How to Manage Operational Risk

15th September 2016 (Last Updated July 18th, 2018 10:13)

Henry Kerali examines ways to mitigate financial risk in clinical operations

How to Manage Operational Risk

There are many telling differences in the way small and big pharma companies operate. On the one hand, smaller companies have fewer infrastructures in place, working with modest resources and a small staff on deck from the outset. They also have greater flexibility as well as the ability to make decisions quickly. On the other hand, there are many drawbacks to being a small company.

Oftentimes, sponsors encounter numerous delays in protocol development, while finding the right CRO that’s the right fit for your trial can present significant challenges. As is often the case, smaller companies contract certain aspects of their trial, which can at times offset further delays. When managing studies on tighter budgets and fewer resources, developing a strategy that mitigates financial risk is key to determining the success or failure of a clinical trial.

There are three key aspects companies should consider to combat the threat of your clinical trial coming unstuck:

  • Planning
  • Budgeting
  • Mitigating

Planning

Assembling a well-structured operational plan is one of the most effective ways of lowering financial risk. Invest time in putting a thorough baseline plan and a predictable model in place. Although calculating the potential cost of your trial may seem like a shot in the dark, prepare a high level budget that includes a rough estimate of patient numbers, treatment duration and trial complexity.

When establishing your timelines, account for how long it may take to activate your sites and recruit patients. It’s crucial to predict the rate at which your sites will be activated to have any idea of how fast you will recruit. Therefore, develop a strategy for how patients will be recruited and retained having a contingency plan in place for when enrolment stalls and a site has to be shut down.

Budgeting

As alluded to previously, preparing a high level budget is essential. Although predicting the outlay of a trial may seem like a fruitless task, draw on past experience as well as previous trial data from similar studies to develop a budget that’s as accurate as possible. Furthermore, always try to get a ball park figureof the trial’s overall cost based on interactions with vendors.

Understand how the vendor derives the ball park –examining their costing model – to determine their cost drivers as much as you can. You can often tell looking at the different function costs within the ball park when calculating the percentage cost of services outsourced, as well as the overall cost.Therefore, use proprietary tools to benchmark if available.

Costing

When putting together the final budget, you can always reduce variability in costs by the terms set in vendor contracts. Where possible, put in place quality parameters for services that are explicit. Ensure a baseline model is built into the contract. As baselines can often shift during the course of a study, make sure you have as much detail in the contract as possible – that includes: timelines, site activation rates, and screening and enrolment rates.

A thorough vendor contract is one of many tools that can alleviate the threat of risk. While good planning is critical, the threat of financial risk can be partially mitigated by a robust costing and budgeting process. When developing a mitigation strategy, it’s good to ensure the following three aspects are covered in the final contract:

  • Costed mitigations – Suitable for backup strategies, great for allowing quick implementation. Nevertheless, they are only suitable for anticipated issues, and if poorly executed in the contract, change orders can occur frequently.
  • Fixed price contracts – While on the one hand, fixed price contracts can limit change orders, they do require a shared understanding of risk [make sure everyone is on the same page])
  • Fixed percentage contingency funds – These can be determined in the contract either internally or explicitly. While they are well suited for non-anticipated issues, governance approval maybe needed, and a lot depends on teams proactively anticipating the risks.

 

References

Hodsgon, Ian – Minimising Adverse Financial Uncertainty by Managing Operational Risk