From the Boiler Room to the Board Room – Communicating the VALUE of Infrastructure Investment to Non-Facility Leadership 

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Healthcare, as an industry has historically underinvested in infrastructure. First, recognized in a 2017 report by the American Society of Healthcare Engineers (ASHE). Fast forward and financial challenges imposed by the pandemic continue to intensify the situation; especially considering other macro-economic trends affecting the national and global economies. 
This session will discuss the “business” of facility management and introduce a financial framework to guide as you construct and sell future budget requests.

Hello, everyone. And welcome to today's webinar. From the boiler room to the boiler room, communicating the value of infrastructure investment to non facility leadership.

Our speaker today is Mark Mocle, who's a strategic account executive at Brightley, a Siemens company. Before joining Brightley, Mark was a co founder and senior vice president at facility Health Inc, where he was instrumental in introducing new infrastructure investment solutions and benchmarking capabilities to the health care industry.

Before we begin, I'd like to remind the audience to please feel free to submit questions to the event via the question answer feature on your webinar toolbar. Our speaker will leave some time for the presentation to address any questions. If you have any technical questions, those will be also addressed as soon as possible. Please note that information on how to view the recording of today's webinar will be sent in a follow-up email. And I would now like to turn it over to today's presenter, Mark. Please take it away.

Alright. Thank you, Regina. I appreciate the chance to speak with you again today. Appreciate the introduction.

We've actually got a nice group today, a large group, Regina will be helping me to monitor the the chat function. So if you have any questions, please don't hesitate to submit those. If I don't see them, she'll be watching as well, and we'll make sure we answer any questions that we have, that you might have. So in in teeing off today, this is not gonna be legal conversation.

Really want to to make this hopefully an interesting dialogue, a fun dialogue.

And we're gonna talk a little bit about the business of infrastructure investment.

And when you look at the, picture on the, on the slide here, this is a nineteen seventy seven Chrysler. And some of you may have seen some of the content that I've shared before, and I'd like to use that to set the stage for the aging infrastructure that we see in our health care industry today.

Some other things that happened in nineteen seventy seven, the first full MRI body scan The Apple two was introduced, and Apple was formally incorporated by Steve Jobs.

And this generator was installed in a hospital in the United States.

And many of you may know the story. This generator is still in operation today.

Now a lot of what we see in infrastructure today is aging, of course. But in every other industry, we we see a trend towards planned obsolescence.

Right? We know that equipment will fail. We know that equipment will age, become obsolete.

And we plan for the replacement of those assets.

And sadly, what we're still seeing in the industry, is is this idea that some of this equipment may last forever. And we know that's not to be that that that's not true.

So, again, from an introductory perspective, my name is Mark Mocle.

I'm gonna be speaking with you today about this very topic.

In terms of an agenda, we're gonna talk a little bit about the the infrastructure history, what's happening in the industry right now financially?

We're gonna talk a little bit about finance and cost accounting, and perhaps a new way to communicate value with the leadership. And then I'll tie that up with a little bit of information about brightly.

So aging infrastructure, this is not a new topic. As she first published information back in twenty seventeen, about the decades long trend in aging infrastructure and health care. And then most recently, Becker has published some information that we are seeing a continued increase in the age of plant, again, across the industry. Now age of plant for those that are not familiar is a simple financial term where we look at the financial depreciation and the physical depreciation of the asset. And essentially, when age of plant goes up as a statistic, it means that we have more and more equipment that is still installed in the facility even though it's been fully depreciated for its expected useful life. So that is a trend of risk. That is a, a statistic that tells us Again, that we're seeing more and more equipment staying in service long past its expected, useful life.

More recently, I just listened to this podcast from Kaufman Hall. I would encourage you to, to, to listen to it. It's about a twenty minute or so.

Listen, and you can get this on Spotify, for no charge. And this was an interesting discussion, by the folks from Kaufman Hall talking about the macroeconomic trends in health care. And very specifically, I don't think it's a surprise to anybody on this call, but we're still seeing a massive, massive wound that we're trying to heal from the from the pandemic and all of the associated supply chain, inflation, and so on, and so forth.

But the the gist of this message was that we are starting to see an upward trend where hospitals are trending back towards some level of profitability, not nearly where we should be, and nowhere close to pre pandemic levels. And what that tells us is that the issues that we're facing today are likely to continue for years to come. This is gonna be a very, very slow climb, out of a very deep hole that we found ourselves in. So please check that out. It's it's a little heavy on the back end in terms of of financial statistics and so on, but I think it's a really good summary of what we're facing in the industry. And more importantly, the economic situation that our non facility leadership is dealing with, the CFOs, etcetera.

I recently published an article in May that talks about a lot of these issues. In fact, some of the content that we're gonna talk about today is actually written in more detail in this article. So I would encourage you to go out and review that as well.

And, hopefully, give you some different ideas as to how you can communicate with with your leadership.

Back in twenty twenty one, we did a a presentation at Ashey, and we talked about the the pandemic and the expected, impact of that pandemic.

Again, no secret. The the facility infrastructure continues to age.

