5 key factors to develop a personalized tool for planning investment projects –
Standard software, such as that used for basic accounting or word processing, is usually ideal for meeting standard business needs. It can be difficult to use standardized software to help with more complex calculations or decisions, such as those involving major investment projects, without significant thought, preparation and execution of using higher level functions.
Specialized, costly, and business-critical projects that rely on software tool analysis and support typically require a significant financial and time investment associated with custom applications. This was the reality that a leading health care system faced with several key decisions about a large capital project. The leaders of the organization wanted to make the best informed choices possible regarding the needs of their project, especially with regard to the potential financial, operational and community impact of the project. However, they lacked a tool to properly factor in several financial parameters, such as cost of capital, payback period, and growth rate.
Rather than relying on off-the-shelf software as is, the healthcare system chose to develop a custom forecasting tool capable of providing the analysis and scenario planning capabilities its leaders needed to make informed decisions. Ultimately, the tool the organization obtained, which allowed for changing and changing inputs and assumptions over time, gave decision-makers a new and valuable way to look at different scenarios to assess multiple risks and potential opportunities of the project.
The lessons this healthcare system learned in creating its custom forecasting tool offer valuable information applicable to any healthcare organization seeking a better analytical understanding of a major momentous decision. Here are five key factors that should be considered when developing a custom tool for planning capital projects.
1. Take into account flexibility and growth potential – One of the biggest advantages of a custom solution is that it can be initially designed to meet the minimum requirements required now, but then extended or modified to meet additional or modified requirements. It should also match your specific business needs and processes. Make sure from the start that the custom tool you start to create has the flexibility and potential to meet your future needs.
2. Take into account the potential for multiple impacts – Decision-making around large capital projects inevitably leads to a series of “What if? And about? ”Impact scenarios and questions. As questions like these are built into the decision-making process in capital, the analysis tool informing such decisions must be powerful enough to properly account for a variety of uncertainties After all, the main purpose of a tool like this is to reduce the uncertainty of decisions.
3. Obtain stakeholder support – Analysis tools are only really useful if used correctly and give their users a high degree of confidence in their functionality and accuracy. This is why it is important, when developing a custom tool, to get the feedback and support of all the key stakeholders who will ultimately rely on this medium. The more opportunity you give stakeholders to have a say in the development of a custom tool, the more likely it is to consistently meet stakeholder needs, interests and levels of trust.
4. Document inputs and assumptions – Custom tools are put in place based on a series of inputs and assumptions about things as they stand today. What happens tomorrow, if and when any of these data and assumptions turn out to be incorrect or are changed by factors beyond anyone’s control? Will there be finger points and innuendos that the tool is not built correctly to begin with? Or will a carefully documented series of inputs and assumptions serve as a foundational standard for your tool and allow everyone to quickly agree on necessary updates and changes?
5. Use the best possible resources – Depending on your capital project budget, the cost of a custom solution is probably only a fraction of that total. The real value of a custom tool used for decision making about an investment project lies in risk reduction – the extent to which this tool helps you avoid making a bad decision that is potentially very costly. In this context, consider the “savings” to be made by using the cheapest solution provider available rather than striving to capture the best possible resource.
Ultimately, your goal should be the same as the health care system that has created its own tool for forecasting capital projects. They sought – and obtained – a tool that would offer the functionality, adaptability and uniqueness they needed to confidently make a decision about their large investment project. With that kind of ability in hand, you too can acquire a tool with similar decision-making power. And rest assured that you’ve done all you can to make the best possible financial decisions.
About Josh Nathan
Josh Nathan is a consultant with Released associates, a California-based healthcare management consulting firm. As delivery manager for Released associates, Josh Nathan oversees quality delivery for all consultant projects and maintains a systematic and evolving engagement management program to best support our consultants and clients.