PM 004

St. Dismas Assisted Living Facility, Part 1

St. Dismas Medical Center, an urban, nonprofit, 450-bed rehabilitation hospital, began to see a significant decline in admissions. St. Dismas’s mission focuses on inpatient and outpatient rehabilitation of the severely injured and catastrophically ill. While the patient census varied from month to month, it appeared to the St. Dismas Board of Trustees that the inpatient population was slowly but steadily declining. The hospital’s market researchers reported that fewer people were being severely injured due to the popularity of seat belts and bicycle/motorcycle helmets. In order to get a handle on the future of the organization, the board of trustees and the chief executive officer (CEO) and president, Fred Splient, MD, called for a major strategic planning effort to take place.

In January 1999, St. Dismas held a planning retreat to identify future opportunities. The outcome of the retreat was that the medical center needed to focus its efforts around two major strategic initiatives. The first, a short-run initiative, was to be more cost effective in the delivery of inpatient care. The second, a long-run strategy, was to develop new programs and services that would capitalize on the existing, highly competent rehabilitation therapy staff and St. Dismas’s excellent reputation in the region.

At the time of the retreat, Fred Splient’s parents were living with him and his family. Fred was an active member of the “sandwich generation.” His parents were aging and developing many problems common to the geriatric populace. Their increased medical needs were beginning to wear on Fred and his family. It crossed Fred’s mind that life might be more pleasant if the hospital board approved an expansion of the medical center’s campus to include an assisted living facility.

In March 1999, Fred had his business development team prepare a rough estimate of the potential return on investment of an assisted living facility. He asked the team to identify different options for facility construction and the associated costs. The team also did a complete competitive analysis and examined the options for services to be offered based on St. Dismas’s potential population base and catchment area. The business development team visited several facilities across the country. The team also interviewed companies that could oversee the design, building, and operation of the facility for St. Dismas. The development team produced a preliminary business plan based on the recommended structure for the facility, estimated capital expenditure needs, estimated income from operation of the facility, as well as projected revenues to other St. Dismas Medical Center programs resulting from the facility’s population.

The plan was presented at the May 1999 meeting of the board of trustees. Fred Splient and his team introduced the board to the concept of opening an assisted living facility on St. Dismas’s campus. The facility would be set up as a for-profit subsidiary of the medical center, so that it could generate a profit and not be subjected to the strict guidelines of the hospital’s accrediting agencies. As a subsidiary organization, however, the board would still have control.

The chosen facility design was a freestanding apartment-like facility with a sheltered connection to the hospital for access to the kitchen and hospital services. The facility would have 100 units with 15–30 of the units classified as “heavy-assisted” and built to code to house the physically and medically disabled. The rest of the units would be “light-assisted,” larger apartments. The population would be approximately 110–150 residents, with most being single occupants rather than couples.

The light-assisted apartments could hold residents who required only minor medical and social interventions. The residents of the heavy-assisted section would have more medical needs and would require assistance getting around. The business development team recommended this type of programming model, because many assisted living facilities were erected across the country but few had a medical focus and offered the types of services that St. Dismas could offer—physical therapy programs, occupational therapy programs, and behavior management programs to name a few.

The board was assured that the facility would meet the strategic initiative of a growing business. The business plan projected an immediate increase in the number of referrals to the outpatient therapy programs. Another projected deliverable of the project was to enable St. Dismas to strengthen its focus on reimbursable preventive and wellness programs for the healthier geriatric population. The project’s longer-term goal was to increase the census in the hospital’s inpatient units by having a location where people could age in place until they were in need of hospitalization, and then such a facility would be right next door.

Depending on the exact size of the apartments, their equipment, and the actual ratio of heavy-to light-assisted units, Fred estimated that the entire project would cost between $8,500,000 and $11,000,000 for the facility construction. That estimate included the cost of land, furnishings, and a sheltered connection to the hospital. When up and running, it was estimated that the net income would range between $9,000 and $12,000 per unit per year. The team estimated the net cash flow for the entire project to be around $1,500,000 per year.

