Improving the Performance of Healthcare Construction: A Systematic Approach

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Contents Introduction 1 Unique Risks in Healthcare Construction 2 Healthcare-Focused Controls Framework 5 Project Infrastructure and Staffing 6 Equipment Planning & Materials Management 7 Project Budgeting 9 Contract Administration 11 Change Management 13 Project Planning and Integration Management 14 Conclusion 16 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. KPMG and the Printed in the U.S.A. 21700NSS

IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION 1 Introduction Improving the performance of healthcare construction: A systematic approach During the early and mid-2000s, an unprecedented wave of new construction by hospitals and healthcare systems across the United States was initiated to meet the needs of a growing and aging population. Many of these projects experienced major cost overruns, delays, and public outcry. 1 Healthcare construction spending has now slowed from approximately 10 percent (12 percent to 15 percent in California 2 ) to 1.2 percent to 2 percent 3 in 2009-10, but the industry expects a return to 10 percent growth by late 2010 4. Given the past record, healthcare organizations cannot afford to take a hope-for-thebest approach to construction project management. Governing boards, shareholders, bondholders, and regulators should establish high standards for project performance in order to help ensure projects are delivered on time, within budget and meet the expectations established by project stakeholders. To accomplish this goal, healthcare construction projects need to implement leading project controls tailored to their own industry. Unfortunately, there are very few credible sources within the industry that have attempted to outline what these controls should look like. This paper is intended to demonstrate how implementation of appropriate controls and process enhancements can increase the likelihood of project success. It discusses the unique set of risks incurred by healthcare construction projects, outlines an example healthcare project controls framework, highlights a process for addressing six key project controls areas for healthcare administrators to focus on, and provides real-life case studies. 1. UCLA seeks extra funds for hospitals, LA Times, Mary Engel and Rebecca Trounson, LA Times Staff Writers, November 14, 2006. 2. Construction Cost Escalation, California Healthcare Projects, Davis Langdon, 2007. 3. Extended healthcare debate constrains healthcare construction, Market Insights, Jim Haughey, RCD Chief Economist, July 21, 2009. 4. ABC Forecasts 2010 Construction Activity Will See Winners and Losers, PRNewswire, November 9, 2009 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity.

2 IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION Unique Risks in Healthcare Construction

IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION 3 In KPMG s white paper, A Controls-Focused Approach to Construction Risk Management, we highlighted the importance of consistency in control standards: One of the most common reasons for inconsistent controls and insufficient strategic risk management on construction projects is a lack of objective control standards. Industry leading companies use a comprehensive set of objective criteria, which serves as a consistent baseline for controls evaluation and measurement. Such standards also can provide needed assessment criteria for internal audit departments. In other words, a standardized approach to managing construction projects can greatly facilitate project success, especially on major capital projects spanning multiple years. The problem in healthcare is that such standardization is difficult to achieve because of the unique characteristics of the healthcare industry: the long span of time between major projects, a combination of diverse and powerful stakeholders, complex regulation, and diverse entity structures. Long Span of Time Between Major Projects Most healthcare organizations do not build significant facilities on a regular basis and some organizations may go 30 years without a major capital program. While many capital programs tend to include routine capital projects such as maintenance, remodeling, and additions costing less than $25 million, these projects do not often justify maintaining a team of experienced construction professionals and additional investment in project support infrastructure. This leaves many healthcare organizations without the necessary resources, tools, and systems for managing major projects, which may require up to several years in planning, design, and construction and exceed $1 billion in costs. Powerful and Diverse Stakeholders All projects have stakeholders but few industries have as strong and diverse a set of stakeholders as the healthcare industry. The primary stakeholder groups for healthcare construction programs include the public, patients, doctors, nurses, unions, the construction team, regulators, and the management team. Each group has its own agenda, and the ability to influence the project at any stage in its lifecycle resulting in additional communication, coordination, and change management issues. Complex State Regulatory Environment Every state has its own set of healthcare regulations and regulatory bodies allowing healthcare systems the ability to standardize facilities and processes only within the boundaries of state healthcare regulations. The lack of standardization increases the costs to operate, maintain and build new facilities across multiple states. Diverse Entity Structures The entity structures of healthcare organizations come in all shapes and sizes, reflecting in part the diversity and complexity of stakeholder interests and the state regulatory environment. Healthcare organizations may be private, nonprofit, publicly traded, or state or local government institutions. Each structure requires unique approaches to construction funding, procurement, reporting, and oversight of projects. Largely because of this combination of factors, healthcare organizations embarking on major new construction projects typically face unique and special risks that are difficult to anticipate, track, and measure. In addition to needing a comprehensive set of policies and procedures as used in most other industries, healthcare organizations should go a step further to address the particular vulnerabilities inherent in healthcare construction.

