Improving the budget process for facilities

A plan should be developed with all stakeholders and documented in the physical world that models how to optimize scarce resources over the next decade.

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The current stewardship model for funding capital renewal and deferred maintenance investment is unsustainable in the long life cycle of health care facilities.

The result is a continual downward trend of an institution’s net asset value (NAV) after taking first productive use of the facility or project. NAV is the percentage of value left in the asset and facility, and although a time-related metric, it is not used to track obsolescence but stewardship investment and renewal.

Improving the budget process requires disruption and acknowledgement that underfunding stewardship increases risk to business continuity and quality patient care.

Understanding the problem

Underfunding stewardship has many causes along with many different perspectives of what to do to resolve the issues. The planning, design and construction (PDC); maintenance and operations (M&O); and financial administration teams have direct involvement in the facilities process delivery model, where caregivers, educators, researchers and other support staff are internal customers, and the patients and visitors are external customers, all benefiting from the service. Focusing on the teams that have the most direct involvement and, therefore, the best opportunity to resolve the issues will drive collaboration and innovation.

Administration is the tip of the spear for funding and administering capital budget processes. With responsibility for the health care business model, it governs over a large and diverse set of needs to advance the mission and remain a viable component of the regional municipal infrastructure. Administration is constantly looking for revenue enhancement strategies that would afford added resources to allocate to a burgeoning list of prioritized needs.

Many PDC and M&O team members believe they are at a disadvantage and competing for scarce resources that are initially directed toward mission growth and patient care initiatives, leaving fewer funds available for stewardship issues. However, administration is presiding over a large list of capital requests for equipment replacements and new or modified treatment spaces, which are its priorities.

Although aligned with stewardship requests, they are not readily linked, primarily because of the disparate data streams used in the facilities management life cycle. To ensure they retain a viable business model, the financial team and executive leadership hold back emergency reserves that can be accessed when something fails that requires significant investment to resolve. Their argument is that it is hard to prioritize facilities needs when they are not directly linked to the missions of the institution.

PDC teams have a different set of priorities focusing on project schedule, scope and budget. The go-to and simplest option is to reduce the scope, which results in a lower cost for the project. During extreme constraints, the project approval list might be reduced, or projects might be pushed to overlap into future budget cycles. A secondary process is to value engineer (VE) out expense to reduce individual project cost. This often results in value eradication (the other “VE”) because of the process of scope reduction by removing a valuable service or feature of the project. Acceptable VE is finding suitable, lower-cost alternatives that do not reduce the value of the intended service.

There are many sources of truth in the PDC process with technologies that are best in class to the architectural and engineering firms and the general contractor (GC). Building information modeling (BIM) has become a leader in health care planning and design technology; however, it does not readily interact with the GC’s technology, nor does BIM readily integrate into the M&O team’s computerized maintenance management system (CMMS) for facility project updates. These issues can be addressed with added resources but represent financial challenges that disparate data streams create for health care facilities owners. Most project managers have become staunch champions of the project schedule and budget, which they are expected to protect from all intrusions.

M&O personnel react to resource constraint by perpetual firefighting after being told that sufficient money is not available to better invest in their plan or meet the actual need. They use their CMMS as their source of truth because it is the repository of compliance and regulatory data for review by third-party regulators. Integrating CMMS data with planning technologies is difficult because the technology is not always interactive with the institution’s financial package or PDC documentation. It often is difficult to pull asset life-cycle data from the CMMS because many assets are managed by their location and regulatory requirements, rather than what they do in support of the service lines.

Demand along with preventive and predictive work orders are the preferred solutions, with an understanding that much of what is managed has outlived its financial and mechanical useful life. Because there is a data insufficiency related to asset purpose and fewer funds than required to resolve the backlog, M&O personnel resort to repairing what they can, replacing what they must and keeping enough operational budget back to fund daily emergencies — classic firefighting.

Developing an effective solution

To arrest and reverse the cycle of declining NAV, a plan should be developed with all relevant stakeholders and documented in the physical world that models how to optimize scarce resources over the next decade.

Empower an innovation team to document and analyze all current stewardship solutions — the “as-is” process. Ensure the team has participants from all stakeholders, including financial management and key members of the environment of care committee.

Once the current processes are well documented, set them aside. Then, use the innovation team to obtain the voice of the customers (VOC) and voice of the process provider (VOPP) documentation from all stakeholders. Allow the VOC and VOPP interactions to develop organically, using open-ended questions. Utilizing the as-is process, and VOC and VOPP documentation, develop the new “to-be” process that represents the best new solution.

Once the innovation team has reached consensus on what the perfect solution should be, have the team address affordability and reconstitute the solution to be funded in a 10-year cash flow model. It is important to remember that the current model of underfunding has been in place for decades, so it is unrealistic to expect it to be rectified in a few business cycles.

The gap between the as-is and to-be plans is the disruptive solution to innovate the stewardship process. Document the work needed to close the gap and present the plan to key stakeholders, administration and the board to maximize their opportunities of knowing. Use Lean processes for data management and strategic alignment to gain administrative support. Also be prepared to answer difficult questions regarding back-of-house challenges that are not visible to individuals who see only front-of-house conditions.

Utilizing data and a capable, well-versed storyteller, show the systems in backlog that have outlived their useful financial and mechanical lives. Offer executives a Gemba walk so they can go to where the problems exist and better understand concerns. Be confident that exposing these issues is a professional statement that the problems are recognized and not hidden from view.

