Defense Health Agency Future Capital Funding

Transcription

1 Defense Health Agency Future Capital Funding March 27,

2 Future Capital Funding Programming/Funding Models Support enterprise decision making for facilities investments Logical approach/common strategy Investments justified by condition/requirements Adjust top lines to reflect enterprise decision risk before programming/decrement contingencies 2

3 Defense Health Agency Value Proposition Creating a world-class environment of care, operated by Ready Medics to ensure a Medically Ready Force, by balancing requirements and resources to optimize MHS facility infrastructure and lifecycle management Establish Asset Visibility Overall Facility Portfolio Management & Oversight Standardize processes to reduce variance and cost Program and administer MilCon budget Administer Research & Innovation Efforts Reduce Cost of O&M Program and administer O&M budget Manage and execute facility operations Manage and execute SRM program World Class Environment of Care Optimize Capital Allocation Facility Requirements Planning Maintain Planning Criteria & World-Class Toolkit Analysis of Facility Solutions Prioritize MilCon program Reduce excess square footage Enhance Design, Construction & Activation Processes Design & Construction prgm management/oversight Program and execute IO&T budget Maintain UFC Standardize Agent project reporting & oversight 3

4 OSD (AT&L) issued policy to standardized Facility Condition Indexes (FCI) for DoD Assets Execute Based upon priorities and availability, fund and execute. Assess Determine Condition of Asset Portfolio Prioritize Invest in requirements that ensure mission readiness and maximize ROI Analyze Compare current condition against mission requirements BUILDER Facility Management Cycle 4

5 Hierarchy 5

6 DEFINITIONS 6

7 Department of Defense Terms Sustainment the maintenance and repair activities necessary to keep an inventory of facilities in good working order. It includes regularly scheduled adjustments and inspections, preventive maintenance tasks, and emergency response and service calls for minor repairs. It also includes major repairs or replacement of facility components that are expected to occur periodically throughout the life cycle of facilities. It does not include environmental compliance costs, facility leases or other tasks associated with facilities operations such as custodial services, grounds services, waste disposal, and utilities. Source: DoD Financial Management Regulation (June 2007). Vol 2B, Ch 8 7

8 Department of Defense Terms Restoration the restoration of real property to such a condition that it may be used for its designated purpose. Restoration includes repair or replacement work to restore facilities damaged by inadequate sustainment, excessive age, natural disaster, fire, accident, or other causes. Modernization the alteration or replacement of facilities solely to implement new or higher standards, to accommodate new functions, or to replace building components that typically last more than 50 years such as framework or foundation. Source: DoD Financial Management Regulation (June 2007). Vol 2B, Ch 8 8

9 Plant Replacement Value - PRV Plant replacement value represents the cost to design and construct a notional facility to current standards to replace an existing facility with the same functions and capacity at the same location. Plant Replacement Value = Facility Quantity x Replacement Unit Cost x Area Cost Factor x Historical Records Adjustment x Planning and Design Factor x Supervision Inspection and Overhead Factor x Contingency factor 9

10 MHS Funding Strategy Sustainment, Restoration, and Modernization Funds every day maintenance Of Inadequate Facilities Of Adequate Facilities & Acts of God all Facilities DOD UFC (aka FSM Model) Based on industry standards DOD Condition Based Assessment and Investment Strategy No DOD Standard MHS Methodology by % of Bag B requirement No DOD Standard MHS Methodology by % of Bag B requirement MHS aligns to OSD for BAG B but also standardizes MHS approach to BAG C and D 10

11 DoD Facility Condition Index (FCI) 11

12 Condition Adequate Standards Defined by Condition Index and Facility Type 100 Good 90 Fair 80 Poor Asset Condition Floor Asset Condition Floor Medical Centers & Hospitals, Dispensaries, & Clinics, Dental Clinics, Medical Research & Bio-safety Labs, and supporting utilities/facilities Benchmark Kaiser: 95 inpatient /90 out patient Medical Support asset condition floor, Morgue, Medical Warehouse, Ambulance Shelter, Wounded Warrior housing Asset Condition Floor 60 Remaining inventory DOD S FLOOR FCI < 60 Failing/Failed 12

13 Service Life and Condition Relationship Uses Weibull probability distribution function to model lifecycle condition and estimated time to failure based off of collected inspection information. Failure in year t Failure before year t Performs past year t

14 Model Characteristics FORMULA: CI = A x (100/CI t ) -( t/β) α Where: CI = Predicted Condition A = Initial Condition CI (usually 100) CI t = CI terminal value (usually 40) t = time, as a percentage of expected service life β = the adjusted service life parameter α = degradation parameter