This was true before the pandemic. It's certainly true through the pandemic, and we're seeing it today.

And what we were talking about at that time is the need for a, much improved ability to justify projects.

And to detail the financial return on investment and so on in order to secure those funds because it's not going to get easier folks.

And then lastly, we talked about transforming the way we communicate our facility needs.

Now all of these things are still true.

The thing that we missed, quite frankly, in talking about, you know, what has turned our world upside down Previously, we were focusing mostly on capital projects and and getting that capital that we need for the facility And what's really hurting us most is the operational side of the budget. So in the last twelve to eighteen months, as I continue my travels through the country, continue working with customers, and with Ashey, the cost pressure on the operational side is unlike anything we've ever seen before. So not only have we frozen capital, we've re and and and thus reduced our ability to make transformational changes in the infrastructure, We are squeezing the operational side of the ledger to a point, that I think is incompressible. And I'm gonna actually walk through some numbers and talk about that in a in a the second half of the conversation.

So let's come back to the financial side.

What's going on in terms of communication between facilities I've shared this cartoon many times because I think it it summarizes everything. Right? There's a miscommunication that happens between the facility team the clinicians, the non facility administrators, and the c suite.

And a lot of this is just phrases, trans translation, what engineering speak versus financial speak, but there's a big miscommunication there.

Now I have fallen guilty to this statement. Well, they just don't get it.

I've spent lots of time talking with people, and I bought into this for a while. Oh, the C suite. They don't get it. They don't care. They don't understand.

It's not true folks. I've had enough conversation now with CFOs, CEOs, COOs.

They do care.

They're some of the most risk averse people in, in the industry.

But they're balancing so many different pressures that if they don't understand it, they're likely to make decisions that go the other way. So don't buy into this narrative. I think we need to step back and reimagine how do we communicate with those folks So my message here is let's let's look at this from a new perspective. Right? Now When I think about this miscommunication, and I spend a lot of time on airplanes, I spend a lot of time traveling, why does this happen?

And it occurred to me is it's because we're a cost center. Right? And you're saying, okay, Mark, that's not revelation. But if you really step back and think about it, what is a cost center?

And I've heard facility leaders across the country, rearticulate that almost in a a defensive position. Well, we're just a cost center. Right? We don't generate any revenue.

And my point of this is if you're going into a budget discussion and you're already taking that approach that we're just a cost center, we don't generate any revenue.

That's a very defeat as to attitude, if you will.

And it it almost feels like we're gonna lose every time we have that discussion.

So I decided to go out and say, what the what is a cost center? What is it really? So imagine the day that your CFO graduates from CFO school, Right? And they just had to take a test.

Final exam, what is a cost center? And I googled it. What is the definition of a cost center? And I'm gonna share that with you today.

So a cost center is a function within an organization that does not directly add to profit. It still costs money to operate. Such as accounting HR IT. Okay. That's one definition.

The next definition was that the main use of a cost center to track actual expenses for comparison to budget.

Now for m for all the facility folks in the in the room here, on the call, There's so much more that we do. Right? We're managing some very complex systems. This is a an overly simplistic view of what facilities does. And I personally can't get excited to get out of bed for that purpose. Right? There's bigger fish to fry.

The third definition here that the manager for a cost center is only responsible for keeping costs in line with budget.

Again, I think that dramatically dramatically understates the view that we're looking at. So, again, step back and look at this from a facil or from a CFO's perspective, they don't understand engineering. They don't understand chillers and boilers and air handlers and all of that.

They're looking at facility budgets, operational and capital. It's a line item in the budget. And with this cost medicine cost center mentality, it really takes away from this final definition, which I happen to like.

A cost center indirectly contributes to a company's profit via operational excellence, customer service, and enhanced product value.

Now this is something we can grab onto. And so I bring this quote from Warren Buffett. Price is what you pay and value is what you get. I personally think we spend way too much time, navigating through the left hand side the cost side of this equation, and not nearly enough time talking about the value of the work that we do.

Now the challenge here, though, is we have to communicate that value in financial terms, in service terms, in operational efficiency terms, and maybe not just in engineering terms, which is sometimes where we, where we land. So I hope that provides a perspective The next time you engage your leadership, the next time you engage your CFO, think about what is important to them. Right? Not what's important to us.

How are they perceiving this? And perhaps we can change the story a little bit.

So the challenge questions are does your non facility leadership understand the work that you do? That's one piece, but more importantly, do they understand the value of the work that you do? And that's what we're gonna focus on here for the rest of the conversation.

So let's switch over now and talk about cost accounting.

How do we understand how the or not how do be the challenge here is we need to understand how does the money flow through our facility department And gaining that, that understanding, think of your facility as your part of the business.

How does the money flow through the organization?

How do we communicate that with the leadership so they understand what's happening?

Now we've been telling the bucket story for a long long time, we did a webinar back in June and did a deep dive on this bucket scenario. So I'm not gonna spend a lot of time here, but I wanna come back and talk about some distinct trends here. The concept of the buckets is pretty straightforward.

We have the compliance and mandatory regulatory workload, utilities, etcetera, in the blue buckets. That's non negotiable work. We have the variable cost on the yellow buckets or in the yellow buckets, which is our break fix. Right?

