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Capital planning for interior upgrades.

Understanding a building's physical needs and costs is an important responsibility. Anticipation is the key to sensible, timely, cost-effective action. Capital planning is the method good administrators are using to fulfill this responsibility.

What is Capital Planning?

Capital planning is a disciplined effort at efficiently assessing the physical condition of a property, identifying its current and projected needs (either maintenance or capital), establishing the costs of maintenance and modernizations, and creating a sound strategic plan for addressing needs within financial constraints.

More simply, it is a series of questions posed and answered: What do we have in this property that will wear out? What quantity do we have? What are conditions now? When must we repair or replace? What will it cost? How will we pay for it?


There are many benefits associated with capital planning. First, a capital plan coherently and comprehensively establishes the physical characteristics of the property. The detailed assessment of condition includes creating an inventory of the systems at the property. This assessment helps identify existing and/or potential physical problems. It creates the basis for an effective preventive maintenance program.

Second, capital planning is a good budgeting tool. It establishes a clear structure within which to make decisions about near- and long-term needs. It clarifies those actions which are sensibly handled from the annual operating budget, and those for which draws on reserves and/or new capital are needed.

Third, a good capital plan permits analysis of alternate strategies for meeting needs. It facilitates a clear understanding of the tradeoffs involved in decisions regarding scope, materials and timing. A good capital plan presents a videotape, rather than a snapshot, of the property's physical and financial needs.

Though a comprehensive capital plan covers the entirety of a property -- site, utilities, building exterior and interior -- the focus for this article is on planning for interior building systems. Though the steps and concepts presented below apply to the whole property, the illustrations relate to interior renovations.

What Do We Have?

The first step is completing a comprehensive evaluation of the condition of all interior systems. This is best accomplished by using the most comprehensive and detailed checklist possible to ensure that any system which exists is noted as to presence, age, quantity, material type and condition. An independent firm with strong inspection skills and architectural and engineering (A&E) expertise, will offer distinct advantages over doing the work "in house." "New eyes" provide a fresh view of the property, seeing the good, the bad and the ugly! Often, overlooked problems (current or potential) are identified; new and/or modified maintenance practices can be suggested to enhance ease and effectiveness of operations.

It is especially important to remember that interior renovations will include work on mechanical and electrical (M&E) as well as architectural systems. What's behind walls and above ceilings will often drive the timing and nature of interior work.

What Needs to be Done, and When?

The current condition of each system is the first indicator of the nature and timing of work. Though many items are replaced with like materials when they fail, this is not an absolute. A clear decision on what and when is required.

Take, for example, the walls in halls. They may be painted drywalls. If the paint is flat latex, it is likely that the walls are often smudged, hard to clean, and need frequent painting, tying up the maintenance staff or requiring use of a painting contractor. What are the options?

First, determine the cause of the smudging. If it is from residents using the wal l for support, the addition of hand rails to both sides may be the first step. Semi-gloss paint is easier to clean, while other paint or wall coating materials may be even more durable and show less wear. Finally, the timing for installation or the desired new wall material may be sensibly linked with possible ceiling action, including any M&E repairs or changes being considered. Suspended tile ceilings are the perfect locations for all sorts of wiring, including lights, smoke and fire detection and alarms, sound systems, and so on. If upgrade is contemplated for any of these systems, ceiling and wall work should follow shortly thereafter, not before!

What are the Costs?

The second step is estimating the costs and scheduling the timing of work to be undertaken as a capital expenditure. Cost is a function of quantity, nature of intervention and timing.

For example, a single-story nursing home with a core area and two wings can do wall renovations in one year, or spread the work over two years, doing a wing each year. A simple paint job will cost less than installing new railings and changing the floor and wall covering materials in the hallways. Some items, such as carpet, can be costed simply by consulting Sunday newspaper circulars.

Other items, like a new fire alarm system, will require a customized cost. This could be from a contractor, published cost estimation source, or from the custom cost files of the firm assisting with the study.

