Lab Manager | Run Your Lab Like a Business

Financial Intelligence

For a laboratory to be able to survive in a difficult economic environment, it is crucial that the scientific and financial sides of the business be in sync.

by Richard Daub
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Bridging the Gap Between Dollars and Science

For most undergrad science majors, Economics 101 is nothing more than one of several curriculum courses that you have to take in order to graduate. It certainly isn’t the most exciting or interesting class, and it is not likely to inspire a trip to the administration building to change majors from biochemistry to business economics. At most, the science major gathers a basic understanding of how the global economy works but learns very little about how to actually run a successful business within it.

For the rare science major with the foresight to realize that out in the real world science is an industry and that learning the business side of it may actually come in handy someday, there is nowhere to turn unless you want to commit to the expensive and time-consuming option of enrolling in a Professional Science Masters program, the value of which is debatable. There’s always the option to minor in business, but that would take away from minoring in a secondary scientific area.

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Several years and degrees later, the lucky scientists find themselves in the cozy confines of a corporate laboratory, concerned only with hypotheses and test results. Meanwhile, others find themselves contending with someone who wears not a lab coat but a business suit and who sits in an office that might not even be in the same building (or the same state, for that matter). This individual, the chief financial officer, who quite possibly has never stepped foot in the laboratory, is responsible for drawing up the lab budget and has the power to approve or deny requests for expenses such as equipment, supplies, and personnel. In a situation such as this, if the lab manager does not understand how the financial process works, he or she will be at the mercy of the CFO whenever a budgeting issue arises in the laboratory.

During times of economic prosperity, this arrangement may work well. Scientists typically would rather focus on the science than deal with the company’s finances, and the CFO typically doesn’t mind remaining blissfully unaware of how the company makes its money as long as it continues to do so. During a severe recession, however, if the lab manager and the CFO don’t understand each other’s roles, this relationship can be contentious and can eventually lead to the failure of the company.

In smaller laboratories, the lab manager is often responsible for the science and the finances. It is highly unlikely that he or she is an economist turned lab manager, so the financial side of the job has to be learned on the fly. In this scenario, Economics 101 seems like even more of a waste of time now than it did when the manager was an undergrad, and little consolation is taken from the thought that most MBAs will likely tell you that a true financial education does not come from the classroom.

Experience is the greatest teacher, and mistakes are the most important lessons. Very few, if any, scientists have the ability to step right in and steer the ship smoothly across the choppy waters of the economy. And while it should be understood that mistakes will be made, is it wise for the lab manager who is trying his or her hand at CFO for the first time to tread cautiously or charge full steam ahead?

“I think restraint is a common mistake that novice CFOs make,” says Phillip Clinton, lab director at Logan Community Hospital in Guthrie, Oklahoma. “They can’t be so conservative that they aren’t progressive. I think it’s important to add new products and services to make yourself valuable.”

On the flip side, some novice CFOs try to do too much and wind up digging a deep hole for the company. Miguel Suderman, president and chief science officer of Cell Systems 3-D in Texas, says that a common mistake that novice CFOs make is succumbing to the temptation of trying to build a state-of-the-art laboratory right out of the gate.

“You have these salespeople who are basically offering you the world,” he says. “They’ll give you a credit line, and it’s very easy to succumb to this temptation, but then the next thing you know, you owe this particular company $5,000 a month and you may not be bringing that much in. So you instantly find yourself between a rock and a hard place. At one time you may have previously worked in a private practice that has all the bells and jangles and state-of-the-art equipment, but you have to remember that this guy has probably been in practice for ten to twenty years and that he probably acquired that equipment one piece at a time.”

Kenneth Jensen, a laboratory consultant based in Colorado, says that another costly mistake is to purchase the newest and most modern instrumentation without measuring its effectiveness.

“They run out and buy bells and whistles without evaluating what the bells and whistles are going to do,” he says. “You now have an instrument that’s going to ding at you and call your attention to it every time you get a specific reading, but these results are things that your technologist on an advanced level should see instantaneously. You shouldn’t need a bell or whistle to tell you if [a measurement] is too low or too high. Modern technology is based on computerization, so the perception is that the more computerized it is, the less likely that you have human intervention, and with less human intervention, the cheaper the cost because computers don’t take coffee breaks.”