15 Lifecycle Curve 100 Construction/Installation CONDITION Failure 20 Expected SL = TIME 15

16 Risk of Failure 100 CONDITION Minimal Failure Risk (~5%) High Failure Risk (~60%) Guaranteed Failure (~95%) TIME 16

17 Direct Rating Values 17

18 Inspection Data 100 Inspection 1 Inspection 2 80 Inspection 3 Initial Condition Trend CI Adjusted Condition Trend Adjusted Service Life 20 SL = 17 years Year

19 Rollup from Section to Building 19

20 Return On Investment (ROI) ROI = (Net profit net losses)/initial investment Repair The curve represents the projected deterioration of the asset if major repair is accomplished at some point. The repair is considered significant enough to improve the condition index of the asset to 95 out of 100. In addition to an improvement in condition, this results in some extended life for the asset. This additional service life, brought on by repair, defers the capital cost of replacement due from impending failure. Therefore, the monetary benefit of a repair can be calculated by taking the additional service life generated by the repair multiplied by the amortized expenditure of component replacement. This monetary benefit, divided by the cost of the repair, determined the return on the investment (ROI). The repair of a component also has benefits due to improved operational performance and reliability which are more difficult to quantify in monetary terms. 20

21 Return on Investment 10 September 2013 Pre-decisional FOUO 21

22 Return on Investment 22

23 Return on Investment 23

24 CAPITAL INVESTMENTS FUNDING 24

25 DHA BUILDER Sustainment Overview Purpose 1) Test BUILDER scenarios for eventual RM funds programming 2) Implement consistent work plan management Background Current RM model uses existing requirements in DHA s CAFM/CMMS, DMLSS-FM. Very limited forecasting ability. Each Service Medical Activity has unique DMLSS-FM business rules which makes true apples to apples comparisons difficult. DHA s goal is to manage BUILDER policy early in the sustainment cycle to prevent divergent business rule development. 25

26 DHA BUILDER Scenario Testing DHA has recently tested different enterprise BUILDER scenarios Goals Develop an effective DHA 7-year scenario for POM Tested several different scenarios Unconstrained Budget Constrained at the Service Level Constrained by zero Most effective for POM Develop a consistent work plan management model 26

27 Zero Funding Model DHA POM (7 years) $0 Funding 7E+09 6E+09 5E+09 Annual Backlog 4E+09 3E+09 2E+09 1E Total Building Cost $3,458,969$3,780,288$4,129,834$4,652,370$5,115,149$5,581,105 27

28 BACKLOG with Zero Funding $4,000,000,000 Total $3,500,000,000 $3,000,000,000 $2,500,000,000 $2,000,000,000 $1,500,000,000 $1,000,000,000 $500,000,000 $- Captured Backlog Total $336M Annually 28

29 Long Range Planning and Programming $4,000,000,000 DHA 7 Year BUILDER Scenario $3,500,000,000 12% $3,000,000,000 10% $2,500,000,000 8% $2,000,000,000 6% $1,500,000,000 $1,000,000,000 4% $500,000,000 2% $ Backlog DHA Budget % Backlog Reduction 0% 29

30 Work Items by System 30

31 Preparing Future Budget Requests Cumulative Work $ 3,452,222,300 $ 3,772,398,650 $ 4,123,742,100 $ 4,652,692,850 $ 5,117,020,000 $ 5,582,363,250 $ 6,080,295,000 Annual Increase $ 320,176,350 $ 351,343,450 $ 528,950,750 $ 464,327,150 $ 465,343,250 $ 497,931,750 A constrained by zero scenario is a useful way to calculate total facility requirements over several years. BUILDER assumes no funds are available and rolls all annual work into the following year. Allows calculations for forecasted annual work and cumulative totals. You can then model targeted backlog reduction and make adjustments annually. For example: Any amount of funding received above FY to FY change will reduce backlog. One RM programming methodology would be committing to reducing a percentage of backlog annually by funding that amount above the FY to FY Change. For example: DHA goal is 10% backlog reduction per year. FY18 POM request would be $665,398,580 $320,176,350 in FY18 work items + $345,222,230 in backlog reduction 31

32 QUESTIONS Contact Info: Roy Hirchak DHA Facilities

33 DoD Adopted Facility Condition Index Deferred Maintenance and Repair (DM&R) FCI = ( ) * 100 Plant Replacement Value (PRV) DM&R Total RM Funding = ( 1 + Required RM Activities % {( ) Year Buy Down X Failing Asset % + (Modernization Funding)} 33