Ready for your major healthcare new build?

Most healthcare organizations routinely update and improve their buildings; however, major expansion projects require different skills. Program manager Tom Koulouris helps test your readiness

For many organizations, a major capital improvement program is a relatively rare event. While an organization’s support functions will likely be adept at day-to-day maintenance and operations, large-scale and complex capital improvement programs require an expanded skill set.  With many healthcare organizations in the public- and private-sectors readying large-scale capital programs to enhance their campuses, now is the time to plan for success.

Three-step stress test for success

To ensure that an organization is equipped and ready for a capital improvement program, it is advisable to assess its capabilities before launching into significant program planning and professional services procurement efforts. Examining key processes will quickly determine whether the organization is ready, or whether it needs to institute change first.  We suggest three stress tests for the key processes currently in place:

Test 1 – Accounting department personnel resources and capabilities

The organization’s accounting department must have sufficient resources and skills to review and make informed payments on significantly more complex invoices.  Not only will the number of invoices increase perhaps five-fold, so will their dollar values.

Test 1 example: Invoice processing

If an organization that annually deploys $20 million construction-in-place volume is considering a $100M+ expansion, this new capital program will typically expose older, less-robust processes. A large capital improvement program often generates dozens of complex, large invoices from the construction manager, architects, engineers, and many other professional vendor teams. In addition, late payments in the construction world slow progress and ultimately can cause a time extension change order and increased costs. To plan accordingly, add the potential for hundreds of purchase orders for furniture, fixtures and equipment, and perhaps a few thousand invoices associated with an owner-direct purchase program (a method for hospitals to recoup the tax spent otherwise on building materials).

Test 2 – Job-cost accounting functions streamlined and optimized

Job-cost accounting functions must be streamlined and optimized for creating activity numbers, funding-in-place for the activity numbers, approval limits for project managers and vice presidents, and other checks and balances.  These processes must be updated to manage invoices and pay applications which represent millions of dollars on each invoice or pay applications.

Test 2 example:  Procurement department.

In public organizations, staff typically fully understand the process of managing a request for quotation (RFQ) or request for proposal (RFP) and the timeframe required. To fully understand and plan for the demands of a large capital program, the procurement effort projections must be magnified by including design and construction management teams, threshold inspectors, material testing firms, commissioning agents, and environmental firms, among others. Ideally, the design and construction management teams are procured at nearly the same time, so that beneficial team collaboration commences early. However, this quick-start method does add complexities to the coordination. In addition, releasing purchasing orders may be difficult due to the nature of sufficient approval in cost categories, moving funds between line items, and other contractual issues.

Test 3 – Updated design and construction department controls functions

A consulting auditor should review the controls function within the organization’s design and construction department. Early process change and implementation will pay for itself many times over. It is important that the facility’s standard delivery model for executing contracts and projects are sufficient for a large-scale project, and that the tools and sophistication level of department skill-sets are up to par. Delivery models are more about risk than cost.

Test 3 example: Controls function

If an organization is deploying $20 million to $40 million annually, it likely does not have a robust controls function in place. Large programs require reviewed or auditable controls with all the safeguards of standard industry practice and general accounting principles. We recommend approvals and signatory considerations, approval limits, contracts, change orders, and board-level reporting with measurement metrics. Other control areas include hourly rates, caps, multipliers on fees, and allowable and non-allowable reimbursable expenses, which can become messy without strong contracts and robust controls.

Big spending is almost always accompanied by big challenges, so early stress testing can help a healthcare organization identify and understand its weak points, and also help to create the conditions for success.