Fred requested the board approve the concept and allow his team to prepare a pro forma plan for board approval. The plan would include a recommended design for both heavy- and light-assisted apartments. It would also include all costs of land, construction, furnishings, and staffing. Income estimates would be included and would be conservatively based. A timetable would also be included.

The board conducted several executive sessions and, by the middle of May, voted to approve the concept. They approved the architectural-construction-management firm recommended by the team, and they requested Splient proceed with developing a complete project plan. The board appointed two board members to sit on Fred’s planning group.

In June, Dr. Splient gathered his executive team together and presented the project mission and scope. He reported that the board had approved a small budget to finance the planning process. The board also stipulated that construction could not begin until after the November 1999 city elections because two of the board members were running in that election, one for a city council seat and one as a county commissioner. The board also stated that they would like a plan that would allow the facility to open by July 2000, as research has shown that many adult children find the summer the easiest time to assist their parents in finding an alternative to independent living arrangements. The CEO and executive team were now confident that they were ready to launch the project to plan, build, and open an assisted living facility at St. Dismas.

A few days later, Fred decided that it was time to set up the team that would take responsibility for what he called the Assisted Living Facility (ALF) or ALF project. He quickly decided to include the following staff at the launch meeting:

• Chief Financial Officer (CFO)

• Vice President of Business Development and Marketing

• Rehab Services Medical Director

• Construction Project Manager (for capital facilities projects)

• Chief Operations Officer (COO) (nursing, facilities, food services, and housekeeping)

• Director of Information Services

• Director of Support Services (central supply, purchasing, and security)

• Two Board of Trustees members (one with construction experience and the other a probable electee to the city council)

Even though the department directors from support services and information services would not be involved until later, Fred decided to include them from the beginning. Fred knew some members of his team had a tendency to become obstacles to progress if they felt left out.

Fred named the group the ALF Project Steering Committee and held the first meeting. Fred presented his vision for the facility. He told the group that he personally would be managing this project. He led a discussion of all the major steps that must be included in the project plan, and asked each team member to identify the areas for which they would accept responsibility. The hospital’s Construction Project Manager took responsibility for the construction of the facility, and the COO volunteered to oversee the building design, as well as define the needs for food services, housekeeping, staffing, and policy and procedure development. The CFO agreed to develop the budgets for each area of the project, as well as the operating budget for the facility. The CFO also agreed to create the payroll and accounting systems necessary to operate the facility.

The information services director accepted responsibility to define and set up all the telecommunications and information system needs of the facility. The vice president of business development agreed to create a preliminary marketing plan and a communication package for the community and hospital staff. In addition, she discussed organizing a major ground-breaking event. The medical director said that he would design an assessment tool for determining residents’ level of medical needs upon moving in to the facility. He felt this was the first step in defining what clinical services should be offered to residents. Fred told the team that he would develop the management structure for the new facility and work with in-house counsel to identify all governmental regulations, as well as all industry standards that pertain to an assisted living facility and govern the facility’s practices. Splient gave the team 2 months to come back with their detailed action plans for their areas of responsibility.

St. Dismas Assisted Living Facility Project Budget Development, Part 2

Fred Splient gave his ALF Project Steering Committee 2 months to develop an action plan for their area of responsibility in the project. Each member was told to include the tasks, predecessors and successors, resources needed, responsible person, and an estimated cost. He asked that these be presented to the steering team on August 31, 1999.

All through July, the ALF project team scrambled to identify the steps required to open the facility and to determine what it would cost. Each team member met with his or her departmental staff to get help in identifying what was needed. For example, the COO spoke with the dietary department head and asked that she develop a plan to meet all requirements to set up the facility to feed the residents. The COO then asked the facilities manager to develop an action plan to prepare the building and maintain it. The COO also met with the rehab services medical director and his clinical staff to identify the residents’ probable medical needs, based on the projected population, and to develop an action plan to prepare to meet the residents’ health needs. The COO asked the therapy manager to prepare a plan to develop social activities for the residents.

Everyone on the team called the CFO for help in determining the budgets for their action plans. The CFO also had to validate the estimates of cost and revenue from facility operations and project earnings and return on the investment. Like any good administrator, when the CFO realized he had no expertise in this area, he hired a consultant to help him determine the project costs and budget. Dr. Sara Sharf was chosen as the consultant—she had over 5 years of experience in developing business plans for assisted living facilities.

