Program Management

Almost every institution at some point in its life will face the need to build. As an institution grows and evolves it will usually need some type of capital construction program. Many mission critical elements of most institutions require a physical presence. Hospitals need to perform surgery, image patients and care for them as they recover. Universities and schools need to provide for educational environments and the opportunity for students and educators to interact. Institutions serving growing populations required a larger platform to deliver their services and mission.  

For many institutions a capital construction program will be episodic, coming and going infrequently. It will be driven by growth demands or an evolving mission, or the ravages of time that can leave their facilities worn out and obsolete. These needs will build up until capital is secured through debt, philanthropy, accumulated revenues, or government appropriations. And then the key question at hand is; how best to convert capital into the facilities? What is the best strategy to convert dollars into bricks and mortar in the most efficient and effective manner possible?

Some institutions have an in-house, specialize staff to handle these duties. Other institutions completely contract with a third party for these services. Both models have strengths and weaknesses. In-house staff have the advantage of knowing the institution well, its culture, leadership and internal politics. They also typically know its expectations of quality, facility standards and more deeply understand the drivers behind the need to deploy capital. They have institutional memory. 

The downside is they are expensive and they are not part of the core mission. This means in periods of low capital spend they represent expensive overhead with only modest demand for their services. Inevitably this leads to a reduction of staff. For an institution with episodic capital spending this model becomes a yoyo; staffing up periodically as capital spending is needed and then laying off staff as the spending winds down and never really being in balance

Understanding this dilemma, many institutions are currently trending to a out-sourced or contract model to manage their capital program. An out-sourced, contract model has the advantage of being able to providing staff when needed and eliminating the staff when it is not needed. You can turn a contract model on and off relatively quickly. There are disadvantages however. It is expensive - you will typically pay much more per person in a contract model, or about 3% of the Capital Program.  It also will also be staffed will people unfamiliar with the institution. The contract staff will need to figure out the institution and its culture concurrently with attempting to manage the capital program. This can be a recipe for stepping on mine fields.

There is a hybrid model that I have found to capture many of the benefits of both an in-house model and a contract model while avoiding most of their respective weaknesses. It is one that I have developed and refined for the last decade.

Over the last 20 years I have had the opportunity to direct two, multi-billion dollar capital construction programs. Both construction programs were for high profile Institutions, first for the University of Texas System and currently for Houston Methodist Hospital. During these two decades I have overseen the deployment of roughly $11 to $12 billion of capital (in current dollars), creating a couple hundred buildings and probably 25 million SF. At the University of Texas System I inherited a classic in-house, staff model, with very limited out-sourcing of program management services. It was fully supported by project fees that averaged 2.35 to 2.4 percent. Not too bad and less than what would be expected in a contract model. 

There were still challenges. With a capital program that spanned the state of Texas, the geographic dispersion of the appropriate staff was always challenging. It was difficult to nimbly flex the staff to get the right people in the right place as spending needs shifted from one component institution to another.

When I came to Houston Methodist in 2005 I had virtually no organization or staff in place since little had been built in the prior years and the capital program was just ramping up. It was an opportunity to build something from a blank slate. I was also uncertain how large or episodic the capital program would be so it was important to build an organization that was flexible, scalable and very efficient.

Over the next 14 years we would end up deploying $4 Billion in capital construction. But the capital came in a lumpy fashion with periods of high spend followed by periods or much lower spend. To address the immediate needs in 2005 we executed several immediate program management contracts while we put together a core in-house staff. As Houston Methodist grew however, we were able to develop a consistent, hybrid model. 

In this hybrid model we in-sourced key project control functions and built a team of  Project Directors. This core group of employed staff could manage most of the program needs during periods of low capital spend. We could afforded to maintain the staff through periods of low capital spend which provided critical institutional memory and continuity. During periods of high capital spend we would build contract teams as needed, each reporting to the appropriate, employed Project Director. 

This hybrid model allows for a core group of senior staff to be retained during periods of lower capital spend, thereby providing institutional memory and continuity.  It also provides rapid scalability and flexibility to staff up and down as needed through supplemental contract staff.

I recently did a look-back on the cost of Program Management at Houston Methodist.  Including the in-house staff and the supplemental contract staff, the cost of Program Management over the last 14 years has averaged 2.1% of the capital program.  That is significantly lower than a fully contract model and even a little less than the in-house staff model we had at The University of Texas System.  This hybrid model may not be the best model in every situation but I have come to believe it is superior in most situations.