3 Steps to Tracking Finances and Budgeting for Simulation Equipment
by SimGHOSTS Board Member, Dr. Scott Crawford
The INACSL Standards of Best Practice: SimulationSM: Operations clearly states that programs must “maintain and manage the financial resources to support stability, sustainability, and growth of the [simulation-based education] program's goals and outcomes.” While this directly ties into strategic planning and the needs of the simulation program, there is still a need to calculate the cost that this may have. Whether at a large institution or a small center, budget planning is essential for perpetuation. This article will describe one method for calculating and identifying the cost required to maintain simulation equipment at optimal performance.
The duration of time that a piece of simulation equipment can be used will vary depending on use patterns, and the care and maintenance that it receives. Manikin manufacturers estimate a useful life of 5-7 years and may not even offer warranty service beyond 7 years. Use beyond this timeframe thus becomes risky (and fun for tinkering). Even if you are fortunate enough to work at a simulation center that supports and encourages innovation and “in-house” maintenance, centers may be limited as to the tools and parts they can buy from the manufacturer. In order to meet the standard for financial sustainability, a budget should be prepared that takes into account maintenance of resources, and eventual replenishment of these resources.
Step 1: Review and identify resources that are needed for continuation of the center’s educational mission.
When a simulation center is being planned and budgeted, hopefully an appropriate needs assessment is performed to identify the equipment needed to deliver education. This up-front planning help to decrease later waste in unneeded equipment purchases or warranty expenses. Even with this careful planning, curricular changes and technology changes will alter the long-term benefit of some capital assets. Example: even though IV start training is a critical skill for learners, the haptic feedback trainers that did not adequately teach the skill and have been discontinued will not need to be warrantied because they are no longer used by the educators, and shouldn’t/can’t be replaced because they have been discontinued by the manufacturer. This equipment may need an alternative task trainer, but will not need a 1:1 replacement because simple IV arms have been determined to be more beneficial for this skill training. The full body manikin, on the other hand, is still used and will be replaced (with a newer model) when it turns seven because it is still needed for nearly the same function.
Step 1, although seemingly simple, can become quite difficult as an inventory list grows over years of acquisition and turnover in educators and/or leadership. A careful database of utilization can quickly identify those pieces of equipment that are vital to program education and those that would be better relegated to holding the doors open between sessions. If this type of database does not exist, curricular review and healthcare simulation specialist expertise can help to identify items that are A. critical, B. used occasionally, and C. never used. Carefully identifying the difference will make sure that you are realistic and cost conscious in your budget planning and only planning expenses to replace useful and critical items.
Step 2: Identify the useful life of a resource
Knowing the purchase date of a piece of equipment is vital to identifying how much useful life it may have. Especially important is knowing the limitations to warranty duration and even the ability to obtains parts and supplies for equipment classified as “legacy” by the manufacturer. A simple database system that can track the purchase date and price will make this and other financial calculations possible. An example inventory list is shown in Table 1. The calculation of Age (months) uses the following formula (=DATEDIF(D2,G2,"M"). This Excel formula will calculate the number of months (“M”) from an initial date cell (D2) to a later date cell (G2). But not all equipment will need to be replaced. In this example, the first manikin was found not to be used and thus should not be calculated for replacement.
Step 3: Calculate the remaining financial value and annual cost for replacement
Using Table 1 again, a calculation of the remaining value of the equipment can be performed. This calculation takes into account the remaining value of the equipment by multiplying % Life Remaining (calculated from above) by the original Purchase Price.
Using this simple example, we can see that $133,400 of equipment will need to be replaced (ignoring the not used manikin in row 1), and that $55,633 of value is still present in our inventory. In an ideal situation, the amount budgeted for replacement this year would be able to replace the two manikins at the end of life ($42,000 + $9,000) or $51,000. The center would then not need to replace a manikin for ~2 more years. This system only works if a simulation center is able to request or save/hold money in order to plan for future replacement.
The actual calculation may end up being quite a bit more complicated, however, if the simulation center cannot have a balance carry forward to pull this funding from. This maybe the case for larger state-funded programs. In these systems, planned costs must be carefully provided over time and if inventory lists are more extensive, an annual replacement cost of an average need may be more practical. A possible example for this (again only useful for inventory lists with many more items) would be to divide the total required replacement cost by the estimated lifespan of the items and carry this forward yearly to acquire items as needed. This consideration would allow some items to be replaced at 6 years, if needed, as long as others could be held onto for 8 years for example. The average replacement value for table 1 is shown below:
($133,400-$55,633)/7 = $77,767/7 = $11,110.
This calculation is akin to a depreciation schedule. While this term is generally used for tax purposes it has relevance for inventory and sustainability calculations for any business even if tax forms are not being filled out.