Dr. Sharf recommended that St. Dismas target the middle income geriatric population since there were many upscale facilities in the area. Dr. Sharf and the market researchers determined what level of rent people in that population could and would pay. They then looked at what needed to be in the facility to meet the needs of their targeted population. After additional site visits of facilities and meetings with the selected construction contractor, they finalized the layout of units and common space areas that would be included in the design. The construction project manager requested and received an action plan and cost estimate from the construction contractor. The contractor had estimated that construction cost would probably run about $70 per square foot with a $3.67 standard deviation. He could not be absolutely sure because of potential change orders. He emphasized that the estimates assumed that the project would be completed without further changes in its design concept.

While the CFO was haggling with the construction contractor about determining a more accurate cost estimate, he received a phone call from Dr. Zen Link, Head of Geriatric Medicine at St. Dismas. Dr. Link’s secretary had seen men measuring the land behind the parking lot and she wanted to know what was going on; so did Dr. Link. Since Dr. Link was one of the hospital’s best referrers, the CFO told him about the potential project. Dr. Link felt that his input was needed up front, as he was the only person on staff who would know the health needs of the facility’s residents and appropriate equipment needs and staffing models that should be set up.

With Dr. Link’s input, the CFO estimated the operating costs to run the facility and projected the occupancy rates needed to cover those costs. The rehab services medical director, who was a member of the original project team, was quite upset when he saw Dr. Link’s budget for the medical equipment that was to be purchased for the facility. The medical director felt that Dr. Link wanted to purchase too much expensive equipment, which was not necessary to have on site. The hospital had the majority of the equipment that was necessary and there was no need to duplicate it, thus inflating that portion of the budget. The CFO did not want to get in the middle of their argument so he left Link’s budget just as it was—hoping someone would raise the issue at the next Steering Team Meeting. The CFO was quite concerned about the lack of experience of the team in developing such a budget, and he felt that there was far more uncertainty in the budget than the estimates reflected.

With the construction cost estimate and an outline of the services to be provided, the following projected capital expenditure was developed (Figure 1 and Figure 2).

Figure 1: St. Dismas ALF Preliminary Budget

Mantel, S., Jr., Meredith, J., Shafer, S., & Sutton, M. (2011). Project management in practice (4th ed.). New York, NY: John Wiley & Sons.

Figure 2: St. Dismas ALF Preliminary Budget (continued)

Figure 3: St. Dismas ALF Income Statement

Figure 4: St. Dismas ALF Income Statement (continued)

Figure 5: St. Dismas ALF Income Statement (continued)

St. Dismas Assisted Living Facility Program Plan, Part 3

The Steering Team Meeting, held August 31, went quite well. Fred felt that his team members had worked well together at determining the steps and the associated costs of the program. The CFO presented the program budget first, and then project team members presented their draft project plans.

Table 1: St. Dismas ALF Operations Project Plan

Table 1: St. Dismas ALF Operations Project Plan (continued)

Table 1: St. Dismas ALF Operations Project Plan (continued)

The chief legal counsel for the medical center presented his project plan. Fred had asked him to join the team when it became apparent that there were significant compliance and legal issues associated with the project.

Table 2: St. Dismas ALF Legal Project Plan

Table 2: St. Dismas ALF Legal Project Plan (continued)

The vice president of marketing presented her project plan and stated that she and her staff were responsible for every step in the plan. (She was still working with her staff to determine who does what.) She made it clear to the team that she needed 5 months for the marketing plan implementation in order to meet the occupancy requirements at startup. She restated that her team must have this lead time to the completion of the construction and furnishing phase of the program.

Table 3: St. Dismas ALF Marketing Project Plan

Table 3: St. Dismas ALF Marketing Project Plan (continued)

As Fred was explaining that the next job of the group was to complete a final version of all project plans and firm up the schedule of the program, the construction project manager stated that it was his turn to present his broad project plan for construction of the facility. He also added that he had a major scheduling issue to bring to the team. The construction project manager presented the following broad project plan for facility construction.