Finally, each cost needs to be adjusted for inflation, keyed to the anticipated timing.

What Do Things Come Due?

Timing of action is based on current condition and expected remaining useful life. Material type, nature of use, and maintenance all influence the expected useful life of any system. For example, vanities constructed of pressboard and laminate will have a shorter expected life than all-wood with single-piece cultured marble sinks and tops. Determination of appropriate estimated useful life can be based on manufacturer warranty (such as 20-year shingles), property experience (room carpets requiring replacement every seven years), or other industry standards.

Relating Needs to Resources

The fourth step is the creation of the strategic plan. The first component of the strategic plan is the arraying of system costs by year. Spreadsheet programs permit this to be done quickly and accurately. A good capital plan will provide both detail and summary information. The two tables included in this article illustrate how the information gathered in the first three steps is assembled by a sample nursing facility for analysis and decision purposes.

The Capital Needs Worksheet summarizes the projected activities in the halls. Walls will be painted a wing each year, in Years 1 and 2, by a contractor. After painting, maintenance staff will add a railing. Major action is projected in Year 4, prompted by the installation of anew fire alarm system. A new wall coating system (elastomeric paint) will be installed, carpet replaced with vinyl composition file (VCT), new lighting installed, and ceiling tile replaced. Room doors will be painted.

There are several strategic decisions implicit in this plan. First, all major actions are completed at one time, tied to the disruptive fire alarm work in Year 4. Carpets, which would have been replaced in Year 3, will be kept a year longer, then replaced with VCT. This, together with railings and a new wall surface, indicates a clear decision to use easier-to-maintain, longer-lasting materials, although the initial cost of installation is higher. Meanwhile, new lighting is installed earlier than its estimated useful life so that the hallway disruption occurs only once. Presumably, this new lighting will also improve energy efficiency, thus lowering operating costs.

Note that after Year 4 only painting of doors is required, an activity which can now be done by site staff, so that the only additional cost is paint. With the previous arrangement, a second round of wall painting and carpet replacement would have occurred, both at contractor cost.

The Capital Needs Summary shows costs by year, here summarized into five major categories -- site, M&E, building exterior, building interior, and patient rooms. Costs are compared with available resources, including annual contributions to the capital reserve account and accumulated reserve balances. In some years, expenditures are modest; in others there are dramatic peaks. The financial picture is then assessed. As a surplus/deficit calculation is determined for each year of the plan, determinations can be made about priorities, and strategies for coping with actions that may be deferred due to financial constraints.

Typically, there will be several iterations in creating a plan, as the balance of annual needs against available resources is continually studied and TABULAR DATA OMITTED TABULAR DATA OMITTED strategies refined. (Note that this plan has regular levels of expenditures for patient rooms). When operating within the constraints of reimbursement regulations, this iterative process is even more important. In the example given, the Year 4 peak is almost entirely covered by contributions and built up reserves. However, the significant amount of site and exterior work in Years 6 and 7 generates deficits, and leaves essentially no balance in reserves for the subsequent three years. If there are no other funds for contingencies, this plan would need further analysis before implementation. However, because the anticipated low reserve balances are in the latter years of the plan, there are opportunities to refine, now and in the future. Because conditions and finances change, capital plans should be updated as to finances annually, with a fresh needs assessment completed every three-to-four years.


The four steps underscore that a capital plan is a dynamic, evolving tool. Changes are expected, as strategies and/or conditions alter. Studying the nature and costs of physical needs can lead to new approaches in both building operation and service provision. What is most important is to recognize that good planning yields real improvements in ease of operations, typically paying for itself both financially and in efficient delivery of good patient service.

Thomas E. Nutt-Powell is President of On-Site Insight, a Boston-based firm specializing in capital planning. The firm has completed studies on hundreds of properties throughout the U.S., for owners, managers, lenders and buyers.
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Title Annotation:nursing home interiors
Author:Nutt-Powell, Thomas E.
Publication:Nursing Homes
Date:Oct 1, 1993
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