This post is by Mark Neasbey, a Director of the Australian Centre for Value Management. In this post Mark presents an example of the dilemma of the different attitudes to planning budgets identified in his last post – and how they may be overcome.
A major teaching hospital complex had reached a decision point about what the project must deliver vs the projected capital cost. Hospital facilities undergo periodic redevelopment driven by substantive changes in health care practices (models of care) and capacity to service growing populations.
Here the planning involved creating new facilities and demolishing older buildings. The models of care and health outcome objectives were clearly defined and endorsed but were complicated by the arrangement of services across the campus and the recurrent cost constraints on the health services. Moving functions around to create space for the new facilities was one aspect and another was inefficient service delivery arrangements which had evolved over time and which were compromised by the inflexibility of the existing facilities.
So it was not possible and not appropriate to just focus on the capital project cost.
These tensions were recognised and tested in a value management study process that worked through the schematic design, the relationships between services across the campus and the sequence and timing of moving services around and into the new facilities. This made it clear that the space requirements and associated capital project budget exceeded the original estimate.
Question was: Should the budget be left where it was and the scope of the initial redevelopment stage reduced, or should the budget be increased to enable it to be made larger?
By focusing on the clinical outcomes and hospital operating (i.e. recurrent) costs it was clear to senior management that a change in scope for the first stage was vital. Adding extra floor space in stage 1 enabled significant reduction in operating costs ($10m p.a.). But the extra $30m for stage 1 also enabled the second stage to be a much lower cost development – a simpler demolition and a ‘cleaner’ new build.
Question for today: What ‘take-away’ do you take away from this?