Healthcare Cost Benefit Analysis

Document Type:Thesis

Subject Area:Management

Document 1

Cost Benefit Analysis (CBA) is the best tool to use when making a quick financial decision. Some of these decisions are like evaluation of change initiative, evaluating a new project and deciding whether to hire new personnel among others. It involves weighing up the costs of the project and benefits of the same project. A decision to go ahead with the project is dependent on the comparison of sum of the benefits and the cost of a given course of action. The results from the analysis are always indicated as the payback period. The analysis will be based majorly on the net present value which is computed automatically by the spreadsheet provided. Evaluation This organization is involved with the safety and welfare of its patients.

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As a private organization, they are committed to ensure that the organization offers quality services to clients as well as maximizing profits. The organization is committed to give timely delivery of services to its clients. It makes good use of its resources and uses whatever it has at its disposal to fulfill this global responsibility of restoring health to patients. Its operation is characterized by frequent mechanical breakdown which slows down entire process of admission. A proposal to management should include a recommendation to procure a new machine as a solution to this problem. The board of directors has to make a decision based on cost benefit analysis. The board requires a viable project. The market has been surveyed and it was found that a new machine costs $ 1 million.

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If a new operator is brought in, the person will be paid salary plus overhead cost. The overhead cost is estimated to be seventy-five percent of the salary. There will be also non-monetary costs that will be involved in this cost benefit analysis. All of these are well captured in the attached excel sheet. The NPV is computed at the interest rate of two percent. Cost Benefit Analysis The machine costs around $ 1,000,000 if purchased with cash. On other hand, the management can also decide to purchase the same machine on hire purchase for $1,200,000 for a period of five years. Of course Hire purchase is higher than cash price. The difference between the two plans of acquisition is $ 0. 2 million. This is why this cost is only incurred once within this period.

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Considering the skills of the current staff, one shall hire a special operator for this photocopier. In addition to this, the person will be trained again since he may not have handled this machine before. The training cost is approximated to be $2,352. There has been an annual salary of $ 97,500 allocated for the operator of this machinery. Just what was learned from mechanical damage of the previous machine, it will require an insurance agency to cover this risk. The cost is therefore estimated to be $2160 yearly. There are other hidden charges that are likely to come along with this machinery. This cost may include expansion of floor space so as accommodate this new space. This has not been factored into the computation because it will likely be relocated to a bigger room within the organization.

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It is highly effective hence it will replace all the machines that are in use and perform this task. This will imply that the operators will be no longer required. They will be replaced with one operator who will operate the new machine. Therefore labor costs will also be reduced as well since only one operator will be in use. This will be also one of the factors that will lead to increase in revenue collected. The net present value of the benefit is greater than the net present value of the cost. This is why there is a positive value for the net benefit. The implication of this is that the project is viable. The production manager will be the one to advise the board of directors to consider buying a new project.

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