Project Budget Development

St. Dismas Assisted Living Facility Project Budget Development
Fred Splient gave his ALF Project Steering Committee two 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.
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 Chief Financial Officer 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 to 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 five years’ 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 up – scale 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 standard deviation of $ 3.67. 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, the 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 Link submitted it and hoped 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.
The CFO, Dr. Sharf, and the Project Steering Team were ready to combine their
individual plans and costs into a composite plan and budget.
You have been assigned by the CFO to develop appropriate cost and quality
management plans considering all information provided. Details in the cost management
plan, including the budget baselines, must include the scenarios presented earlier in
the scope and time management plans.
Note: This assignment is in conjunction with the project information provided for
Assessment 1 and Assessment 2 Briefs.

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