The cost of implementing an activity-based costing tool: $100,000. The cost of finally being seen as a partner and not just the mean guys in accounting who make your life miserable? Priceless.
That could be the new slogan for the financial overlords at Hema Quebec, the Quebec non-profit supplier of blood products to Quebec hospitals.
The organization recently turned to SAS Strategic Performance Management and SAS Activity-Based Management to get a better idea of its costs, enabling it to make better financial decisions.
André Roch, vice-president, public affairs and marketing, says reduced and fluctuating demands for its products in 2005, following five years of three to five per cent growth, drove the organization to seek a tool that would provide faster, more accurate information.
“It was a change we had to manage,” says Roch. “The amount going out was slowing down for many reasons – better use by the hospitals, different technology, better management, more awareness – we had to deal with that.”
Guy Lafrenière, vice-president, administration and finance, says Hema Quebec has been using SAP R3 since the organization’s inception in 1998. It also used activity-based costing (ABC), but it was using Excel spreadsheets.
“We asked a consultant to look at what we were doing here and at the end of the analysis, they felt the tool would have to be updated,” says Lafrenière.
Hema Quebec, which is subsidized by the province, needs to know how much to charge its clients. Before it can do that, though, it needs to know how much it costs to deliver the products, explains Roch.
“We have to go through a process where there’s a purchasing agency responsible for purchasing materials for the hospitals in Montreal. Their mandate from the government is to accept the price we propose for the product,” he says. “We have to justify that price, so that’s where the tool is extremely important.”
Hema Quebec receives blood product from donors through its blood drives, its fixed sites and its travelling bus. Roch says one of the challenges blood products providers face is that they can’t always opt for the most efficient blood drives.
“We need as many blood drives as blood orders require, so we may have to go 700 miles to get the blood where we know it’s not efficient, but it’s the only place we can get it,” he says. “So we have to be able to prove that yes, it’s still efficient to drive that far to get it because the need is there.
“You have to prove all those conditions in order to fix your price, because the price is the same whether you ship blood five kilometres or 500 kilometres away, so if these factors are not computed in an easy fashion you won’t get agreement from the purchasers.”
The organization developed a model that includes more than 100 specific activities and uses and nearly 50 cost drivers. Key performance indicators are delivered through a Web browser. Managers can keep on top of what’s happening by using built-in filtering and alerts.
Opting for SAS also meant easier integration and communication with the Canadian Blood Services, which also uses the same software. Since implementing the SAS products, Hema Quebec has reduced the cost of its products by six per cent, says accounting director Marco Décelles.
And while the project has posed certain challenges and provided measurable benefits, the real value is in the change it is expected to bring about in the organization itself, he says.
“It’s a lot of work but for the accounting side it’s easy because it’s our job,” he says. “The challenge is to change the way managers across the company work with us. We want them to see us as a partner, not a controller.”
Roger Shears, director, financial intelligence practice at SAS, says while the software differs in all implementations, it allows organizations to replicate their business processes and cost those exactly the way they do them.
“In Hema Quebec’s case, some of the refinement of the blood, the testing, the collection and all the different processes would use different resources,” he says. “Handling blood is very similar to a manufacturing process.”
SAS, he says, is seeing more of a trend toward adoption of activity-based costing in government. Governments are moving toward much more corporate performance costing models as a means of determining not only the lowest cost of providing services but having both qualitative and quantitative measures of performance. That way, they can better develop budgets based on strategic outcomes, and better meet public demands for greater accountability and transparency.