Risk Based Budgeting

Apr 24, 2018

As the pace and volatility of many industries increase, we need a better way to tilt the odds back in favor of success. Keeping costs low is useless when project failure threatens the very existence of an organization.

Knowledge Gap

A traditional clinical study planning tend to rely on facts and figures—fixed and upfront costs (institutional approvals, mandated fees) and costs related to subject visits (e.g., physicians' fees, procedures, etc.). Many unknowns remain not considered in the end-budget formula, which comprises many variables.

The unknowns about how a trial will (most probably) change during a trial’s run: real number of available patients, the time sites are ready to invest in a study, priorities, and risks. In the classic financial planning methodology, the longer project is, the more uncertainty (read: risks) it contains. In a long-term project, we can face even political and regulatory uncertainty.

Hidden Costs

Some companies call risks "hidden” study costs. A simple example of such cost could be a delayed start of a trial. Other examples are non-compliance, protocol deviations, fraud, safety issues, increased salaries, and operating costs over time, etc.

How to assess them? How to include these (unpleasant) costs? Moreover, how to persuade a sponsor to reserve money for these costs? 

Actually, every sponsor reserves around 20-30% of a budget for unforeseen expenses. Some of them do it even unconsciously. However, why 20% or 30% and what can we do to minimize it to, say five per cent? Is there a methodology in place? Risk-based budgeting can probably allow achieving the target.

Risk-based Budgeting

The whole bunch of the mentioned challenges can be resolved with a Risk-based budgeting (RBB)—a methodology, that includes risks and uncertainties of the real world into financial planning as a whole, and a study budget in particular. The good news about risks is that they CAN be mitigated when identified correctly.

Here there are two complications—to identify risks and assess their impact and probability correctly—these steps are the prerequisite to start planning the right mitigation actions.

There are number of tools appeared to assess risks today (e.g. TransCelerate’s RACT, RAMMT from Metric Champion Consortium, OPTIMON study, etc.). These tools help to assess risks systematically, but anyway the major job is to be done by a study team.

How to establish an RBB

The building of RBB implies the following steps:

1. Risk assessment of the protocol and a future project.

2. “Water-proofing” of the risk assessments with various stakeholders.

3. Prioritization of risk categories and selection of the proper mitigation actions.

4. Including the costs of mitigation actions into clinical budget, a flexible part of it.

5. Evaluation of effectiveness of risk assessment and mitigation actions at the end of a trial.

Therefore, the structure of RBB looks as follows:

Part 1. A classical evaluation of fixed and variable cost for a trial.

Part 2. Fixed part for mitigation actions of identified and prioritized risks.

Part 3. Flexible part for corrective and preventive actions of early identified issues before they escalate.

Part 4. A budget for unknown risks (provided a proper planning it can be reduced to 1-2% of overall costs).

Summing up, a study budget is the initial and the one of the most decisive components of the success of a clinical trial. Lack of funding in a critical situation results in complete disaster for the whole study success and lost time. Risks and uncertainties must be planned together with fixed figures and prices and be a part of every clinical budget, which can help to finish trial on budget with 1%-3% deviation.

Moreover, keeping in mind that the patient safety always has to come first over the protocol and costs, mitigating the risks connected with patient safety, we minimize a possible negative impact on a patient in a trial.

So, adoption of the concept of the Risk-Based Budgeting could help you to maintain the trial budget within a reasonable range or even to save the whole clinical trial not to mention the patients’ safety.

 

About Authors:

Igor Stefanov serves as CEO of Synergy Research Group, the World's First Agile Risk-based Contract Research Organization, totally devoted to the Agile Risk Based Approach in Drug Development.

Artem Andrianov, PhD, serves as CEO for Cyntegrity, a German SaaS provider of risk-based analytics and data-driven quality management solutions in clinical research.

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