V O I C E SC E N T E R

Almost all hospitals face the issue of nothaving enough money to accomplisheverything they would like to. So howdoes the board pick among winning ideaswhen it can’t afford them all? Theresources needed to support operationsand implement strategic initiatives canfar surpass those available. What is therole of the board in establishing organi-zational priorities? How do you knowwhich winning ideas are worth pursuingnow? How can an organization tackleambitious plans while ensuring that oper-ations stay on track?

The following tips for boards can helpmaximize the return on their organiza-tions’ limited resources.

Avoid SprinklingWhen faced with numerous good ideas,many boards prefer to give all projectssome funding rather than say no to any.The net result is that no project gets thefull resources it needs to be successful.

No matter how appealing, boardsshould resist the temptation to spreadfinancial and other resources too thinlyacross too many ideas. It is almost alwaysbetter to postpone some investments sothat others can have the full nourishmentthey need to thrive.

Use Good Evaluation CriteriaThe first step in a sound resource allo-cation process is the identification ofgood evaluation criteria. Sometimes, thelist of winning ideas presented to theboard is longer than it should be becausethe organization failed to hone its eval-uation criteria to reflect what is truly

important. Often, the criteria used do notdiscriminate among initiatives (i.e., allprojects score the same).

For example, many organizationsinclude a criterion regarding the missionimpact of potential projects. Then, whenthey attempt to apply this criterion, theyfind it difficult to give any project lessthan the maximum score. The better

approach is to consider consistency withthe mission up front. To the extent thata project is not consistent with the mis-sion, it should not even be put into thequeue for further evaluation.

If evaluation criteria are appropriate-ly defined and refined up front, only afew projects will rise to the top. Theboard must ensure discipline in the estab-lishment of evaluation criteria that aretruly meaningful and that can differen-tiate among alternatives. Examples ofevaluation criteria that can differentiateamong projects include projected returnon investment, potential market size and

adequacy of the medical staff (size andscope) to support the project.

Seek the Why, Assess AlternativesWhen faced with many winning ideas,board members should probe to reallyunderstand why each initiative is impor-tant. The power of asking why cannot beunderstated, and following the firstanswer with yet another why really helpsthe board understand what makes eachinitiative compelling. The board shouldalso push management to identify anyalternatives that might be used to respondto those uncovered whys. Perhaps thereis another path that could be pursued thatwould consume fewer resources? Theuncovered whys may reveal a justifica-tion that does not fit well with the eval-uation criteria established by the board.Good boards excel at asking the rightquestions, a role that is critically impor-tant in resource allocation.

Find the Critical PathThe critical path is often overlooked inresource allocation decisions. A criticalpath exists when one initiative must becompleted before another can take placeor take place successfully. All else beingequal, projects that establish the foun-dation for other essential projects shouldbe given priority. Investments in infor-mation technology (IT) often fall intothis category.

While not generating revenue on theirown, certain IT projects may be neededbefore other projects with revenue poten-tial can be implemented. In exploringthe relative merits of each project,

Strategic Resource AllocationB Y S U S A N N A K R E N T Z A N D C AT H Y S U L L I VA N C L A R K

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C E N T E RV O I C E S

All else being

equal, projects that

establish the

foundation for other

essential projects

should be given

priority.

consider where the project is on thecritical path.

Consider IntangiblesFor many years, resource allocation inhospitals was almost ad hoc, based large-ly on politics or other non-rigorous, sub-jective processes. Then, governanceleaders began to insist on much moretransparent and rational approaches usingwell-defined evaluation criteria andfocusing on measurable impacts.

While the move to a more quantita-tive approach has certainly been a goodone, boards should also consider impor-tant intangible factors such as:

• Is there a clearly defined championto lead each project and continue to pushit forward despite obstacles?

• What is the track record for theteam, department or area proposing eachproject? To what extent have they beenable to deliver on promises associatedwith past projects?

• How risky is each project comparedwith other projects? Have appropriatemitigation strategies been identified?Are these the kinds of risks the organiza-tion is comfortable managing?

While many of these factors cannotbe quantified, they can have an enor-mous impact on the ultimate success ofa project and must be considered whenallocating scarce resources.

Directing resource allocation toachieve the organization’s mission is acritical board role. Effective board per-formance requires members to holdthemselves and management account-able for separating “good-but-not-great”initiatives from those that are truly essen-tial to mission success. Objectiveresource allocation techniques, coupledwith active questioning, create the plat-form for sound resource allocation. Ω

SUSANNA KRENTZ is senior principal andnational practice director of strategy andplanning at Noblis. CATHY SULLIVAN

CLARK is senior principal and service linemanager, enterprise strategy, for Noblis’Center for Health Innovation. Both areheadquartered in Falls Church, Va. Theauthors can be reached via e-mail atsusie.krentz@noblis.org and cathy.clark@noblis.org.

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