These are these are things that change we have to plow snow in the winter. We have to cut the grass in the summer. We have to fix the leaks when they happen, so on and so forth. But a big chunk of what we do is nondiscretionary work.

And that brings us then to the green buckets. Now a couple of years ago, we were heavily focused on this discretionary spend. And I've often described that as the budget battleground. Right? This is the money that we we know we need to do something or that we want to do something that's going to improve the facility gonna extend the life of the equipment, and we're often left battling for this money, to to truly get an ROI out of the facility.

Everything else we're spending here is, again, a mandatory cost.

Now that story line has been one of relating those costs to deferred maintenance.

I always think of deferred maintenance, not of, you know, aging equipment, but to me, this is a facility debt.

Anytime we choose not to fund something on the facility side, we're essentially borrowing money from the life of the facility itself to fund other things. Now that's a whole different discussion.

CFOs have to make decisions all day long about what's the best use of money for the overall performance of the, health system, but not understanding that this deferred maintenance to me, it's like living on credit cards. Right?

At some point, we have to pay it back. And oftentimes, if we let the facility age to the point where there's severe emergent failures, we're paying that back with a very, very high interest rate.

I think everybody here probably has stories of a hundred thousand dollar project that turned into a million dollar project because of all the downstream effects of of major asset failure.

So, again, this is not something to be afraid of. I think it's probably our one of our number one challenges as an as a as a profession.

How do we communicate this deferred maintenance in a way that's objective and truthful without sounding like we're just complaining about it. Right? So don't be afraid to communicate this. Just look for different ways to to bring that information to the table.

So, our message has been as we continue to reduce the green buckets. We're decreasing our ability to to make those improvements in the facility, but that contributes to deferred maintenance.

And we start to see that deferred maintenance bucket getting bigger and bigger. Ultimately, overwhelming the organization, and eliminating our need to do any type of strategic planning.

And that's still true today. However, there's a couple of interesting things that are happening.

If I take those buckets now and put them into a format where we're really looking at what I would call an income statement, for the for the facility group. And if we think about this as an income statement, as with any business, we have to know our fixed costs, We have to know our variable costs. And then up in the green gear, again, we're talking about that extra level of investment.

I often ask people, is your is your budget the same as your cost? Well, we're gonna talk about that here in a second. But the budget that you're given by the CFO is effectively your revenue if you think about yourself in a business sense.

So our goal here is we want to maximize our budgets so that we can truly manage our business.

And even make improvements in the business. Now we're not gonna make a profit in facilities, but I consider the ability to make proactive high return investments in the facility. To me, that is like a profit. Right?

Now, again, we've suggested in the past that the lack of green spent, the lack of, proactive investment in replacements is the key driver of deferred assets or deferred, maintenance.

Now what's happening in twenty twenty three? There's two things wrong with this model, and I'm gonna break that down here in the next slide.

The first thing is we have historically, in this presentation, lumped together, all of the blue buckets, all of the yellow buckets, and all of green buckets. And I've been looking at some data recently that breaks this down a little bit further. And so if you look down at the blue buckets blue buckets now, we have isolated.

I'm a show you again this data, our utility spend. So energy is non negotiable.

We're gonna pay our electric bills. We're gonna pay our gas bills. Right? That's a significant, significant component of the operational budget.

And then in the middle bucket, you see our direct labor and then we see purchase services.

So, again, looking at this more holistically, how much are we spending on energy How much are we spending on direct labor, and then how much are we spending on purchased services?

And I think it's gonna be pretty shocking. It was to me to see on a percentage basis, how much we're actually spending in purchase services versus labor? Because the narrative right now, it's all about the FTEs.


So the other thing that's happening, and this is this is an anecdotal statement after interviewing several different facility leaders. I think for the time being, the green buckets are gone.

I've talked several high ranking executives in very large health systems, and I'm being told on a pretty consistent basis, we're not doing anything That's not mandatory. We're not spending money on things that we just think are good. We've already been squeezed to the point where We don't have a lot of discretion. The the assets that we're replacing or the work that we're doing, it's because we don't have any choice. Right? We've we've squeezed this down to the point where I think We're getting to the point where it's incompressible.

So I'm taking the green buckets off the table for the rest of this conversation.

And let's just say for the next year, two years, whether you're looking at capital or in this case, I'm really focusing on operational budgets We have to assume that all of the work that's being done in the facility today is reactive and or mandatory.

And this is where it gets interesting.

You see the green arrows on here because there's a relationship between the labor, internal labor, and the purchase services. So the assumption that we have to make here is that all of the work or most, if not all of the work that we're doing today in the facility is mandatory.

We don't like to round exit signs. It's kinda silly with LEDs, but we have to do it. We have to clean our ice machines. We have to check our doors. We have to do fire alarms. We had to do the generators.

On and on and on and on.

None of that is, again, a discretionary spend.

So if you buy into the assumption, excuse me, if you buy into the assumption that all of the work that we're doing in the facility is mandatory, And then you conduct a forensic audit, if you will, of your spent, looking at the operational spend, where is the money going? And then it gets really interesting.