4 IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION The most common construction control weaknesses that cause healthcare construction projects to fail generally fall into the following categories: Project Infrastructure and Staffing Equipment Planning and Materials Management Project Budgeting Contract Administration Change Management Project Planning and Integration Management Emphasis on certain controls within a standard controls framework will assist healthcare organizations in addressing their primary project control weaknesses. The graphic below depicts a standard control framework with the primary healthcare project control weaknesses highlighted in yellow. Healthcare Construction Controls Framework Program Strategy, Organization & Administration Cost & Financial Management Procurement Management Project Controls & Risk Management Schedule Management Core Processes Project Strategy Project Budgeting Solicitation Change Management Policies & Procedures Project Management Reporting Project Planning & Integration Management Payment Processing & Administration Project Cost Reporting Source Selection Risk Management Schedule Change Management Contracting & Contracting Standards Contract Administration Design Standards & Specifications Schedule Development Standards & Processes Communication Planning Estimating & Contingency Management Procurement Planning Regulatory Compliance Schedule Management Process Support Processes Roles & Responsibilities Project Infrastructure & Staffing Document Management Forecasting Solicitation Planning Project Assessments Variance Analysis Project Cost Coding Contract Negotiation Cash Flow Reporting Value Engineering Quality Control & Inspection Historical Trend Analysis Contract Closeout Equipment Planning & Materials Management Compliance Auditing Project Site Security Environmental, Health & Safety (EHS) Schedule Integration Legend Healthcare Core Control Vulnerability Healthcare Support Control Vulnerability

IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION 5 Healthcare-Focused Controls Framework

6 IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION In the following sections we have provided case studies as well as better practice examples for each of the healthcare-focused construction controls highlighted on page 4 in an effort to address the particular vulnerabilities in healthcare organizations undertaking major capital projects. Project Infrastructure and Staffing When a healthcare organization embarks on a major capital program without the necessary project infrastructure and staffing, it is often unable to monitor and control the program adequately or proactively address cost, schedule, and quality issues. Other issues typically surface, such as payment delays due to system overloads and schedule delays due to missed material or equipment deliveries. If the organization were managing a steady flow of construction projects, these issues, though challenging, could be addressed. However, the cyclical nature of construction activity makes it difficult to balance the necessary resources required to manage and deliver major capital programs internally, especially after years, if not decades, of relatively minor projects. Project Infrastructure and Staffing Case Study A regional hospital on the west coast that is currently in the midst of a $250 million construction program decided to outsource construction management for all of its projects after it became clear that it would be unable to hire the necessary internal resources to manage the construction on its own. Years earlier, when the construction program was just getting started, the Director of Construction and the Director of Facilities resigned. At that time, several outsourced project managers from a small, local project management firm were assisting on small projects. After the departures of the two directors, the hospital began searching for their replacements while attempting to handle construction management responsibilities with inexperienced internal staff. Within months, the construction program began experiencing payment delays due to system back-ups, schedule delays due to missed material/equipment deliveries, and schedule delays and cost increases due to slow change order processing. Making matters worse, hospital staff were unable to adequately monitor and control the projects due to a lack of up-to-date project data within its accounting and contract management system. These issues eventually limited the ability of management to proactively address cost overruns, schedule delays, and quality issues. This ultimately resulted in the decision to hire an experienced construction management firm to take over the responsibility for the construction program while retaining control of core functions identified and recommended by KPMG. After hiring the outsourced construction management firm, the hospital was able to develop up-to-date cost reports, reduce the payment cycle by over 40 percent, provide meaningful monthly management reports, and produce requested project documents and information upon request.

IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION 7 Project Infrastructure and Staffing Control Structuring and staffing a construction or facilities department within a healthcare system or hospital is challenging due to the lack of available, qualified, and experienced resources. Critical factors include the type and scale of projects to be delivered, the availability of qualified resources, and the staff model of the organization. More and more hospitals and healthcare systems are moving away from staff additions in favor of contract project managers and outsourced project management offices (PMOs) for managing their construction programs. This is primarily due to a lack of experienced or qualified resources in-house. Owners need project managers who understand the state regulatory environment and how to manage project stakeholders within the context of the healthcare system s organizational structure. In addition, many owners also seek to reduce headcount and shift the responsibility of managing construction risks and maintaining construction records to an experienced outside vendor. Several critical project infrastructure tools or systems can be used by healthcare construction departments to effectively track and monitor large construction projects or programs and should be the focus of C-level executives, as follows: Project Reporting System Provides project and portfolio level reports indicating budgetary status, commitments to date, changes to date, actuals to date, variances, and other key project indicators. Centralized Procurement/Contract Management Tool/System Provides realtime contract commitment data; centralized and secure access/storage of contracts; functionality to report contracts by contract type, region, and vendor; and contract summaries for quick reference. Scheduling Management Tool/System Produces milestone and critical path method (CPM) schedules broken down into component details utilizing an established work breakdown structure (WBS) that is standardized across the company or business unit. Change Management Tool/System Tracks project changes initiated by the owner, contractor, CM/GC, or architect/engineer (AE) firm; reports on the status of each change order; tracks approvals of change orders; and retains a record of each change s history and supporting documentation. Equipment Planning & Materials Management Typical equipment planning failures include damaged equipment not covered by warranty, equipment purchased without coordinating required infrastructure upgrades, additional costs storing and moving previously installed equipment without proper schedule coordination, and new equipment installed without proper tagging or tracking. A common root cause of these issues is typically associated with the shared responsibility for equipment planning between hospital staff, facility engineers, maintenance professionals, and healthcare regulators. This mix of diverse interests almost guarantees complex equipment requirements and difficulties in managing equipment changes. Depending on the structure of the hospital or healthcare system, a change to one piece of equipment might require seven or eight approvals and several weeks to finalize.

8 IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION Most industries deliver projects with only a few stakeholders and an equipment planning process driven by operational and business unit managers focused almost exclusively on ROI and other financial metrics. In the healthcare industry, by contrast, standardizing hospital equipment requires an equipment planning team to gain consensus from groups of doctors, nurses, facility engineers, and finance/planners, as well as design engineers and state regulators. Equipment Planning & Materials Management Case Study A regional healthcare system was in the process of planning for the building of a new $600 million patient tower for one of its two major hospital campuses. During the design phase, the project manager hired an outside consultant to coordinate with hospital planners, the hospital Architect/Engineer, and the other stakeholders to develop the equipment list. The consultant delivered the equipment list to the project manager as promised. However, responsibility for the list was never reassigned, so from that point on the list was never actively maintained. The project manager was eventually terminated and interim responsibility for project management was assumed by an outside project management consultant. Approximately two years after the initial equipment list had been developed and delivered by the outside equipment planning consultant, a new VP of facilities was hired and the equipment list was re-valuated and vetted by the AE and contractor in order to finalize the project budget for final board approval. Based on up-to-date plans, specifications, and stakeholder input, this review and vetting process uncovered several million dollars in required additional costs, as follows: Installing equipment not included in any vendor contract Storing equipment not included in any vendor contract Replacing equipment already purchased and installed in an existing facility that cannot be transferred to the new facility Upgrading equipment on the list to meet revised design or stakeholder requirements The board of directors was very critical of the increases because all previous communications indicated the project was on track to meet the most recent budget estimate. In addition to budgetary issues, editing and updating the equipment list also required considerable time and staff resources at a stage in the project when time and resources were limited. The hospital has now developed and implemented an appropriate equipment planning process and associated controls that are continuous and embedded in the project lifecycle. This process includes reviews at each major project milestone in order to continuously validate and reconcile the equipment list and ensure the latest budget reflects the most up-to-date equipment information.

IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION 9 Equipment Planning and Materials Management Control Because equipment needs continually change, equipment planning should begin during design and continue through the lifecycle of the project. Leading equipment planning practices used by healthcare organizations include the following: Centralized Planning Team Provides an organization the ability to leverage lessons learned across the organization, negotiate bulk purchases for common equipment, and standardize the process for equipment planning throughout the project lifecycle. Equipment Standards Reduces variability in facility equipment cost planning, increases the likelihood that infrastructure will be in place to support equipment installations, reduces equipment costs through bulk purchasing agreements, and mitigates the impacts of long lead times for equipment delivery. Project Budgeting Due to the fluid nature of their businesses, many healthcare organizations need to make design changes during the course of construction in order to keep pace with changing technology and business needs. This is challenge enough for the budgeting process, but what makes it even more difficult are the rapidly increasing costs of complying with new regulatory requirements. This has led some companies to opt for new or hybrid budgeting approaches that require much less time and accuracy than traditional approaches but also contain limited or inadequate budgetary controls. The following project budgeting failures have often resulted: Budget overruns due to lack of visibility to finance and accounting Cost overruns due to excessive gold plating, last-minute requests, or purchase of nonessential items Difficulty making informed executive decisions regarding project costs Inaccurate data for benchmarking performance against budget

10 IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION Project Budgeting Case Study A large regional healthcare system discovered the importance of a rigorous budgeting process after it identified $40 million in additional project costs for a large hospital project during the process of final board approval. Many of the identified costs were clearly part of the original scope and should have been included in the budget. These issues prompted the hospital to perform a rigorous budget review process, which identified the following issues: Lack of accountability for project cost components Ineffective process to identify or justify potential budget overruns Cost overruns due to gold plating, last-minute requests, or purchase of nonessential items Inability to accurately report or track performance against baseline budget In order to provide more control and visibility over the budgeting process, facilitate informed budget decision making, and reduce the risk of approving inflated or overly optimistic budgets, the hospital implemented a phased budgeting approach. Whereas the old budgeting process earmarked funds for the entire estimated project budget and was accurate within ±30 percent, the new phased approach allowed for quick start-up without a commitment for full funding until design completion, when budgets are accurate within ±10 percent. If the hospital had utilized the new budget approach from the start, the missing cost elements would have been identified months earlier, saved the organization valuable time and resources, and spared the project costly last-minute changes to the construction contract. Project Budgeting Controls Project budgeting controls allow for consistent and accurate budget development and budget change processes. Accurate budget development, reporting, and change management increase the effectiveness of the capital planning process. Hospitals and healthcare systems should consider developing standard budget guidelines such as those listed under the following threephased budgeting approach. If it is not possible to implement a phase budgeting process, healthcare organizations should consider developing and utilizing a project budgeting checklist that includes checks for all necessary budgetary elements for each budget approval or budgetary milestone. Three-Phased Budgeting Phase I Initial Rough Order of Magnitude (ROM) Set before any commitments to contractors Scope/Schedule outlined Utilize benchmarks such as $/sqrft, like facility costs, regional escalation factors Highlight all assumptions, potential risks (costs increases), and potential savings (cost decreases) Identify all allowances/estimates that have no basis List contingency as a single line item Breakout is down to the lowest level of certainty Phase II 30% Design Budget Highlight major project changes from original budget Identify all current cost commitments, reconcile to budget estimates Utilize independent estimates and revised contractor pricing Highlight all assumptions, potential risks (costs increases), and potential savings (cost decreases) Identify all allowances/estimates that have no basis List contingency as a single line item If budget is going to be exceeded before the next phase of budgeting, a change order must be executed Phase III 75 to 100% Design Budget Highlight major project changes from 30% Design budget Identify all current cost commitments, reconcile to budget estimates Utilize contractor pricing and contract forecasts to complete Highlight all assumptions, potential risks (costs increases) and potential savings (cost decreases) Identify all remaining allowances/estimates with justifications for each List contingency as a single line item and reconcile to executed change orders and line item budget overruns

IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION 11 Contract Administration Proper allocation of construction risks through contracting effectively transfers some of the owner s risks to entities that are in a better position to manage them, namely contractors, architects, engineers, and suppliers. Typical contracting and contract administration failures include: Commitments exceed established project budgets without management visibility Invoices exceed commitments without visibility until invoice is received Inability to report progress and variances against current commitments Claims from contractors and conflicts over cost, scope, legal terms, and owner s rights Improper tracking and application of fee, contingency, and retainage Overlapping scope and additional project costs Inappropriate contracts or no contracts. Though these challenges are not unique to healthcare, they are often more prevalent due to inadequate owner experience with major construction contracts, as well as insufficient internal resources and the necessary tools and techniques to effectively assess and administer construction contracts. An emerging trend in contract administration is the use of trust-based agreements, also called partnering or alliance agreements, which emphasize risk pooling between owners and contractors. This trend may reflect a desire of owners to avoid costly and time-consuming competitive bidding; as well as desires of design and construction professionals to shift the risk of contract cost overruns to the owner. In theory, risk pooling or risk-sharing agreements are intended to efficiently share or pool the project risk among the project owner, the AE, and the contractor. However, many of these agreements have vague terms and conditions, are advantageous to the AE and contractor, and are not thoroughly tested in the court system. While it is unclear how much effect new approaches have had on reducing overall project durations, it appears they have exposed several healthcare organizations to an increased risk of cost increases that would otherwise be assumed by contractors.

12 IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION Contract Administration Case Study Recently, a large healthcare system implemented a contracting method based on trust which eliminated competitively bidding for construction contracts with subcontractors and general contractors. The organization used a single source selection process and structured agreements that are extremely favorable to the contractors. This approach has led to: Budget overruns due to undefined contract ceilings Difficulty auditing project costs due to lack of transparency and insufficient documentation regarding project overhead and labor rates Cost overruns due to lack of control procedures for project estimating, forecasting, and contingency usage Inflated project contracts due to a lack of third-party estimates to validate forecasted costs The hospital is now reconsidering many of the elements of its overall approach and project delivery framework in order to address these issues. One of the major changes being implemented is the establishment of a limited pool of architects, general contractors, and construction managers who compete for work as projects arise. The goal is to facilitate consistency of terms of conditions and compress solicitation and contract negotiation periods. After bids or proposals are submitted, the project team negotiates the commercial terms of the work for the specific project. With the master agreement already in place, this is a straightforward process that does not require additional legal review. Contract Administration Control A majority of effective controls for contract administration as shown below are not new or unique to healthcare. However, many healthcare organizations do not utilize these controls or utilize only a few on a limited or project-by-project basis. Healthcare organizations should consider assessing their construction contract administration controls to identify gaps and duplications, as well as identify areas for improvement based on these better practices: Establish master agreements with preferred suppliers Utilize construction contract specialists for managing contract administration Formalize vendor prequalification/disqualification, contract negotiation, and execution Centralize electronic contract administration system Formalize supplier management program with formal supplier scorecards/reviews Standardize contracts for major vendor types Formalize policies and procedures for contract administration

IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION 13 Change Management No construction project is immune to changes, least of all healthcare construction projects. Unforeseen conditions, changes in technology and the marketplace, and changes to federal, state, and local regulations are inevitable, and if not managed properly can have major negative impacts on project scope, schedule, and budget. Typical change management failures include overcharging on change orders, cost overruns, increased potential for conflicts with contractors and claims, and double paying for items already in scope. Healthcare organizations are especially prone to scope changes from internal user groups that could lead to significant cost and schedule overruns. Many healthcare organizations do not have formalized policies or procedures for addressing change management. In addition, methods for contracting and budgeting provide little control or transparency of changes, thereby exposing organizations to cost growth on contracts without transparency into what created the change, who approved the change, and the actual magnitude of the change (cost, schedule, or quality). Change Management Case Study Several years ago, a regional healthcare system was renovating several hospital floors in an effort to upgrade its utility, information technology, and other systems to meet the requirements of planned new equipment. All of the projects were being managed by a small outsourced project management firm with all of the construction contracts fixedprice established via competitive bid. While the projects were not very large, ranging from $3 million to $10 million, they were challenging because they were delivered in an operating hospital with numerous safety protocols, extensive environmental monitoring and rigid cleaning and workspace requirements. Over the course of several months, each of the renovation projects encountered problems which were formally communicated by the various contractors to the healthcare organization via the project management firm. Eventually the lack of response prompted the contractors to submit change orders, many of which lacked appropriate back-up documentation. The outsourced project management firm did not perform a thorough or consistent review of submitted change orders or actively manage the change order processes by bringing them to the healthcare system s attention in a timely fashion. When the change orders were finally submitted for payment the healthcare system was forced to address the situation, which ultimately resulted in a claim settlement. The healthcare system has since developed formalized policies and procedures for change management as well as change order review requirements for outsourced project management and construction management firms to follow.