Table 4: St. Dismas ALF Construction Project Plan

The construction project manager proceeded to explain that the scheduling constraints that the board of trustees gave the team were not feasible. The board wanted construction to begin immediately after the elections in November and to be ready for occupants by June. The contractor did not want to begin the project at the beginning of winter. The first phases of the project plan detailed work that needed to be completed outside. If the weather was bad, the construction project manager knew the schedule would be affected. The construction project manager also pointed out that the schedule created by the contractor was designed around a 40-hour, 5-day workweek. If the building project began in November, the estimated project duration would be increased by 1–2 months, during which time some construction crewmen would have to be paid, thereby increasing the building cost.

The construction project manager recommended that construction begin in February or March of the following year, which would give the facility a shorter build time and a lower cost. The budget and project duration submitted were based on a March 1 start date. He stated that the construction phase of the project did not need to hold up the other members of the program team—they could begin their work on their projects anytime.

St. Dismas Assisted Living Facility Resource Usage, Part 4

The team for the Assisted Living Facility (ALF) program was working to prepare in-depth plans, complete with the resource requirements for their projects’ tasks.

Dr. Marc Alison, Medical Director of Rehabilitation Services for St. Dismas Medical Center, was responsible for developing a project plan with the objective of identifying the scope and associated costs of health services to offer residents. Included in his project plan was the development of an assessment tool that would be used to determine the required level and cost of care for prospective residents. This tool would also be used to ensure that the appropriate population was housed at the facility. It was important to have a way to distinguish a person who was too sick and needed a more intense level of care than that offered by the ALF. Once the assessment of a potential resident was completed, the facility staff could determine if the person assessed was a good candidate for the facility. This phase of the project plan was critical to the success of the project.

Dr. Alison’s approach was to develop the assessment tool and test it on individuals that matched the marketing department’s target population of the ALF. He felt he had a great opportunity to find his test population by using some of the current St. Dismas patients that were almost ready for discharge from the hospital. He could also use some of the older volunteers that currently worked at the hospital. Dr. Alison felt strongly that a physician should assess potential residents, but he also knew that it might be cost prohibitive to have such an expensive resource conducting pre-admission assessments. He thought that if a physician developed and tested the tool first, then additional testing could be conducted using less costly health care professionals to conduct the evaluations.

Dr. Alison knew he would have to work with Dr. Zen Link, Head of Geriatric Medicine, on developing the tool. Dr. Link was familiar with the elderly population that the marketers were targeting and could offer valuable insights on how to assess the health status of potential residents. Dr. Link also had an extensive practice at St. Dismas and would have some patients who might agree to help test the assessment tool. Dr. Alison would also need the services of the CFO and his staff to determine the cost of the health services the residents would need. Dr. Alison prepared and presented the following plan to the project steering team:

Table 5: St. Dismas ALF Medical Project Plan

The ALF team was impressed with the thought that went into Dr. Alison’s project plan. They were delighted with the prospect of copyrighting an admission-and-discharge assessment tool but raised some questions about Dr. Alison’s resource assignments. The COO asked how Drs. Alison and Link were going to assess a sufficient sample of people in 6 hours, given their busy clinical schedules. Dr. Alison replied that he and Dr. Link would be doing all of the other steps in the plan during their normal 8 a.m. to 5 p.m. workday. The step required to test the tool on real patients, however, would take some scheduling. Dr. Alison added that his colleague intended to conduct evaluations of current patients, with their permission, during their regular office visits. Dr. Alison admitted that he had not figured out how he was going to see his share of the test group. He knew he could see some inpatients that were ready for discharge from the hospital during the time he did his rounds. He also wanted to test the tool on at least 12 people from the volunteer staff that matched the prospective resident population. He informed the team that his secretary had agreed to phone the volunteers to see if any of them were interested. She said she could do this during her normal workday, so he did not include her time in the plan.

Dr. Alison sat silently thinking about how long this step in his plan would take, given his current workload. He knew that he would only be available to do the assessments during the time that he allocated for administrative hospital work, Wednesday from 8:00 a.m. to noon. He did not want to give up any of his clinical time because his patients had been scheduled months in advance. Dr. Alison wanted to personally test the tool on at least 12 people. He estimated each assessment would take no more than 30 minutes (for a total of 6 hours to complete).