Remind all parties that the goal is to arrest declining NAV and reduce operational risk to patient care and business continuity from innovative investments in capital renewal and deferred maintenance, prioritizing support of the institutional mission. Return to the project sponsors and codify the plan, then build consensus by communicating with key stakeholders to ensure their support and communication preferences.

Identify key performance indicators to hold the innovation team accountable and provide feedback to administration on project milestones and goals.

Disruptive innovation

When evaluating as-is processes, use the adage “if it counts, count it.” Where there are multiple data streams, identify each and clarify why the technology is being used and what it provides in the facilities management process.

Identify whether it has the capacity to inform other technologies or decision-making processes and is being used for such. If it plays a major role in facilities management, determine whether the technology has performed as expected, is sufficient to accomplish its intended purpose, has been updated as required and that operators are sufficiently trained to optimize its use.

Capital planning is where the process of facilities management begins and should be empowered through a committee of executives and key stakeholders who understand the challenge of optimizing scarce resources. The process must be inclusive of all projects that will be considered in the upcoming budget cycle.

The committee should send out a call for projects at the beginning of the second quarter of the financial cycle, utilizing a timed standard collection tool defined by the team to ensure capture of relevant information for consideration and prioritization. As the projects are collected, PDC personnel can begin to evaluate the requests and assign the first order of magnitude estimates.

Prioritizing investment strategies can be based on the owner’s weighted goals and mission focus, assigning a simple priority ranking as defined from the collection tool instructions. This process usually generates a much larger number of projects than financially feasible but ensures that all needs are captured for management review over the three-to-five-year planning cycle.

By the beginning of the fourth quarter, the list should be completed and vetted through several rounds of committee interaction and stakeholder debates. When properly exercised, projects that have value but are not to be completed immediately can be targeted for future business cycles, giving their sponsors feedback about the project’s perceived value. As critical projects arise during the year, the committee can reprioritize the list if needed to ensure optimal use of available funds.

PDC is the source for the most disparate data streams within the facilities management life cycle. The PDC team’s first innovation should be the development and codification of single-sheet owner’s project requirements (OPR) documentation that is used in every project to control the various data streams that will become part of the project record.

An OPR should be developed for each type of space that will be covered in the capital program. Research, education and patient care facilities are dramatically different, and there is significant room for price control between the various types. The single-sheet OPR becomes a controlling document that ensures projects are equally defined within each type and identifies non-negotiable considerations based on owning and operating the facility and systems over their life cycle.

The next objective would be to develop the institution’s BIM model. If the resources are not available in-house, then one should utilize a business partner to develop the model that will be used by all designers for documenting projects within the program.

The health care facility’s BIM model and appropriate single-sheet OPR should be used while developing the basis of design for every future project. Collaborate with the M&O team to ensure that new project documentation is turned over promptly and that key performance indicators are delivered in a format that can be readily uploaded into the CMMS for regulatory compliance.

During the early phases of disruption, M&O should take a similar Lean approach in planning with its CMMS to ensure unwarranted and ineffective procedures are purged. Utilizing an engineering best practice, like reliability-centered maintenance, the M&O team can begin to modify service intervals to reduce labor demand to manage program expenses.

Following the engineering practice guidelines, the CMMS can be Leaned up to allow for more productive use of the in-house labor team to accomplish other disruptive tasks, such as investment in energy-efficiency opportunities in their largest budget item: utilities.

It is a financial fallacy that additional new space can be operated with existing personnel, but they can become more efficient using a well-designed engineering best practice. Fewer needs are accomplished using fewer resources, but there is still adequate investment to manage associated risks. Consideration must be given to the resources required to update the CMMS for the new assets associated with each completed project.

The regulatory requirements are “ready Day 1” after taking the first productive use of every project.

Successful stewardship

Newly constructed facilities increase risk in the long-term unless the existing facility is demolished or completely refreshed. Successful stewardship ensures that all facilities in the portfolio are properly maintained regardless of future investments.

Related article // Best practices and processes for construction and maintenance

Collaborative processes for large capital projects, such as integrated project delivery (IPD) and Lean construction management, are excellent solutions to control costs through team collaborations. Contracts are issued to the architectural and engineering (A&E) design team, the general contractor and the commissioning authority (CxA) simultaneously to ensure the most collaborative design process. Significant savings can be realized during the project design phase and reduced construction schedules.

For stewardship projects, capital renewal and deferred maintenance, job order contracting (JOC) is an effective model that creates the same collaborative delivery as IPD. Based on the indefinite delivery, indefinite quantity umbrella contracting model, a bench of qualified contractors and subcontractors are engaged in the program for a preset period and given work via job orders based on their strengths and commitment to the program. The A&E team, JOC contractor and CxA start simultaneously, working collaboratively to complete the assignment quickly and efficiently, usually starting construction within two weeks.

For both IPD and JOC, financial benefits based on earlier access to revenues are achievable. A best practice is to reduce the number of data streams within the facilities management process by utilizing a unified platform for capital planning; planning, design and construction; and maintenance and operations life-cycle phases. Internal and external benchmarking require accurate and informative data streams.

Facilities data collection is both a science and an art. The science requires qualified and properly trained individuals manned with collection tools to capture critical asset information in a timely and uniform manner. The art is the collection of useful information mined from the historical knowledge of the technician teams that manage the assets.

Age of the asset is only one measurement of condition, with others developed at the onset of the facility condition assessment in a collaborative conversation with facility managers. 

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Mark Kenneday, MBA, CHFM, CHC, FASHE, is director of market strategy and development for health care at Gordian, based in Greenville, S.C. He can be contacted via email at m.kenneday@gordian.com.