Hospitals often face the following difficult questions. Can a Center of Excellence be established in an older building? When should a facility be renovated? When should a facility be converted to an alternative use? When should a facility be demolished and replaced?

There are a number of techniques that can be used to answer these questions clearly, objectively and correctly. As one provider stated after reviewing the analysis, the decision was now a "no-brainer".

Three tools and techniques will be shared using examples from actual case studies. The first is a Decision Matrix. This is a diagram that clearly illustrates the flow and branches in the decision-making process. The second is a Dashboard Assessment. This assessment shows the following four criteria for each hospital department at a glance (1) Efficiency of clinical utilization, (2) appropriateness of the size of the existing facilities to serve projected demand, (3) functionality of existing facilities in relation to the overall hospital, and, (4) physical condition and adaptability of existing facilities.

The presentation will outline the techniques for performing each of these four analyses.

The third technique to be shared is the Net Cost Analysis. This analysis is used to determine the real overall economic impact of each alternative, i.e. replacement of facilities vs. expansion and upgrading of existing facilities. While the Dashboard Assessment looks at some of the qualitative issues impacting decisions, the Net Cost Analysis identifies the overall cost impact.

The Net Cost Analysis looks at initial capital expenses (including evaluative studies such as a Facility Cost Index) but also analyzes three other cost categories. These include (1) the impact on ongoing capital expenses (e.g., deferred renovation, deferred equipment purchases, etc.), (2) the impact on operating expenses (e.g., maintenance, staffing, housekeeping, utilities, insurance, etc.), and (3) the impact on revenues (e.g., net contribution, market share, physician recruitment potential, lease and other income opportunities, etc.) The Net Present Value of the inflow and outflow of the various cash streams described above is then summarized over a 10-year period so that a clear identification is made of not just the initial capital expense, but the overall net economic impact of alternative decisions.

By clarifying the decision-making process with a Decision Matrix, summarizing the qualitative issues at a glance with a Dashboard Assessment and identifying the Net Present Value of the true cost of each alternative with a Net Cost Analysis, a clear and obvious decision can be made regarding whether to replace or not replace facilities.

This approach has been successfully used in recent years to identify the highest and best use of a provider's capital to meet the strategic needs of its institution and community.