Dr. Alison was not sure what to do next. He told the project team he would get back to them.

St. Dismas Assisted Living Facility Case, Part 5

It is now just 4 months until the Assisted Living Facility (ALF) program is scheduled to be completed. The team is excited because they can watch the construction of the facility and feel they are moving toward the end of this program.

Every week since construction began, the construction project manager, Kyle Nanno, has been holding a meeting of his project team. At the meetings, he invites representatives of the construction company, the facilities manager from St. Dismas, the director of security, and other key people as he deems necessary. The meetings are scheduled every Friday at 1 p.m. and last no longer than 1 hour. No matter who is or is not there, Kyle starts the meetings exactly at 1:00 p.m. Kyle developed the following standing agenda:

1. Review schedule and budget as of today’s date.

2. Review schedule and budget for next 2 weeks.

3. Discuss issues impacting the schedule or the budget.

4. Discuss the next steps and action items to be completed.

Note: The construction project update presented at the April 11, 2001, meeting is shown on page 269.

After each meeting, the construction project manager e-mails the minutes of the meeting and the action-item list generated to each member of the construction project team. He also sends the information to Fred Splient, President and CEO of St. Dismas, as well as to each member of the ALF Project Steering Team.

Following the update is the most recent copy of the action items generated at the 4/11/01 construction project meeting (see Table 7).

Upon reading the minutes and action items from the week’s meeting, Fred got quite angry. Fred read the minutes every week and would immediately phone Kyle to ask why certain decisions still had not been made. This week, he wanted to know why the location of the security panel had not been picked out yet and what the hair salon issue was about. Kyle decided that these matters would be better discussed face to face. He went to Fred’s office.

Kyle proceeded to explain to Fred that Frank Geagy, Director of Security, had not attended the construction project update meeting in weeks. Kyle said that Frank informed him that, in light of the cost cutting going on in the hospital, he is short staffed and cannot hire a new security guard. Frank states that he personally has to cover shifts during the time when the update meetings take place. Kyle told Fred that he was not comfortable making the security panel decision without the head of security’s input, and Frank has not yet returned his phone calls or answered his e-mails. Fred Splient proceeded to tell Kyle in a very loud and angry voice, “That guy is not short staffed and is not busy covering anyone’s shift. Who does he think he is?” Fred instructed Kyle to tell Frank to answer the contractor’s questions immediately or the decisions would be made for him.

Kyle said he would do so and then changed the subject. He told Fred that they were still waiting for the city officials to approve the parking lot construction permit. St. Dismas’s legal officer estimated that it would take 8−10 weeks to hear back on approval. Kyle allocated that amount of time in the schedule.

Kyle received notice from Fred to proceed with the parking lot construction on January 11, 2001. On February 9, he submitted the application for a permit—complete with appropriate plans and descriptions of the proposed lot—and allocated 10 weeks to wait for the county to notify him. He expected approval on or before April 19 and scheduled construction to begin April 20. Privately, he doubted he would hear from the county by his target date.

The lot would take 3 weeks to build, 2 weeks to install the lighting and add landscaping, and 1 week to pave and stripe. The lot had to be completed by the end of June so that parking spaces would be available when marketing wanted to begin showing the facility to potential residents. This was a tight schedule but the marketing people insisted that residents had to begin preparing for this kind of move at least 1 month before they took residence. Potential residents needed to see the facility and get familiar with apartment layouts, and they needed a place to park. Also, marketing insisted on having some occupancy by the opening date.

Kyle told Fred that the legal department was calling the county weekly to follow up. Fred wanted to know why the parking lot construction was not outlined on the project plan for facility construction. Fred asked Kyle to add it to the Gantt chart and to do a what-if analysis on the assumption that the county did not respond until May 1. Fred also wanted to know the latest date that they could be notified and still meet a June 15 deadline for completion of the lot.

