financial Incentives
Aside from the potential financial gains that a hospital or practice will experience through
using an EHR, financial incentives for the implementation and meaningful use of electronic
health records exist through the American Recovery and Reinvestment Act of 2009. The
potential financial benefits of EHR use are much greater than the incentives healthcare
organizations could stand to gain from the government. Documented case studies have proven
that EHRs can help control hospital costs. However, although published examples support the
idea that implementation of EHRs can save hospitals money, one recent study found that
computerization, in general, does not appear to have helped most hospitals reduce clinical
resource utilization and costs. The reason maybe that most hospitals with EHRs have not yet
implemented the two key elements that drive most of an EHR's financial benefits: clinical
decision support and performance management, the latter of which can also be thought of as
operational decision support. (Thompson, 2010)
Value Planning

RUNNING HEAD: ORGANIZATIONAL IS BUDGETING

Many hospitals estimate the financial benefits of their EHRs to calculate an expected
return on investment for internal financial planning or to or in order to influence health care
leaders on an EHR purchase. Numerous hospitals are going beyond this approach in order to
carefully plan for the clinical and financial benefits of their EHR systems. EHR value planning
includes:
1. Value framework development
2. Value modeling
3. Benefit requirement identification and risk mitigation
4. Integrated planning
5. Value measurement
6. Organizing for value.
This may seem like a daunting task for many people faced with it. However, according to
Thompson, if system benefits are the reason people buy information systems, if failure to
realize those benefits puts organizations at risk, and if understanding and measuring benefits
increases the odds of realizing them, then they have a duty to use a value planning approach
(Thompson, 2006, P. 108).
Tangible and Intangible Benefits
Whereas tangible benefits can be quantified and given a monetary value, intangible
benefits cannot have an exact value placed upon them. Intangible values include efficient
customer service or long-term company goals. However, the traditional focus on the financial

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and technical aspects of an information system tends to overlook the social an organizational
dimensions of information systems that may affect the true costs and benefits of the investment
(Laudon & Laudon, 2014, P. 541).
Conclusion
As in any other industry, implementation of an information system in health care can be a
process that is financially beneficial when implemented correctly. There are numerous
considerations to be made when implementing a system such as an EHR or DSS. Oftentimes, a
return on investment cannot be seen right away so it is essential to make the proper projections
and plan accordingly.

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References
Adler, K. (1995, July). Estimating software aids budgeting. American City & County, 110(8), 10.

Amatayakul, M. (2007). Do you plan not to achieve your EHR ROI? Healthcare Financial
Management, 61(11), 146-7.

Eisele, K. (2009, July 7). 10 Essential Billing Features Your EHR System Should Address.
Retrieved May 30, 2015, from http://www.ehrinstitute.org/articles.lib/items/10-EssentialBilling

Integrity of the Healthcare Record: Best Practices for EHR Documentation. (n.d.). Retrieved May
29, 2015, from
http://library.ahima.org/xpedio/groups/public/documents/ahima/bok1_050286.hcsp?
dDocName=bok1_050286

Laudon, K.C., & Laudon, J.P. (2014). Managing information systems: Managing the digital firm
(14th ed.). Upper Saddle River, NJ: Pearson Education, Inc.

Practice fusion secures new investors. (2011). Professional Services Close - Up, Retrieved from
http://search.proquest.com/docview/894142307?accountid=158660

Ransom, E.R., Joshi, M.S., Nash, D.B., & Ransom, S.B. (eds.). (2008). Healthcare quality book:
Vision, strategy, and tools (2nd ed.). Chicago, IL: Health Administration Press.

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Tan, J. (2010). Adaptive Health Management Information Systems Concepts, Cases, and
Practical Applications, third edition (3rd ed.). Sudbury, Mass.: Jones and Bartlett.
Thompson, D., Velasco, F., Classen, D., & Raddemann, R. J. (2010). Reducing clinical costs with
an EHR. Healthcare Financial Management, 64(10), 106-8, 110, 112.
Thompson, D. (2006). EHR value: Don't expect what you don't plan for. Healthcare Financial
Management, 60(12), 58-62, 64, 66.