So the the the trend here too, as we see From a cost center perspective, the perpetual need to reduce cost, I'm starting to hear more and more that we're seeing mandatory workload contributing to the deferred maintenance.

So I've heard stories of folks with generators or generator controls, and and they're having issues with those, and they can't get the money to fix those things. Well, now what we're what that means is we're seeing increased criticality of of assets that are moving into deferred status.

So it's one thing to have an air handler that serves, a visitor's lobby in in deferred, ma, in deferred mode. But if we start seeing primary switch gear, ATS's generators, control systems that are critical to life safety, Also moving into deferred status in significant ways, the risk profile increases significantly.

So That is a trend, again, that we're seeing. So coming back to this data, this is where this all starts to come together.

So good friend of mine, Doctor. Call out of Washington State University is conducting some financial audits, in different parts of the business. This is a sample of about fifteen hospitals on average, and we're looking at the dollars per square foot of operational spend. Now what's interesting here is you see that the utilities is a full for the sample that we looked at.

This is a the utilities are a full thirty percent of the operational budget. And then in the center, we see twenty three percent or two dollars and sixty seven cents a square for the direct labor. So that's all labor, consumed in the facility budget. And then on the right hand side, forty seven percent, of the spent is going out the door in terms of contracted services.

So in this case, we're seeing an average of about twelve dollars a square foot. As it relates to the total operational budget.

Now what's interesting here and I and I have to put a caveat next to this.

There's always a push to benchmark, labor. Right? Ashey is making some big initiatives to benchmark labor.

I love benchmarking in the sense that it gives us something to shoot for, but I would caution you, don't take a benchmark as the answer.

It's an answer.

The data that we're looking here is unique to the twelve or thirteen hospitals in the in the, sample size. Right? So is eleven dollars and seventy five cents the right amount for, your hospital I don't know.

Is the, you know, the utility spend three dollars and fifty cents. Is that right? I'm not sure. But the the important piece is you have to, look at your hospital and understand what is the right number for you. I hope that makes sense to everybody.

So the interesting piece of this then is Where are we seeing the cost pressure?

It's on the FTE side. But in this particular case, Only twenty seven percent of the operational budget is tied to labor. So why do we continue to push on just the FTE?

So as an example, I took this same framework.

Right? And let's just assume Again, all of the work is mandatory.

Right? So we can't choose not to do the work. So what I've done here is take a just a five percent reduction in labor that would coordinate with or or or, sorry, align with a typical FTE staff reduction or size. So we're gonna take five percent out. So five percent of two dollars and sixty seven cents is thirteen cents a square foot. Just keeping these numbers big.

But if the work is mandatory and we have to transfer that now to a contracted service in order to remain compliant, we see a thirty three percent or a thirty three cent increase on the other side. So what we've done here is, yes, we recognize a cost reduction element as it relates to, the labor. So we're saving a little bit of money there.

But we've increased our contracted services to the point where we're our total operational budget is actually getting bigger. So This I guess if you take away nothing else from this webinar, having an understanding of what is the right number for your facility?

Not what the benchmark tells you it should be, but what how much work do you have to do? Now this model assumes that we're doing the work efficiently. Right? It assumes that we're properly managing with our CMS system.

We're properly managing our rounding. We're properly managing our staff and our preventive maintenance and so on and so forth. But at the end of the day, the work is the work. And I would tell you that from a benchmarking perspective, It's not about the square footage.

It does include the age, but the assets in your building are what drive the workload.

So if nothing else, making sure you have an accurate inventory of your assets and making sure you know exactly how you're doing with all of the work associated with assets.

That's the driver.

And I say that because a million square feet of greenfield new construction has a very different cost profile than a million square feet of urban hospital that's a multiple, you know, compilation of different ages of buildings. It's gonna have an extremely high asset density And it's that asset density that's gonna ultimately drive all of these costs.

Final statement here, we're looking at this operational budget.

I would make an argument coming back to capital It's almost impossible to make significant and sustainable reductions in operating costs if we don't have the capital to upgrade this infrastructure.

Energy is the big topic right now, decarbonization, and so on.

Utility costs, I'm seeing three fifty to four dollars a square foot all day long. And I think everybody on this call understands we're not gonna take significant money out of our energy spend. If we don't spend a significant amount of capital to drastically upgrade our infrastructure from an efficiency perspective.

So I'm I'm kinda rambling on on this a little bit, but I really wanted to focus on this because I think this is an area that we have typically under, maybe misunderstood.

And again, understanding how the money flows through your organization so that you can sit down and have a meaningful conversation with your leadership is of utmost importance.

So I hope that is helpful in terms of looking at the relationship.

Regina, I'm gonna take a Hot second here.

Any questions that have come in by any chance or comments? Yes. It came in a few minutes ago. I did not wanna interrupt you because you were on a roll.

But the question was just where can we get this data? So not exactly sure what they were referring to at that point because you've shared a lot of statistics and data.

