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Project Budgeting: Have You Adequately Accounted
for Equipment Costs?
A common mistake in planning and budgeting new
health care facilities is to overlook or underestimate
equipment costs. Beyond the actual cost
of construction, equipment is the second largest
expense. Equipment technology is a critical
component in the successful design of an efficient
facility. Thus, it is crucial to deal with
this portion of the overall project cost in a
structured and logical manner.
Equipment Costs
Depending on the type of facility being constructed
and the availability of existing equipment for
reuse, equipment typically accounts for 10 to
40 percent of construction costs. In the
past, ambulatory care facilities were much less
expensive to equip than inpatient facilities.
However, the complexity of equipment for ambulatory
care facilities continues to increase with movement
toward more complex outpatient procedures.
In essence, we are designing acute care facilities
without inpatient beds. Therefore, the equipment
component of the typical outpatient facility has
become much more significant. In fact, equipment
costs for certain specialty facilities such as
cardiac and cancer centers can actually exceed
construction costs.
Unfortunately, equipment cost estimating for
health care construction is frequently overlooked
or mishandled. Although a typical project
team will go to great lengths to develop an accurate
construction cost estimate, it is fairly common
for this same group to use a much less exact methodology
for costing equipment. The most common and
often most fatal approach is to use 20 percent
or 25 percent of construction or whatever the
budget will handle. The common misconception
is that all existing equipment will be reused.
Equipment is frequently sacrificed for bricks
and mortar. While it is true that equipment
is easier to add in the future than square footage,
many project managers have anguished over the
consequences of not properly dealing with equipment
early enough in the project.
Recommended Approach
A structured approach to equipment budgeting and
planning should begin in the programming or conceptual
design phase. The primary purpose and objective
for the initial work effort is to provide a comprehensive
and realistic budget developed with departmental
involvement. Once consensus is reached,
budget adherence is easier.
Another important issue in equipment cost estimating
is to examine all costs. Although medical
equipment usually accounts for the majority of
the budget, owner costs such as furniture, information
systems, communication systems, dietary equipment
and others quickly add up and must not be overlooked.
It is also common for health care providers to
plan for the reuse of existing equipment without
budgeting money for relocation and reinstallation.
Strategizing
Obviously, the cost of equipment should not threaten
the financial feasibility of the project.
Therefore, a strategy or funding guidelines should
be formulated to determine what can be funded
by the project. This should be established
before interviews begin.
Those organizations that deal with construction
on an ongoing basis frequently use the following
approach: "The building project will
only fund new equipment for incremental or additional
space. It is assumed that equipment in existing
space is either suitable for reuse or will be
replaced through the routine capital replacement
process."
It is essential to clarify owner versus contractor-provided
responsibilities before departmental interviews.
A responsibility matrix should be used to identify
planning, procurement, and installation responsibilities
on an item-by-item basis. Although it may
be easier to have the contractor coordinate fixed
(group I) equipment purchases (i.e., headwalls,
surgical light, sterilizers), you will pay a premium
and may lose some control over final equipment
selection.
Budgeting
A key to effective budgeting is to start early.
As the project evolves through the programming
and conceptual phases, the equipment budget will
also take form--beginning with gross estimates
and ending with a detailed and itemized document.
The actual budgeting process should consist of
departmental interviews following room-by-room
discussion of the proposed space program and/or
architectural drawings. Discussion should
focus on anticipated new equipment requirements
as well as reuse assumptions for existing equipment.
Ideally, the process should be coordinated by
an individual familiar with the newly proposed
facility as well as a general understanding of
the equipment and it's pricing. Internal
specialists or medical equipment consultants are
both options. A qualified individual is
critical and will provide an element of budgetary
control by challenging departmental users when
appropriate. Consensus building is also
crucial since departments will be required to
adhere to established budget assumptions.
Documentation is also essential. A typical
equipment budget report should consist of the
following:
- An introduction explaining approach, assumptions
and guidelines
- A budget summary by department including
any necessary factoring for inflation
- A departmentalized room-by-room summary clearly
itemizing cost estimates, reuse assumptions
and any other noteworthy information
Departmental "sign-offs" or approvals
are strongly encouraged. This then becomes
the equipment budget and planning summary for
the project.
Control
The approved budget document will be an effective
tool for controlling future project-funded equipment
expenditures; however, there should be room for
compromises throughout the duration of the project.
Technology development, new programs, and personnel
changes are just a few of the variables that will
impact space design and equipment decisions.
Obviously, it is unrealistic to assume that nothing
will change from initial planning assumptions.
Control, however, along with room for compromise,
can be a winning combination.
Budgeting Tips
- Start early
- Establish funding guidelines
- Clarify owner and contractor budget responsibilities
- Involve department managers
- Develop documentation
- Include non-medical requirements
- Adjust for inflation
- Require budget adherence
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