Life After Life-cycle Cost
I recently had an exchange with Ionel Petrus, P.E., of SmithGroupJJR, about current trends in engineering projects for the health care sector, including improved impact analysis and the potential fruits of using it wisely.
How has the business side of working on health care projects evolved for a consulting firm in recent years? Any trends on the personnel side?
As you are probably aware, the economy is very hot now. Recruiting and maintaining high-performance staff is a challenge. Luckily for us, most of the health care projects we are involved with are anything but simple. This applies to master plans, renovations (it’s hard not to find a “messy” health care renovation project), and new construction. This type of complicated project and its related analysis does stimulate and challenge our staff to think about and learn new design skills.
How about in dealing with the client and their expectations?
We exist in an ever-changing industry, and our clients’ expectations are no longer just about having a good design. We are positioning ourselves as an asset to a health care system and/or stand-alone hospital.
We see the normal HVAC system life cycle cost analysis as a thing of the past. It’s no longer just about an HVAC system that is energy efficient and works properly. We look at the long-term operational impact from both a system perspective and a user perspective and examine how the dollars that are being saved can help generate additional revenue. We also look at how the architectural planning and related owner expectations affect the design of an HVAC system for a hospital.
Could you elaborate about how your firm is operating in what amounts to a “post life cycle analysis” environment? This has been a familiar component of what many consider good standard operating procedures for some time.
Let’s use the example of a hospital facilities manager who wants to go to the C-Suite and ask for money to replace the dying chilled water plant along with the three air-handling units (AHUs) in similar shape that serve the OR suite.
As it relates to the plant, a common approach is to do some sort of energy model and life cycle cost analysis that shows how much energy dollars will be saved by the new energy-efficient plant (disregard the AHUs for now).
It would be expected that a new chilled water plant for a large hospital would cost +/- $3 million. No matter how efficient the new plant is, there is almost no way it will be able to save $3 million over 10-15 years just by being energy efficient. So, from a C-suite perspective, this project now becomes a capital project with no revenue attached to it; the C-Suite will most likely try to defer this project until the chilled water plant equipment literally falls apart. A similar outcome will be achieved for the OR suite’s AHU replacement project.
As such, a facilities manager will almost always have an uphill battle when trying to get funds for capital projects. Now, what if these two projects had revenue attached to them? What if there were some sort of analyses that looked at the operational impact of the new systems on various hospital departments? Having revenue attached to them will most likely get extra attention from the C-suite.
What kind of thing might that analysis show?
Showing an increase in revenue could be done in various ways. For one thing, a new chilled water plant with better controls (more automation) will require less maintenance.
The facilities manager could also show the money saved by not having contractors come to the site every week to perform maintenance on the dying plant. Additionally, the facilities manager could also show that some of his/her staff is no longer required to stay overtime in order to be there with the contractors when they perform maintenance or to just be at the site in case the plant is falling apart.
That sounds economically attractive but more like a more comprehensive understanding of the immediate O&M savings than actual new revenue. Can a firm show how those upgrades would have more of a ripple effect beyond the facility engineering department and its budget?
Yes, the facilities manager could show how the cost savings from implementing the above could then be used to purchase new medical equipment or a software platform that allows the OR nurses to cut their time in half when doing specific tasks.
Or, a “flashier” way would be to show how both the chiller and AHU projects will help improve the OR turnover time thus giving the OR suite managers the capability to fit in more procedures in a day (ed. note: see “Turnover in the OR” from the February 2018 issue).
Last year, we completed an OR renovation project that won an ASHRAE team award. Our analyses helped the PM for the job obtain additional funds (more than $1 million) from the C-suite for the project, such that the OR HVAC system is now “top of the line” with the expectation that the OR HVAC system will help increase the revenue of the hospital. Such a budget increase could not have been justified with just a simple (and I would suggest outdated) life cycle cost analysis.
And at that point, we’re talking true, new revenue.
Furthermore, the same analysis could then be used to show the payback timeline for the two projects (e.g., five years). Anything after the first five years will represent a net increase in revenue for the hospital. The C-suite can then expect that in five years the cumulative effect of the project’s mix of maintenance savings and associated new revenue will deliver an increase in available funds. In turn, they can use that as funding to plan a subsequent layer of projects or improvements, whether HVAC-related or addressing entirely different needs.