So if whoever asked that question has a follow-up, please send it through, but the question was where can we get this data? Yeah. Great question. So this data was actually compiled Doctor Hall is a professor out at Washington State University. I've collaborated with him on several different things.

This was a forensic audit if you I I say forensic. This was a financial audit of, the facilities that we're looking at here.

This was he he is he charges a small fee to do that assessment, and I was able to review those results In this case, what he did is he went in and looked at the financial statements of the organization and looked at the big picture how much money is being spent on utilities, how much in labor, and how much in purchase services, and that's how we compiled this.

Now tactically, I'm gonna show you some other steps here in the next few slides.

It's okay to know the big numbers But that's where we're gonna go and look at a deeper dive on what's actually contributing to that spend. So, I'm for whoever asked the question. I'm happy to give more feedback. I can't disclose, obviously, the location that this data came from on this call, but I'm happy to work with you to to, to put something together there. Yep.

It's a great question. Now the root of the question is, What do you do with these numbers when you get them? Right? And and, whoever asked the question, I'm gonna take some liberty with your question.

Eleven dollars and seventy five cents. I don't know if that's the right number or the wrong number for this facility.

And what I mean by that is Within that average, there are some sites that are at fifteen dollars a square foot, and there are some sites that are nine dollars a square foot. And that's the danger of benchmarking is even with a small sample size here, the variation is significant because There's a rural site. There's a urban site. There's a new hospital. There's an old hospital.

So again, digging into that forensically and understanding Why is hospital one different than hospital two?

Unfortunately, that's where we, at the facility level, have to actually dig in and look at the the the discrete data. So it's a great question. I hope that answers the question.

I'll show you some examples here in the next section.

Did anything else come through, Regina?

No. Does somebody did ask about can this presentation be available? And, yes, I can answer that one. You'll get a follow-up email with a with a with a link of how to access the presentation. So all the great information that Mark is passing will be shared in a follow-up email. After the webinar.

Perfect. What's what would be interesting for me, and and this might be a challenge for everybody on the call If you have the ability easily, even working with your accounting department, just under, you know, energies, energy. Right? That's pretty easy. We can see the the the the bills.

But understanding what percentage of your operating budget is labor versus purchase services? I was shocked at this. When I first saw the numbers. I'm being honest.

Because there's so much discussion on reducing FTEs, I kinda walked into it with I I'm I'm drinking the Kool Aid, right? We have too many staff. That's the big cost driver.

Not so.

In this particular case, the the the health system that this data includes has been under persistent cost pressure to reduce FTEs.

And it's the single it's the smallest major group of spend in all of the operational budget. I found that to be, I don't know, fascinating. This is the right word, but I found it to be really interesting.

So let's move into the value creation, and I'm gonna give you a couple of examples. I hope it gets you real spending about different things to look for in, in your own audit, if you will, of your spend.

Value creation, I like to use this this concept of a value chain. So when we talk about an asset, from an engineering perspective, we often say, you know, what is it That's a chiller. It's an expansion tank. It's a pump.

It's a generator. It's an ATS. It's an AHU. Right? The list goes on and on. And when we talk about compliance, we talk about door gaps and fire stops, and and you know, water management plans.

Hate to break it to you. Outside of our world, most people don't really understand that. Right? They think that an air conditioner in a hospital, is the same as an air conditioner, in their private home. So I like to ask these questions. What is it?

What does it do? Why is it important What is the risk or the impact if it fails? And then how does this align with other initiatives in the hospital?

So I can take that simple example of the air handler. Right? We all talk about air handlers, the air handler that serves an or. It's an air handler.

What does it do? It provides, you know, the pressure, temperature, and air changes for the operating room. Right? Why is that important?

It also supplies the sterile field that protects the patient during surgery, risk and impact if it fails. Well, I think we all know that he answered that. Lost revenue and maybe worse, infection control issues. How does this align with the other initiatives?

Every organization has a mission and vision statement that talks about the wellness of the community.

Now the bigger element here It's not just the air handler. Right? The air handler is the core asset at the center of a system that includes diffusers, dampers, VAVs, exhaust fans.

It's it's a very critical component to the overall efficacy of the space that we're talking about. Now I've got the attention of clinicians. Now I've got the attention of my CNO, my infection control. So I I I'm I hope I'm not being overly dramatic in but every asset that's in the building has a purpose.

It was put there for a reason. What is that purpose? Right? Why is a chiller pump important?

Why is an ATS important?

And and I think by doing this, we're moving away from the engineering and we're moving into the business and the clinic and the clinical side. And that's the whole point of this, progression.

So In terms of creating this discussion with the leadership, I'm a big believer that transparency leads to credibility.

And what I'm saying here is educate yourself first.

How does the money flow through your organization?

How are you spending the money that you've been given? And if you can't answer that question, then it's very difficult to defend when you go and talk to your CFO about why you need more money. So I think being transparent.

And sometimes the answer is not good, folks, sometimes we know that we have inefficiencies, but presenting the data in such a way, it's not just twelve dollars a square foot, or it's not just you know, x million dollars. Right? That's what the CFO cares about. Millions of dollars.

What's inside of that millions of dollar?

