Four Capital Requests, a $4.2M Envelope, and a Chiller That Cannot Be Spared
Facilities submits four capital requests totaling $5.85M against a $4.2M envelope approved by the finance committee. (1) Replace one of two 600-ton centrifugal chillers, 22 years old, running R-22: $1.65M, projected energy savings $135,000/year, maintenance savings $40,000/year, and it avoids a $180,000 overhaul already scheduled for year two. (2) Roof replacement over the ICU and sterile core: $1.2M, with five active leaks, one of which entered the sterile core last month. (3) Nurse call replacement: $900K, 1998 vintage, parts sourced from resellers. (4) Infusion pump fleet: $1.4M. A fifth item, MRI replacement at $600,000, is being pushed by radiology. The building peak load is 1,050 tons. The computed facilities condition index is 0.19, and the finance committee has said it will not approve deficit spending.
1. Run the numbers on the chiller and tell the committee whether it is a financially justified project.
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On pure payback it is mediocre, and I would say so rather than overstate the case.
Simple payback on the stated savings: $1,650,000 ÷ ($135,000 + $40,000) = 9.7 years. Netting the avoided year-two overhaul, the effective investment is $1,470,000 over $175,000/year = 8.4 years. For a 20-25 year asset that is acceptable but not compelling, and it will not win against a roof leaking into a sterile core.
So the justification has to be capacity risk, and that argument is strong. Peak load is 1,050 tons against 1,200 tons installed, so the plant is N+1 by only 150 tons of margin. If the 22-year-old machine fails in July, the remaining 600 tons leaves a 450-ton shortfall - not a comfort problem but a decision about which clinical functions lose cooling. I would put a table in front of the committee: which loads can be shed (administrative, public areas), which cannot (ORs, imaging, pharmacy, data closets, ICU), and what a rental chiller and emergency electrical work would cost on 48 hours' notice. Rental plus temporary power for a summer month typically runs into six figures and is not capital.
My recommendation is to fund the chiller, but to justify it on avoided capacity loss and emergency procurement, with the energy savings as a secondary benefit - and to say plainly that the payback alone would not carry it.
2. Given the $4.2M ceiling, how do you sequence the portfolio and what do you tell the CEO who wants all five items funded?
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I would rank by consequence of failure, not by price or by who asked loudest, and I would show the ranking to the committee.
Fund now: the ICU/sterile core roof. A leak into a sterile core is an infection control and regulatory exposure with no engineering workaround; it is the only item on the list where inaction has an immediate patient harm pathway. Pair it with a temporary roof coating if the replacement cannot start before rainy season. Fund now: the chiller, on the capacity argument above, but structure it to keep the second machine serviceable one more budget cycle. Defer with an interim plan: nurse call. Twenty-five years old with reseller parts is a real risk, but a documented spares inventory, a service contract with a guaranteed response, and a wireless supplemental system can bridge one to two years. Give the committee the failure trigger that would force it forward. Defer: infusion pumps if the fleet's average age and failure rate do not support replacement this cycle; ask nursing for the biomedical failure log rather than approving on age. MRI: return to the operating or strategic budget - it is a revenue project, not a facilities condition project, and mixing the two destroys the credibility of the capital list.
To the CEO I would say: the envelope cannot hold all five, and approving all five means approving a list that will be cut by someone else later, on criteria none of us control. I would rather bring four prioritized items with written consequences of deferral and let the committee choose with the trade-offs visible.
3. In July, before any award, the older chiller fails catastrophically and a rental is required. What do you do and what governance should follow?
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First, stabilize: execute the rental and temporary power/pipe connections under whatever emergency procurement authority the policy allows, notify risk management and the CFO the same day, and begin load shedding to protect ORs, imaging, pharmacy, and clinical data spaces. Document every decision with times and authors - emergency spending without a contemporaneous rationale is what audit finds later.
Then run the actual failure as evidence rather than as an excuse: the failure confirms the capacity assessment, so the replacement moves from 'recommended' to 'required,' and the finance committee should vote on a formal reallocation, not on an informal overrun. If the $4.2M envelope is fully committed, the choices are reallocating from the lowest-ranked deferred item, drawing on the capital contingency if one exists, or approving a mid-year amendment - in that order of preference. Deficit spending as a workaround without a recorded vote is the one option I would refuse.
Process fix afterward: the deferred-item list needed a written failure trigger and a monitoring plan, and a 22-year-old R-22 machine with two overhauls was a known single point of failure. I would add a standing quarterly review of the top three deferred capital risks so the next failure is anticipated instead of discovered in July.