Through more than 500 completed healthcare projects, we have learned that successful budget management is based on making effective incremental decisions throughout the process. To that end, we have developed project budgeting tools that manage the cumulative costs by closely tracking the impacts of project scope, schedule, contingencies, and other incremental choices. Critical steps to maintaining budget control include:
Establishing a significant, ongoing level of trust with all team members (owner, architect, contractor, cost estimator, etc.)
Creating an estimating budget management process that is transparent and provides detailed financial numbers to all participants
Using a consistent, shared tool for budgeting to estimate incrementally each piece at each phase, while understanding its impact on the total budget (see example of project budgeting process spreadsheet, at right)
Agreement among all parties upfront on the amount of each contingency (design contingency, estimating contingency, construction contingency), and how each will be used
Managing added alternatives as a “wish list” of specific items to pull out or add back, providing a buffer to meet final pricing goals
While number-crunching tools are crucial to effectively managing a project's budget, the most challenging aspect is establishing and maintaining clear communication with the entire team. Steps toward achieving this include:
Ensuring that all parties are listening to each other and regularly reviewing documents and assumptions
A strategy for progressive distribution of key project details to limit the potential for unpleasant surprises, often creating problems for hospital administrators responsible for communicating the capital budget to the board of directors
Initial budgeting using square foot numbers, evolving toward more detailed numbers as scope becomes better defined
Defining clear points for benchmarking during the process for reviewing each part of the budget in detail
Identifying possible added alternatives as individual line items to allow clear decision making about what is, and probably won't be, affordable within the overall budget
Case study: Good Samaritan Regional Hospital West Tower Addition, Corvallis, Oregon
Good Samaritan's existing facility, designed in 1973, was no longer supporting the quality of care and services that Good Samaritan wanted to provide to the community. Since a replacement hospital was not affordable, Clark/Kjos had to find a way to reuse the existing towers as well as provide larger internal working areas and improved patient flow.
The client's strategic business plan for growth and renovation shifted significantly during the planning process. The mix of services that Good Samaritan initially envisioned didn't meet its proforma for financial performance. However, they liked the concept of adding a new wing between the two existing towers because it would provide more interior room to better accommodate the equipment and functions needed for a modern healthcare environment. The existing units could be renovated to fit with the new addition, providing a cohesive model for better patient care. The resulting larger floor plates would fully utilize existing patient floors, allowing for expansion of emergency and critical care units, maximizing the value of limited high-dollar hospital space.
During the project's design phase, construction cost acceleration was averaging 12% per annum. Clark/Kjos managed a disciplined budget management process that started at the strategic level by asking the client:
Does this fit your goals, and can you afford it?
If not, why are we doing it?