Once you educate yourself on how the money is flowing through the organization, then you can start to educate the customer.

So here's kind of a simple example.

Started doing this with, one of my customers, and this is about a one and a half million square foot facility.

And we sat down one afternoon and literally just started going through the compliance binder, and and that's where we started.

Every piece of paper in that binder has a reason. Right? But every single element has a cost. So we started compiling how much money is being spent in each one of these areas. Now this was not a scientific analysis. It was not a complete audit, and this is only the first cut this group has actually gone a lot further now to to build out that full financial picture.

But when you start walking down the list and you say, Why are we spending this much money here? Now what you'll notice on this page is the fire alarm, seven hundred twenty seven thousand dollars.

Now we looked at that and said, that seems really weird. Right? What's going on there? And part of that audit was to realize that some of the accounting was the the money was being mis I don't wanna say misdirected. That makes it sound like it's criminal. I don't mean that it was being accounted for improperly.

So some of the money that was spent on other things somehow was classified as being money spent on on, the fire system, fire alarm. But my point of this is had we not gone through that exercise? We never would have seen that. Right? And and this was a deep dive And I I urge you to think about your compliance binder. Like, put a dollar sign on every piece of paper in that binder.

And add it all up and find out how much money are you actually spending on compliance.

And then it goes well beyond even this list. So that was an interesting exercise for me, and it was also an interesting exercise for the manager in this facility because she's looking at this and saying, I think I need to go look at this further. I need to understand what's happening here. So it was, very educational, I guess, in that regard.

So that's kind of step one, to the person that asked the question earlier.

You can actually build this yourself. It it takes a little bit of work, but building out your own numbers actually can be very valuable.

Your labor stuff is probably gonna come from your CMS. So, hopefully, you've got a reasonably accurate, look there. But there's no wrong answer It's just a matter of getting an answer so that you have something to to manage and to look further.

Another example then Once we have that transparency and we've educated ourselves on where we're spending, we can now have a discussion with our leadership Now we can engage the customer. And by the way, who's our customer?

Our customer is the patient, our customer is the community, but I'm looking at this as though the CFO is my customer, not my CFO.

Now why do I say that? The CFO is spending money every year theoretically to purchase goods and services from the facility department.

And when you talk about cost, everybody wants to pay a little bit less. Right? How do you counter counter attack, if you will, the cost discussion, you talk about value. So think about the vendors that you work with. Think about the money that you spend You'll spend money if you think you're getting value for for that spend. So that's why I'm using the word customer. Think of your CFO, as your customer.

Right? So that they feel good about the money that they're spending with you for all of the goods and the services that you provide for the organization.

So let's engage the customer.

This value chain, I'm gonna talk about a really, really simple concept. And that is the cleaning and treatment of diesel fuel. Okay?

And this came to me as a friend of mine in the industry a couple of years ago, And he that's what his company does is they provide services to clean diesel fuel, to scrub, and then to provide chemical treatment to prevent biological growth and so on. And he was telling me about different organizations that don't wanna spend the money to do that, or they can't get budget approval for something as simple as treating the diesel fuel.

So the value chain, that's where we came up with this, why do we do, filtration on the diesel fuel? Why do we clean the fuel? Why do we treat the fuel? Well, there's a whole series of valuable things that go downstream on that.

So I went and pulled some data.

And for that same one point five million square foot campus. I looked in our system, and all told there's about what do we got here? Eight tanks, o fuel, in the in the system. Twenty three gallon twenty three thousand gallons of diesel fuel. Right?

Now at the time, what I was being told is about thirteen cents a gallon is what it would cost to treat that fuel as an average. So in this case, we're talking about three thousand dollars, right, to treat that fuel. And then I said, okay, let's go a step further. Now what's the value of the fuel? Well, twenty three thousand gallons at five dollars a gallon, I've got a hundred and twelve thousand dollars worth of fuel.

Diesel fuel is an asset. Right? It costs a lot of money to keep that fuel on-site.

But beyond that, If I looked at all the generators and they had to have they had a diesel file fire pump as well. If you look at all the assets that are dependent on that clean fuel, The replacement value of those generators, and that fire pump was about seven and a half million dollars.

Now if you take that one step further, What if we were to lose a fire pump or lose a generator?

What's the value of that in terms of the operation of the building? So we what we now, I don't know if this is ROI or not, but when I look at that value multiplier, and I think about for three thousand dollars, I can protect a hundred and twelve thousand dollars worth of fuel. I can protect seven and a half million dollars worth of physical assets And theoretically, I can keep the hospital operational in the event of the power loss.

Now does treating the diesel fuel eliminate all potential failures in the emergency power system, obviously not. But I know that dirty fuel can almost guarantee, major problems.

So just to show the order of magnitude, I did the same analysis with a much, much larger system.

In this case, It's about a twenty two million square foot portfolio, twenty nine accredited hospitals.

And if you put together the total volume of all the diesel tanks in that portfolio, we're talking about four hundred and twenty six thousand gallons of diesel fuel.

So using that same math and that same value chain, Fifty five thousand dollars to treat the fuel, one point seven million dollars worth of fuel in inventory, sixty seven million dollars is the replacement value of all the generators in that portfolio.