14 IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION Change Management Control Healthcare construction projects need to be able to make changes throughout the project lifecycle while maintaining cost control and transparency. Organizations that have been able to do this effectively have implemented change management systems with the following characteristics: Change Order Pricing: Establishes change order pricing within the original construction contract that includes not only labor rates, equipment rates, profit and overhead markups but also pricing on commonly occurring items. Not-to-exceed (NTE) Ceilings: Eliminates open-ended change orders in favor of either fixed prices or NTE ceilings. Back-up Documentation: Establishes proper back-up documentation (quotations, hour breakdowns, rates, etc.) for all submitted change orders for review and auditing purposes. Centralized Review and Approval: Establishes centralized change order review meetings with all necessary contractor personnel. Compliance Auditing: Establishes audits for pricing and scope compliance of all change orders above a threshold limit by an independent firm or the internal audit or finance department, with smaller change orders audited on a sample basis. Project Planning and Integration Management The size and decentralization of many hospitals and hospital systems exposes them to risks surrounding project planning and department integration management. In addition, many healthcare organizations have inadequate experience administering construction projects, do not have clearly defined project governance protocols, have limited documentation of project roles and responsibilities, and insufficient resources for planning and delivering major projects. Typical issues that surface due to a lack of effective project planning and integration management include problems coordinating project planning activities and managing stakeholder needs, lack of proper scope development, mismanagement of handoffs and coordination across departments, confusion or disagreement among personnel and support departments, and misaligned accountability for managing budget and scope changes. For these reasons, healthcare construction projects require rigorous processes and controls for establishing governance protocols, defining project roles and responsibilities, developing and defining project requirements, and managing communications between project personnel and departments.

IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION 15 Project Planning and Integration Management Case Study A large healthcare system consisting of many large and medium size hospitals was undertaking a multibillion-dollar capital program. Responsibility for project planning and budgeting resided within each hospital, while responsibility for managing the construction projects resided within a centralized project management office (PMO). Upon completion of the planning and budgeting process, the individual hospitals received approval from the healthcare system s overall board of directors to proceed with their capital projects. The PMO had limited governance policies and procedures and relied on its individual project teams to develop their own practices for each hospital project. In addition, little or no definition of roles and responsibilities had been established for the project stakeholders at the healthcare system entity level or the individual hospital level. In addition, a lack of project controls and processes to ensure effective project integration contributed to inconsistent results from project to project and significant overruns on several large construction projects. This healthcare organization has recently recognized the need for project planning and integration project controls. It is in the process of revising its capital planning and project delivery procedures in order to formally define project roles and responsibilities, establish clear lines of authority between the hospital and the healthcare system, and provide for standardized and consistent project controls and performance benchmarks for all capital projects. Project Planning and Integration Management Control Organizations that have been able to effectively plan construction projects and integrate departments into the planning process have several of the following characteristics: Clearly defined governance protocols approved and implemented by key management Strong involvement of all relevant project stakeholders Team members with qualifications commensurate with project requirements Aligned responsibility, authority, and accountability Formation of project steering committee to ensure project objectives are achieved according to the hospital s interests Strong involvement of risk and quality management to develop and deploy compulsory lessons learned documentation

16 IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION Conclusion

IMPROVING THE PERFORMANCE OF HEALTHCARE CONSTRUCTION 17 Today, with a media focus on rising healthcare costs and intense scrutiny of construction cost overruns, hospitals and healthcare systems cannot afford to be reactive when addressing their construction programs. Small, medium, and large healthcare systems face similar challenges as they attempt to manage the risk exposures and avoid the pitfalls associated with major construction programs. By assessing the state of your healthcare construction program in light of the unique challenges of healthcare construction, and by applying a control structure that takes into account these challenges, your organization will be better prepared to deal with the construction issues, risks, and challenges that lie ahead. Contact For more information about this white paper, please contact: Clay Gilge 206-913-4670 cgilge@kpmg.com Reid Tucker 415-963-7591 reidtucker@kpmg.com

us.kpmg.com The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. KPMG and the Printed in the U.S.A. 21700NSS