Risk analysis helps Hershey children's hospital planning move forward

Before laying the first brick of a new state-of-the-art children’s hospital, the Penn State Milton S. Hershey Medical Center had to pay extra special attention to the many possible risks that could affect its new, major investment.

By identifying the many “what ifs” of building a $200 million facility and measuring the impact of each possibility, hospital leaders were able to make better decisions on whether to continue specific plans. It also helped in developing a list of Plan Bs to fall back on if any of the possibilities came true.

“We have always considered risks, but we never had a formal process,” said Wayne Zolko, associate vice president for Finance and Business/controller College of Medicine. “It was a lot of work, but it went very well. We got a good sense of where our risks were and it allowed us to think about what we’d do if a risk were to materialize.”

The children’s hospital, which if approved could be completed as early as summer 2011, will be designed to focus on the health care needs of children and their families. However, before any of these services can happen, a tremendous amount of planning and foresight by many individuals must happen.

From marketing to finance, Zolko said about 40 people from different areas within the organization were consulted to help identify the risks that could affect the hospital’s progress. Opinions were gathered from nurses, administrators, physicians and many other medical and non-medical professionals.

What came out of those discussions was a list of possibilities, ranked by financial impact and probability of occurrence and with that list the hospital was able to properly go forward better prepared for certain risks or decide to avoid some risks all together.

“By approaching planning this way, Hershey was better prepared,” University Risk Officer Gary Langsdale said. “It also gave them more confidence in their decision making and presentation of the project.”

The medical center hired an independent firm to objectively assess the list of risks.

“They were able to run financial projections and challenge us on our risks,” Zolko said. “They were able to bring their expertise to help us assess the risks. Along with the people involved in our evaluations, we covered a lot of ground and identified a lot of risks.”

Some operational risks included the possibility of a nursing shortage.

“Will we be able to recruit all the nurses we need,” Zolko asked. “If we can, will we need to pay a premium to bring nurses to the area? Will we be able to do this?”

Hospital officials also needed to look at the campus infrastructure to be sure that it could support a new hospital building. Could the campus utilities provide enough power, water and heating/cooling? Was there enough capacity to handle outgoing waste? These are questions that Zolko and the planning committee had to answer and plan for.

“We also face potential strategic risks,” Zolko said. “What happens if we build it and the patients don’t come? We needed to look at market trends and demographics to be sure that people would need our services.”

Some financial risks included rising utility costs and interest rate fluctuations — two issues that have occurred and could get worse.

“What if we start construction and the financial markets go kaplooey?” Zolko said. “That’s a risk that we seem to be experiencing. We did the assessment and we are well ahead of the game as a result of that planning.”

The hospital is able to handle the erratic costs of the financial market because it is prepared and has a plan to lessen the impact.

“We developed alternative plans to address many of the contingencies that could develop,” Zolko said. “We will continue to refine our plans in many key areas of risk.”

Still in the architectural design stage, Zolko added that the hospital can move forward assertively knowing it is prepared for any number of risks that may come its way in the uncertain future.

“The process gave everybody a better sense of what kind of risks we are taking on,” he said. “It was good that we did it and it should be done for all major projects at the University.”

For more information on risk awareness and risk assessment at the University, visit http://www.controller.psu.edu/Divisions/RiskManagement/. Risk-related articles will be compiled on this site for further reading on the topic.

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Last Updated March 19, 2009