So I like this example because it's simple.

There's there are hundreds of examples. Think about, making sure you have good chemicals, and and take care of the water and the boiler, the cooling tower.

There's so many different elements that are relatively small spend, but the value chain of protecting the assets and protecting operations is off the charts.

I hope that's helpful in terms of a value chain.

So the final concept here is that value leads to inclusion.

How do we partner with our customer? How do we meet with the CFO and have that real discussion?

So this is some data I'm pulling from our origin, asset management platform, and and this is the type of data that we like to bring forward with with, our customers. The one thing we're looking at is deferred maintenance. If you look at the upper left hand corner of this chart, you're gonna see for the sample that I've pulled here, about fifty percent of infrastructure assets have exceeded expected useful life. That's a significant, indication of risk.

That's gone up. Since, the first time we started publishing that data was probably twenty seventeen, twenty eighteen, and we were seeing an average of about forty one percent.

So the COVID years have definitely increased the number of, of, deferred assets, at least in our portfolio.

What that allows us to do then is to to look at the capital side there in the middle and start understanding how much money should be applied to the deferred maintenance bucket to reduce that deferred maintenance level over time. And then if you look in the bottom, You see, we're we're tracking how many of those assets are high risk, how, you know, high criticality.

I'm always nervous when I see life safety assets, in deferred status, in some cases, significantly so. But if you look at the operational side down at the bottom, There's actually a really solid return on investment for doing pre PMs.

Right? What suffers when we lose our operational budget? It's the PM story. Right? So one of the worst financial decisions that we made as an industry through the pandemic is in freezing capital and then putting immense pressure on the operational side.

Many of you have heard me tell this joke before. It's like sitting down with your spouse and saying, we can't afford to buy a new car, capital.

So let's stop changing the oil and the car we have today so we can save a little money operational.

Now everybody on this call, hopefully, gets the, true attempt of that joke, but that is what is happening. Across the industry.

So having that information in hand, there's three questions that I think are very important.

How much should we invest in the facility? Well, only you, if you will, can answer that. So for the facility leaders out there, understanding your true cost What does it what does it really take to to perform all of the operations that are in your stead?

The second question is where where should that investment be made to maximize performance and mitigate that risk? That's where we're talking about the value chain. How do we how do we define criticality?

How do we demonstrate a value chain that can can be interpreted and understood by our our leadership.

And then the third piece is the collaboration by sharing that information, by sharing the books, if you will. Showing how the business is performing, the facility business.

We're demonstrating a that we understand our business and b, that we're properly managing our business. And that credibility, I think, goes a long way towards establishing a more definitive and more collaborative relationship.

So I'm gonna wrap up here in a couple of slides, and then we'll open it up for questions. A little bit about brightly, just so you see how this all comes together.

I would argue that the only way to properly deal with this situation is we have to think about strategic asset management.

Managing a building, managing a facility is a lot different than maintaining a facility. So when we talk about strategic asset management, we're talking about that management of the maintenance.

Again, think of your facility as your business. You're the business owner.

You have to manage revenue, which is your budget. You have to manage your costs and think of everything you do in business terms. It's a technology play, certainly, CMS systems, etcetera, and capital planning, but it's a business process, and it's a cultural issue. Of how we engage our teams and how we engage our leadership.

Always remember, your CFO is your customer. And if you think about them that way, you might change, how you engage.

In terms of maturity, everybody on this call, every organization I talk with, everybody's in a little different space when we talk about strategic asset management maturity.

At the bottom level, the foundational elements, this is the basic blocking and tackling.

If you don't have an accurate inventory of your asset, your assets, folks. It's very hard to do anything else. So having that accurate inventory, understanding where the cost is, understanding how your staff is performing. You then can progress higher and higher on this maturity level, and that's where we can engage again more strategic things, like benchmarking, key performance indicators, criticality, and ultimately having the most optimized building as I often talk about, you know, we're part of Siemens too.

You can have the best building management system in the world. But if your technicians aren't actually changing the filters in the air handlers. It doesn't matter. Right?

So think about the analog space, all the people that are touching the equipment, all the way up to the most strategic elements of decarbonization and energy and sustainability.

All of these things have to come together. And that, in my opinion, is what strategic asset management is all about.

Our solutions, we have the work sub on the CMS side. And where I spend most of my time is in the origin platform, which, again, is looking at the financial performance of these facilities.

And that's the root of a lot of the discussion that we've had today. So, we're getting here about one fifty.

I'm gonna actually stop And let's take a few minutes, Regina, to the group. If there's any questions or comments, I'd love to, to add some context to any questions that you might have.

Hey, Mark. Would you have one more question? Coming in from Chris is do you have an example of boiler chemical costs like the example you provided on the diesel fuel?

I don't have one readily available, but I could certainly, get that for you and share it with you.

I I I'm glad you asked the question.

I'll share that if I can, if I can get that information.

Know, that's a that's a classic example, Chris. I do appreciate your question.