As Kyle was leaving Fred’s office, Fred asked him about the hair salon. Kyle explained that the COO and vice president of marketing had come up with an idea to build and operate a hair salon in the facility for the residents. They thought this might be a great selling point that could generate revenue. They came to Kyle just 2 months ago and asked him to include a hair salon on the first floor of the facility. Kyle explained that he did not have enough information to be able to determine the impact this would have on the construction schedule or the cost of this addition. Fred listened and then wondered if the members of his team had done any analysis to determine if this was a good idea or not. Fred told Kyle he would get back to him on that one. He then made a phone call to the COO and vice president of marketing.

Table 6: St. Dismas ALF Construction Project Plan Update

Table 7: St. Dismas ALF Construction Action Item List

Table 7: St. Dismas ALF Construction Action Item List (Continued)

St. Dismas Assisted Living Facility Case, Part 6

It was a beautiful day in mid-May 2001. The St. Dismas Hospital Assisted Living Facility (ALF) project was nearing completion. As usual, the construction project manager, Kyle Nanno, was thinking about the construction project’s schedule. It seemed to him that work on finishing the interior of the building was slowing down a bit. He knew that the final weeks of a project always seemed to take forever, but he also knew that the project was running almost 2 weeks late as a result of a problem encountered during the excavation phase of the construction project.

During March and April, it appeared that they were catching up. Kyle had discussed with the construction contractor that St. Dismas would pay overtime to catch up, but the speed-up was temporary—and the job continued to be late. Kyle was not quite sure why. Progress just seemed to be in slow motion. He decided to meet with Fred Splient, President and CEO of St. Dismas, to discuss the problems.

Fred suggested that Kyle call in someone to audit the project—in particular, to examine the project schedule carefully. Fred also wanted the auditor to look at the project expenses to date. Fred had just received a crude spreadsheet from the CFO, and it did not reflect the progress Fred thought should have been made as this project was coming to an end.

Figure 3: St. Dismas ALF Program Expenses

Fred asked Kyle to find out if anyone in the hospital’s accounting department had experience with projects and project management software. Kyle knew instantly who to call. Caroline Stevens had once helped him on other hospital projects. Kyle trusted her to act impartially and to be able to figure out what was happening.

Caroline agreed to function as the project auditor. She began by examining the most recent project schedule from the construction company. She then created a progress-to-date report with Microsoft Project (MSP). She also did a complete analysis of the CFO’s report.

The expense report she reviewed and updated is found below.

Using MSP, Caroline created a graphical progress report on the project as of May 24. She marked the actual progress of each unfinished activity by placing a diamond embedded in a circle on the project’s Gantt chart. If the symbol was to the left of the May 24 line, that activity was late; the amount of lateness was indicated by the distance of the symbol to the May 24 line. The symbol for on-time activities rested on the May 24 line. If there had been early activities, their symbols would have been to the right of the May 24 line. Caroline’s chart is shown.

Caroline then scheduled a meeting with Kyle and Fred. She reported that she did see a work slowdown. She conducted interviews with the construction team, and it appeared that they were concerned about their next work assignment. They told her that in the past, as projects were coming to a close, they were told of their next scheduled job. They had not heard anything yet, and they were worried. She also reported that the interior designer had added an extra 7 days to complete the interiors (Task #6 of the project) because the carpet and wall coverings might arrive 1 week late from the manufacturer. (They actually arrived on schedule.) The estimated remaining duration for the interior completion was 34.6 days. The designer did tell her that not all of the furniture had arrived, so they were withholding about 30% of the payment until its arrival.

Caroline also reported to Fred that it appeared the expenses allocated to pay back St. Dismas for such things as preliminary marketing efforts, legal support, etc. had not yet been expensed to the project budget. The only thing expensed was the original project construction budget. That budget seemed to be right on track. Kyle reported that he intended to spend the rest of the contingency budget for overtime work by the construction crews. He also intended to use the rest of the information service budget to purchase computers for the common areas of the facility and to wire those areas for access to the Internet. In addition, he was waiting for bills from some of the companies that supplied the required medical equipment. He was planning to spend all that was allocated for that budgeted item. He was over budget on the site improvements and under budget for the kitchen equipment.

Figure 4: St. Dismas ALF Construction Project Plan Update

Caroline and Fred praised Kyle for his management of the construction budget.

As soon as Caroline and Kyle left Fred’s office, Fred called his CFO to find out why the other items were still not reflected in the project budget.