P2SL 2007 Conference - February 7, Developing a tool for. Evidence-Based Design Investment (EBDI) Analysis.

Transcription

1 Developing a tool for Evidence-Based Design Investment (EBDI) Analysis During Capital Budgeting of Health Care Facilities February 7, 2007 Glenn Ballard, Iris Tommelein, Zofia Rybkowski Engineering and Project Management Department of Civil and Environmental Engineering University of California, Berkeley cezkr@berkeley.edu P2SL Annual Conference 1. What is Evidence-based Design (EBD)? 2. What is Life Cycle Cost Analysis (LCCA)? 3. What is the impact of EBD on LCCA of Health Care facilities? 4. Research: Inclusion of EBDI Analysis during capital budgeting of health care facilities Contents 1

2 What is Evidence-Based Design? Evidence-Based Design HBD: Definition in flux & a product of the collective 2

3 Evidence-based design: is used by architects, interior designers, facility managers and others in planning design and construction decisions are made on best information available from research and project evaluations should result in demonstrated improvements in an organization regarding: Outcomes Economic performance Productivity Customer satisfaction Cultural measures is currently being used in the healthcare industry to help convince decision-makers to invest in time and money to build better buildings and realize strategic business advantages as a result. Key points Which city is farther West: Reno NV or Los Angeles? Why Evidence? 3

4 Roger Ulrich s discovery: Patients recovering after Cholecystectomy between , in a Pennsylvania hospital: 1) Those who saw trees through windows spent less time in hospital than those with views of a brick wall (7.96 days vs days). 2) Those with view of trees took fewer doses of moderate and strong analgesics. Ulrich, R. (1984). View through a window may influence recovery from surgery, Science: 224, The birth of EBD Environmental contributors to: I. Stress Relief Connection to nature Options and choices Social support Pleasant diversions Elimination of environmental stressors II. Safety III. Ecological health Malkin, J. (2001). A tour of the healing environment, Healthcare Design, September, Ulrich, R. (1991). Effects of interior design on wellness: theory and recent scientific research, Journal of Healthcare Design III, November: The evolution of EBD 4

5 X Roger Ulrich First peerreviewed paper on EBD View through a Window may influence recovery from surgery, Science (1984) Vol. 224, Wayne Ruga Founded Center for Health Design Jain Malkin Authored seminal book Hospital Interior Architecture Blair Sadler First Pebble Project Rady Children s Hospital and Health Center, San Diego Haya R. Rubin, MD, PhD (PI, Johns Hopkins University) et al. First MetaAnalysis in clinical literature on effect of facilities & furnishings on patient outcomes some EBD milestones Ann Hendrich SVP Indianapolis Methodist: Hendrich II Falls Risk Model Advocacy of acuityadaptable rooms Leonard Berry Prof. of Mktg, Texas A&M et al. First quantitative attempt to develop a business case for EBD P2SL et al. EBDI Analysis? Pebble project InformeDesign Univ. of MN, ASID Center for Health Care Design Concord, CA Jain Malkin San Diego, CA P2SL University of California, Berkeley Texas A&M College Station, TX Tulane University New Orleans, LA Johns Hopkins University Baltimore, MD Georgia Institute of Technology Atlanta, GA Some key locations of US-based research 5

6 What is Life Cycle Cost Analysis (Whole Life Costing)? LCCA / WLCA Cost-in-use Whole Life Costing Terotechnology Life-Cycle Costing LCCA milestones Boussabaine, H. A. and Kirkham, R. L. (2004) Whole Life Cycle Costing: Risk and Risk Response, Blackwell Publishing Technology & Industrial 6

7 Construction Costs Rent, maintenance and building operating costs Staff salaries and business operating costs The importance of considering long-term costs Evans, R., Haryott, R., Haste, N., and Jones, A. (1998). The long term cost of owning and using buildings, Royal Academy of Engineering, London. Review of LCCA / WLC 7

8 $ 1.00 $1.10 i = 10% 0 1 Note: Value = Amount i = discount rate Time Value of Money $ 0.91 $1.00 i = 10% 0 1 Note: Value = Amount i = discount rate Time Value of Money 8

9 P (present) F (future) A (annuity) G (gradient) Cash Flows in Time PW = F(P/F, i, n) To compare projects, need to convert flows to same point in time 9

10 Compound interest factors Net Present Value: The difference between the present value of the cash inflows and the present value of the cash outflows associated with an investment project. < viewed on April 4, 2006 Accept project is NPV ( ) > 0. 10

11 NPV NPV =0 at IRR i Or if (IRR) > MARR. Minimal Attractive Rate of Return (MARR): Hint: think of it as money in the bank! (i.e. MARR = 5%) Q. Should we install sinks in private patient rooms? A. Only if the IRR > 5%! Only accept projects with IRR that exceeds the MARR 11

12 Defender: Stay with shared patient rooms Challenger: Convert to all single patient rooms Q: Should we invest in all single patient rooms to reduce nosocomial infections? When deciding between options, solve for the Incremental ( ) NPV ( ) A. Strictly speaking, only if of the NPV ( ) > 0 should we invest in all single patient rooms. Incremental Analysis (cont d) 12

13 Solve for P Q. How much should our firm spend money on building private rooms? A. Estimate the probable additional income (savings) and solve for it PW equivalent! Maximum investment Rule: Always ignore the past These are SUNK COSTS and have no relevance for the future! This is a common error. i.e. If already invested in a new hospital wing, do not include any costs already incurred in the past when comparing alternatives. Sunk Costs 13

14 payback period Cost of sinks Annual savings over many years Q. You are wondering whether or not to install a sink in each patient s room. A. Estimate the probable additional income, discount to PW dollars and insert in cash flow diagram Payback period B/C = Uniform net Annual Benefits Annual Equivalent of Initial Cost If B/C > 1 then accept project However, do not rank projects by B/C Since B/C = 1.1 may be better than B/C = 10 Benefit : Cost Analysis 14

15 Value = What you get What you give Saxon, R. (2005). Be Valuable: A guide to creating value in the built environment. Constructing Excellence in the Built Environment, London. 50 p Objective: Maximize Value What is the impact of EBD on LCCA of Health Care facilities? EBD & LCCA 15

16 The business case for better buildings Berry, L. L., Parker, D., Coile, R. C., Hamilton, D. K., O Neill, D. D. and Sadler, J. D. (2006). The business case for better buildings, Frontiers of Health Services Management, 21: 1 The business case for better buildings Berry, L. L., Parker, D., Coile, R. C., Hamilton, D. K., O Neill, D. D. and Sadler, J. D. (2006). The business case for better buildings, Frontiers of Health Services Management, 21: 1 16

17 The business case for better buildings Berry, L. L., Parker, D., Coile, R. C., Hamilton, D. K., O Neill, D. D. and Sadler, J. D. (2006). The business case for better buildings, Frontiers of Health Services Management, 21: 1 The business case for better buildings Berry, L. L., Parker, D., Coile, R. C., Hamilton, D. K., O Neill, D. D. and Sadler, J. D. (2006). The business case for better buildings, Frontiers of Health Services Management, 21: 1 17

18 How might Evidence-Based Design Investment (EBDI) Analysis be included during Capital Budgeting? EBDI Analysis Research Do you do it? Yes How do you do it? No How could you do it? Map current process Identify obstacles Map future process EBDI Analysis Research 18

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