Dyana Boutwell, MBA, Halloran Consulting Group

Today’s clinical trial landscape is saturated with vendor-outsourced trials, generating multimillion-dollar program budgets for sponsors. The constant reported budget swings and cost overruns puzzle senior leadership. What is so difficult about forecasting and managing trial budgets?

		Due to the inherent complexity of clinical trials, their budgets are unique and difficult to predict and manage. A trial budget changes constantly, much like the clinical trial itself. A majority of sponsors struggle with managing trial budgets internally with accuracy and consistency, and many budget managers are not well-versed in how to track financials effectively. People like to use the term “perfect storm” when many factors are coming together causing a significant issue. Perfect storm could certainly be used here; however, if you’re sitting in a leadership role and funding is tight—this could be more of a worst nightmare.

What is driving my financials through the roof?

		Trial costs can range from less than $one million for a basic, one-center first-in-human (FIH) trial in healthy subjects to well into the multimillion-dollar range for complex late-stage trials. Costs are driven by many factors, and when these factors change, so will your budget. Here are the top five cost drivers to blame for trial budget increases:

 — Changes to study design can result in significant rework for vendors, which increases cost. Additions such as expensive patient testing, increases in overnight hospital visits, and increases in patient monitoring all can drive up costs significantly.

 — Many budgetary elements of an outsourced trial are driven by duration. Watch monthly unit costs compound if timelines extend due to lagging enrollment or changes to trial design. Extending a trial timeline is not just spreading remaining costs over a longer period of time, it is requiring an increase in resource time and therefore an increase to the trial budget.

Increasing the number of participating sites

 — The more sites required to meet the patient target, the more will be paid in start-up, monitoring and trial management. Sponsors typically react to under-enrollment by adding sites. Substitutions of new sites for underperformers also increase the budget without a net increase in site numbers.

 — Monitoring is expensive. Each face-to-face visit to review data or train site staff costs an organization thousands of dollars for round-trip travel, prep time, one or two days on-site, and report writing post-visit. Most sponsors respond to site quality issues by increasing in-person visits or lengthening them to increase the level of source data verification. Sponsors choose to change a study’s monitoring strategy for reasons such as trends in protocol deviations requiring additional site attention, evaluation of performance issues, or adjustment of their risk-based monitoring approach.

 — Sponsors frequently select vendors not only on perceived performance, but also on price. If a vendor is inexperienced or does not have the appropriate staff or good retention, you will feel the impact in operational inefficiencies and in your budget. Sponsor missteps in handling even experienced vendors, such as lack of definition for roles and responsibilities, ineffective communication or inaccurate planning assumptions will result in scope creep and change orders. Changing vendors mid-study is one of the most costly decisions sponsors can make.

		Senior executives that are not involved directly with clinical trials commonly ask, “What are our millions of dollars paying for?” Regardless of phase of development, the budget components are fairly consistent for outsourced trials. The major components that make up trial costs are:

		It is a common misconception that the CRO budget is the majority of the total trial cost. Site fees, or the investigator grant payments that are made to the sites, are typically upwards of 50% of your total study budget. The number of tests is a direct driver of site fees; if your protocol design is complex or if decisions are made to add expensive scans or intensive laboratory tests to the patients’ schedule, it results in substantial cost increases.

		Many sponsor companies are failing at managing forecasts and accruals effectively for their trials. Most companies are either holding on to too much money in their programs or they are continuously trying to dig up additional funding to ensure a program moves forward. Both scenarios can significantly limit organizations when it comes to funding other opportunities.

		Sponsor companies also struggle with fluctuations in their trial forecasts from quarter to quarter, or even month to month. Funding is requested and approved based on a communicated estimate but the estimate is soon identified as being inaccurate and financials need course correction. This is a problem that will capture the attention of senior leadership and auditors if you are a public company. It is also a scenario that will have many internal functions anxious about the organization’s ability to manage financials.

		“It’s not about one single issue; it’s a combination of things. At the end of the day, sponsors need to be able to adequately manage risk and effectively track budgets. Change always takes place; it is how they manage this change that will make the difference.” These statements were recently made by Lorenz Evans, Director in the CNS group and Pediatric Center of Excellence at Quintiles, when discussing the common challenges sponsors face with trial financial management and constant scope creep. He’s correct, there are several factors—here are the key contributors and what can be done to address each of them.

		At small- to mid-sized sponsors, an initial study budget is typically developed via a finger-in-the-air approach, using a percentage of the bottom line, or per patient costs for a historical study as a guide. These methods are neither accurate nor precise. Where no historical data are available, organizations base study budgets on vendor bids. Vendor estimates are driving internal financial forecasts and control is certainly not with the sponsor. Also, those that lack the internal forecasting capability struggle significantly with reforecasting trial cost when change occurs. If there is no internal pulse on trial cost estimates, there is no negotiation leverage, no cross-functional trust in the numbers, and an overload of financial surprises.