Dr. Suderman says that he resists the temptation to go on a shopping spree by assigning priority numbers to bargains he finds on used equipment.

“I have a checklist of items that I think we can budget for, so every Sunday evening I get the new listing from LabX, and I’ll spend an hour or so looking through it,” he says. “If I see any pieces of equipment we could use, I’ll assign a priority number to them, and I try to put the decision off to the side for five to ten days and then come back and look at them again. If I feel the same way after ten days, then it’s time to sit down and think about it.”

The primary purpose for purchasing new equipment is not to make the lab technician’s job easier but to improve efficiency of the overall workflow to the point where productivity is increased. A machine that performs a task of a lab technician but does not increase productivity is probably not worth the investment. This is an area where the lab manager must demonstrate to the CFO how the purchase of new equipment will improve productivity and translate into an increase in profitability. In other words, the lab manager must learn to speak the CFO’s language, which can be broken down to three words: dollars and cents.

“The more tests you turn out and the faster you turn them out, the more money you make,” says Roberta Hickman, laboratory supervisor at The Medical Center in Hutchinson, Kansas. “My emphasis is on efficiency and keeping up with the technology without going overboard. I have tried to modernize the lab so that we have more efficient output and we’re not spending additional manhours backtracking on errors and reperforming tests.”

Even more important but less predictable than the machines is maximizing the efficiency of the people.

“The most important resource you have is your staff,” Ms. Hickman says. “You need to make sure that you’re investing as much time and revenue in your staff as you are in your equipment, because that’s really where you’re going to get your biggest payoff.”

According to George Lucier, Site Analytical Manager for theBattelle Memorial Institute in Utah, teaching a new employee how to do the actual job is not as challenging as the process of adjusting to the culture of the laboratory.

“The mistakes I’ve seen here are not planning up front how long it takes to get a new employee to be productive in a laboratory,” he says. “In our operation, we have to plan for about six months before they are productive. The bigger part is the culture. You can get that only from learning on the job because you need to learn the work culture and all the details of how things are done in this laboratory. And I just don’t know that it can be accelerated. It just takes time.”

In addition to learning to speak the language of the CFO, the lab manager must also make sure that the CFO learns to speak the language of the laboratory. “There has to be some real tenacity on the part of the lab manager to get the CFO to understand how we do business, and that’s a tough thing to do,” says Gail Woosley, manager of lab services at Wooster Community Hospital in Ohio. “So many folks think lab technicians just push buttons and turn out results and that’s it. The biggest detrimental factor is that they don’t know how we work. If you can get the CFO or anybody from the administration, from the CEO to the nursing director to the outpatient services director, to spend just three or four hours out of one day in his or her career in the laboratory to understand how we do things and what we have coming at us, I think your CFO is going to be a lot more willing to ask questions and understand a little bit better how we do business. I want them to come spend business management four hours with me, and I want them to follow a specimen from the time it’s drawn from an outpatient all the way through the process of reporting the results so they can understand how we do business.”

As for those firms where the lab manager is also responsible for running the finances, Dr. Suderman suggests enlisting the help of a good accountant

“We don’t have the funding for me to go out and hire an MBA or somebody with CFO credentials, so I really have to depend on my accountant to tell me when we’re getting overextended and when we should pull back a little,” he says. “And I don’t even attempt to keep up with some of the government regulations and changes in the IRS because that’s not my expertise. My CPA has probably kept me out of hot water and out of jail on a couple of occasions.”

For a laboratory to be able to survive in a difficult economic environment, it is crucial for the scientific and financial sides of the business to be in sync.

“The CFO really has to have a good understanding of the mission of the laboratory,” Dr. Suderman says. “If the CFO doesn’t have a good understanding of what the laboratory or the company is trying to do, then he or she is going to be operating in one world and the company is going to be operating in another. And that’s why most biotechs fail. I think biotechs have a higher mortality rate than restaurants.”