In the years since the economic downturn, the U.S. healthcare industry has worked hard to acclimate to a "new normal" financial climate of greater efficiency and quality. Nursing professional development departments need to concisely show how they directly align with organizational strategy so they can justify the services they provide to the organization, and/or advocate for more financial or human resources (Association for Nursing Professional Development, 2013).
Nursing professional development programs like nurse residency programs (NRPs) are powerful and effective ways to bring new nurses into an organization, and the value implication for NRPs is simple: if the NRP saves the organization more money than it costs to develop and run, then it pays for itself and shows a positive return on investment (ROI) for the organization. In prior columns, we discussed how to project a cost savings from reducing new graduate turnover and figure the planning, implementation, and evaluation costs of running a professional development program like an NRP. This column builds on that information, showing how to calculate an ROI.
With knowledge of the costs of financing the new graduate turnover in an organization and the costs incurred with planning and implementing an NRP, it is time to calculate the savings of the reduced turnover compared with the costs. Ideally, the cost savings from a reduced turnover will exceed the costs of the NRP and save the organization money.
CALCULATING ROI FOR A NEW NRP
You begin by adding the NRP planning and implementation costs together to get the total cost for the program for the first year. Then, determine the costs in dollars that the organization currently pays to finance its nursing turnover. Then, estimate how much the NRP can reduce the turnover in the organization. Know that organizations do not reduce and consistently maintain their turnover at zero. There are always factors not in your control that contribute to employees leaving an organization. That is why, across the industry, a turnover rate of less than 10% is excellent and less than 5% is exceptional. Although it will probably never reduce to zero, you are probably safe in figuring that you can reduce it by one third to one half of your current rate.
Calculate the cost in dollars of financing your new projected turnover, and subtract that number from what your hospital is currently paying to find the net projected program benefit. Finally, divide the net projected program benefit by the total program cost, and then multiply that number by 100 to get the ROI for the first year of the program, expressed as a percentage.
The following example and Table 1 continue the example NRP program used in previous columns. The example below also assumes a position of an NRP designer developing an NRP from the outset. Calculating an ROI for an existing program is covered in the final section below.
"The NRP designer has figured that planning and implementation costs will total $121,245 for the first year and $114,105 for each subsequent year after it has been set up. The hospital averages hiring 40 new graduates per year with a historical turnover of 25%. The annual base wage of a new graduate at the organization is $50,000 per year. The NRP designer anticipates that the NRP will reduce turnover from 25% to 15%" (see Table 1).
A first-year ROI of 206% indicates that the program is projected to save the hospital more than twice as much as it will cost to implement. The sample NRP assumed that the organization was an average with average performance and turnover. Each organization will probably have slightly different results depending on the variations in turnover, annual base salary, and the like.
CALCULATING ROI FOR AN EXTANT NRP
If you are running an NRP already and are interested in calculating an ROI for it, you can use the same table and formulas but simply substitute real numbers in for the projected ones in Table 1. You will need your actual program implementation costs and new graduate turnover rates. You will use the same pre-NRP turnover rates if you have them. If not, then you will have to deduce them the best you can or use the literature to approximate it (as discussed in Part 1).
It may be that, after doing the calculations, you will not be able to show a positive ROI. That might be because of several factors. Maybe your new graduate turnover is already quite low, or maybe your new graduates have very low starting salaries or participate in your NRP without being paid to do so. If so, then do not worry. As mentioned in Part 1, there are many intangible benefits of having an NRP that do not translate as easily into dollars as a reduction in turnover. If you are running an NRP, you already have the support of organization executives, and if you have positive evaluations of the other parts of the program, they will probably continue to be supportive about simply making the transition into practice easier for the new graduate nurses and improving patient outcomes in your organization.
Another noteworthy aspect to mention is that you should anticipate that your ROI will drop in successive years, probably to less than 100%. As the NRP does its job, turnover in the first year or two should drop significantly, which translates to a high ROI. However, it is not realistic to expect that you can drop your turnover rate to zero; there will always be new nurses who leave the organization because of factors you cannot control. For example, assume your pre-NRP turnover rate is 20%. In the first NRP year, it could drop to 13%-a 7% reduction that probably would give you a nice ROI. In the next year, turnover drops again, but only to 10%-a 3% reduction. The ROI will probably be closer to 100%. In the third year, it may not drop at all or maybe only a percent or so. An ROI at this point will probably be less than 100%.
A decreasing ROI over time does not mean the NRP is failing; it means it is doing its job! The NRP is keeping turnover low, just like a daily blood pressure medication keeps a patient's blood pressure at a healthy level. A nurse would not stop a blood pressure medication only because the patient has a normal blood pressure, would they? If they did, the effects of the last dose would wear off, and the patient's blood pressure would fly out of control again. The same principle applies to an NRP.
CONCLUSION
Showing with real numbers that an NRP cannot only pay for itself but actually yields a profit for the organization is powerful. Doing so will allow NRP leaders to concisely show how they directly align with organizational strategy, justify their services, and even advocate for more financial or human resources. More importantly, a well-run NRP contributes to a more competent staff, higher quality of care, and less waste of an ever-diminishing supply of resources.
Until next time....
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