BPM: Why are you more focused on costs than on revenues?

Erickson Retirement Communities provides housing, dining, and related services to elderly residents in 13 communities across the country. Each of its campuses includes independent-living apartments, assisted-living units, and skilled-nursing facilities. Staying competitive in this business requires a tight focus on controlling costs. That's why Erickson uses its BPM system to ensure that managers are operating as efficiently as possible, not just hitting arbitrary expense numbers set through a typical budget-negotiation process.

Craig Erickson: We are a for-profit management company, but the communities that we operate are not-for-profit. We target a 10 to 12 percent operating margin, but another thing we target is a monthly fee increase for existing residents of no more than COLA, the cost-of-living adjustment that their social security checks go up by. That is only about 2.5 to 3 percent a year. When salaries, utility costs, and other costs are going up by more than that, focusing on productivity is a way to maintain those margins without having to increase your revenue to get there.

BPM: How do you improve productivity?

Erickson: Our campuses are constructed over a seven- to nine-year timeline, from when we open the first residential building to when we finish building out the campus. Usually for the first four years all we have is independent living. Every six months or so, we bring on a new apartment building. The first several years we run at an operating loss; we have some fixed costs and haven't gotten to our economies of scale yet. Usually right around the time we hit the break-even point and we're starting to operate at a profitable level, we open up the first phase of our assisted living/skilled nursing, which at a community level dips you back down into negatives. As we fill those up and continue filling independent living, we gradually work our way back into the positives.

Think of the challenge of performance management in such a dynamic environment. We can't look at year-over-year comparisons because the number of residents from one year to the next may vary by 30 percent. So where we've gotten a lot of value out of our BPM software is in comparing actual performance results at different campuses to each other, and then using that for both long-term planning and budget evaluation.

BPM: What exactly do you compare?

Erickson: When we open up a campus, we have certain staffing ratios, and those staffing ratios improve over time. In the dining-services realm, when we first open up a campus, we might have 18 FTEs per 100 residents. As we build out apartments and keep only the one restaurant, we might get that down to, say, 12 FTEs in dining per 100 residents. Then when we open up our second restaurant on the campus, we get some inefficiencies and spike back up. What we've been able to do is take metrics like that, throw all the campuses up together, and compare them. We group the communities based on where they are in the development process and identify anomalies.