		A system like Oracle’s ClearTrial, or others such as Medidata’s CRO Contractor, uses clinical intelligence and industry benchmarking data to forecast initial study budgets accurately in a matter of minutes. Such a tool allows the sponsor to model different study designs and scenarios without generating multiple vendor requests for proposals (RFPs). When bids are generated, the sponsor can easily compare bid-to-forecast to identify areas of mark-up. When amendments arise, costs can be reforecast with the change of a few key assumptions. The tight 3—5% variance from actual-to-plan for a robust set of assumptions alone serves as value-add and can really turn the tables when it comes to effectively allocating dollars.

		It is almost universal that the management of accruals is the most painful aspect of budget managers’ responsibilities. This responsibility commonly falls under Finance, but some organizations depend heavily on their clinical staff to manage accruals. Staff complain that manual tracking is nearly impossible and that rough estimates are always incorporated. Neither the Finance department nor clinical staff is well-equipped for this responsibility due to gaps in data, unhelpful vendor reports and spreadsheets that are tainted with historical entry errors. The result is accruals that become less of a reflection of actual work completed and more of an estimate of what various people think took place in the past month.

		Also, financial reconciliations, one of the most effective processes to ensure you have a handle on your budget and accruals, are most commonly being conducted at high-level governance meetings. Those managing the trial financials are in the dark because the details are being discussed with the wrong audience.

		Successful companies know that manual accrual management is ineffective. They have models in place to take the labor-intensive piece out of the equation, and to ensure they are generating accruals and forecasted spend over time with a consistent, well-defined, trial-driven methodology. Tools such as ClearTrial’s Track module can assist with detailed accrual management through linking to Oracle’s CTMS software or via data entry. Halloran has partnered with Synclinical, a start-up software development company, to develop a cloud-enabled, subscription-based accrual management tool. A solid tool that eliminates the constant errors that come along with manual overrides and requires minimal time to maintain is a major addition to organizations.

		Companies that effectively manage accruals are also partnering with vendors effectively. Quarterly reconciliations are taking place with their larger trial vendors. These reconciliations are a working session between two organizations to ensure alignment, understanding and transparency. They are also partnering with vendors around data access and reporting. Sharing of information and reviewing reports, such as burn rates, budget to actuals, and estimates to complete add significant value when trying to stay on top of a trial budget.

		Clinical study lead, vendor wrangler, timeline keeper, budget manager—clinical project managers have too much on their plates, and budget management is the least favorite aspect of their jobs. It’s not just tracking invoices that is mind-numbingly tedious&mdash;they have little expertise and less training. Typically, Finance, Outsourcing and Portfolio/Program Management also have some form of budget management responsibilities, or need to be consulted or informed. Clinical and Finance, in particular, speak different languages. For example, Clinical staff may not understand why Finance is tracking and constantly inquiring about “uncontracted dollars” (the difference between a trial’s approved forecast and the total contracted value for the trial) and Finance may understand the high-level, rolled up figures, but not the drivers of patient-variable fees. When teams lack the appropriate skills and necessary internal cross-education, this not only creates challenging communications, but also makes it relatively impossible for organizations to effectively manage clinical trial budgets.

		A better approach is to have clinical financial analysts who understand how trials are run, how to manage financials and how to plan effectively. These analysts serve as the liaison between the functional areas involved, and are responsible for internal financial forecasting, accrual and budget management support, and metrics and reports generation. They educate other staff and manage and maintain budgetary tools and systems. The primary goal for these analysts is to ensure data-driven, evidence-based planning and decision-making are embedded practices.

		Clinical financial analysts also ensure that appropriate processes and escalation procedures are in place around trial financial management. They ensure these procedures are followed, and help facilitate effective communication cross-functionally, and up and down within clinical development. Having the right resources in place shows that these sponsors realize the importance of accurately managing trial financials and the impact this has to not just individual trials, but the significant spend of programs and product portfolios.

		The industry as a whole is well aware that trial complexity and cost continues to increase. What they struggle with is making effective management of these costs a priority. Sponsors are becoming more aware, and in turn, more vocal about clinical finance pain-points; this is beginning to help organizations realize that it is not just their company that is struggling with these nightmares. As these already extensive budgets become even larger, sponsor organizations will need to address budget management gaps to ensure that millions are not wasted and that spend does not continue to creep out of their funding caps. The right people, systems, tools and processes can get organizations where they need to be if they prioritize this need and push for positive change. 

		Dyana Boutwell is Principal Consultant at Halloran Consulting Group (Boston, MA; 

), which she joined in 2013. She focuses on clinical and medical affairs business operations, project management, evidence-based strategic and financial planning, process development, and functional gap analyses. Her 15 years of industry experience include a position as Associate Director of Clinical Operations at Vertex Pharmaceuticals, and work as a bench scientist in both R&D and quality control/GMP laboratories. Dyana earned an MBA from the University of Massachusetts, Amherst and a BS in chemistry from Newberry College (South Carolina).

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