I think it's just one of many examples of some of the simple things that we do every day, and I don't know why we have to defend them. Right? I don't I don't know why we have to fight to get money to do the basic things. So, you know, keeping the chemicals right in the boiler is probably the most important thing that you can do to protect the life of that boiler. Right?

I hope that answers your question. I'll I'll research that and get you some information if I can.

I I'll ask the group. Does anybody have any other value chain type, stories they'd like to share? Maybe they've had success with that. In the past. I'd love to hear from the group.

Nope. Alright.

So anything else coming in, Regina?

Nope. Krishna said thank you. So we'll try and get the information for him, but nothing else.

We do have some time left for q and a if anyone does have it. Please feel free to share that.

Something to come in through the chat, not in the QA, which is okay. Someone just said parking lots.

Two words.

So parking lots, we do cracked seal and seal coat, in the order.

Can you repeat the second part of that Regina, please? Yeah. So, David's saying parking lots. We do crack seal and seal coat in the proper order value chain.

Yeah. So David, I appreciate that parking lots. That's always interesting. Right? Because nobody cares about them until they have to replace them.

You know, what's the value of a parking lot? Right? It's not just so so so sealing the cracks, sealing the parking lot. I understand where you're going with this. But what happens if the parking lot deteriorates to the point where somebody trips and falls? Right?

I mean, the value chain, in that sense, that's a relatively minor expense to protect the longevity of the parking lot. But again, taking that one step further, there's potential liability on down the road. That's a great example. Probably the one that I thought I would get What about roofs? Does anybody have a leaking roof that they had to deal with?

A proper roof management plan. It seems like a lot of money But if we keep water out of the buildings, then we're doing the right thing. So, you know, using a thermal imaging roofs, doing core samples. And I'm not plugging roof, roofing is a thing. It's just another example.

There are so many examples, and I would encourage you again to to follow that path wherever you can when you can link that asset, link that spend to something bigger than the facility itself. We're not just sealing the roof.

We're protecting the, envelope which we're keeping water out of the building, which means it's an infection control issue.

So those are words, and I'm not trying to be alarmist.

And I'm not saying that you should make stuff up. But if you really think about why do we have a parking lot, why do we have a roof? Why do we have, glazing? Why do we have pumps?

They're all there for a reason. And if we step back and really look at the big system picture. I think it gets us where we need to be. So great example, David.

I appreciate you sharing that. I've got another question. Sure. And I just love this because this might be someone that you know.

Hey, Mark. Chain saw Mike here.

In the health care market, how many years past life expectancy are facilities running boilers or other major mechanical systems on average?

Oh, that's a great question. Mike, I appreciate it. So the fifty percent average that I'm sharing, you know, let's say that the expected useful life of a boiler is twenty five years. When that boiler hits, you know, twenty six years, it falls into that deferred bucket. But that is actually a really valid point. I don't have the exact answer on the percentage, but I will tell you that a significant number of assets that are in that deferred status.

They're not newly deferred. In some cases, we've all got switch gear, that electricians don't wanna touch because they don't know if the breakers are gonna cycle. Right?

We've got air handlers that are forty years old. Right?

So it's a big number, Mike. I appreciate you asking that.

That that's note to self. I'm gonna go find out. I'll run the data and I will get back to you and let you know. For sure. So appreciate the challenge.

It's a big number. It's much bigger than it should be. I know that. But I'll publish that information to to to the group because I think that's a valid question.

So To wrap this up, I know we're coming close to the top of the hour. Just a couple of of final things. I don't know, hopefully Some of the folks, many of the folks on this call will also be attending the Ashey Conference in San Antonio coming up here in a week. I would encourage you please stop by If you are there, introduce yourself, I'd love to meet you.

I will actually be doing, this presentation or a similar form of this presentation in person on Monday, August seven, along with Matt Steen from Novant Health, and Jonathan Flannery from, from Ashey. So we'll be talking about that. I hope to see you there. And then selfish plug, I wanted to let everybody know I am actually running for the Ashey National Advisory Board as an associate member.

So everybody here, I believe, to to to be on the call, you're an ashey member. The voting starts on August sixth. That's a change where we'll be voting now at the conference. Please check your email.

And, please vote. I whether it's for for my position or anybody else's, I think the more people we get voting, the more helpful that would be.

My platform for ASHI is I wanna bring this financial discussion further forward and make it more transparent I think it's one of the biggest challenges we're facing today, as a professional group.

It's hard managing a facility, but it's almost possible if we don't have the funding and the resources we need to do it properly.

And I hope everybody, agrees with that assumption. So that's all I've got, Regina. I'm happy to stick around here for another minute or two. If any other questions come up, and I want to thank you and everybody else for joining.

And I also encourage everybody. This is a tough this is a tough gig. Don't give up. Never give up.

I hope this information has been helpful to give you a different way to think about your facility and how to communicate the value of the work that you do. So thank you all for joining.

And, please let me know if there's anything else I can do here. Thank you all for joining. And, Mark, thank you for a great presentation today. We've got a lot of feedback in the comments.

So just as a reminder to everyone, a recording from the webinar will be available soon. So look out for that in your email. And thanks again for attending our webinar. Have a great day.