1) How well is the hospital currently utilizing its bed? 90 beds x 7 days/ week = 630 beds available in a week 30 patients x 3 days x 5 days per week = 450 beds utilized 450 beds utilized / 630 availble beds = 71. 43% The hospital is currently utilizing 71. 43% of their beds, this is actually an ideal operating point. To increase its rate of utilization might decrease the service quality.

2) Develop a similar table to show the effects of adding operations on Saturday. (Assume that 30 operations would still be performed each day. How would this affect the utilization of the bed capacity? Is this capacity sufficient for the additonal patients? 90 beds x 7 days/ week = 630 beds available in a week 30 patients x 3 days x 6 days per week = 540 beds utilized 540 beds utilized / 630 beds available = 85. 71% Adding operations on Saturday will improved the utilization rate of beds from 71. 43% to 85. 71%. It is still sufficient; however, we might risk the service quality.

3) Now look at the effect of increasing the number of beds by 50%. How many operations could the hospital perform per day before running out of bed capacity? (Assume operations are performed five days per week, with the same number performed on each day). 90 beds x 1. 50 = 135 beds 135 beds x 7 days = 945 beds available in a week 945 beds / 3 days x 5 days in a week = 63 operations per day

The hospital could perform a maximum of 63 operations per day if the beds are increase by 50%. How well would the new resources be utilized relative to the current operation? 30 patients x 3 days x 5 days per week = 450 beds utilized 135 beds x 7 days = 945 beds available in a week 450 beds utilized / 945 beds available = 47. 62% With the current operation, the utilization rate would only be 47. 62% if the beds would be increased by 50%. If we would add additional beds, we also need to accept more patients to fully utilize the investment.

Could the hospital really perform this many operations? Why? (Hint: Look at the capacity of the 12 surgeons and the five operating rooms. ) Operating room maximum capacity: 8 operations (7:30- 4:00) (one operation per hour) x 5 operating rooms = 40 operations 12 surgeons x 4 operations per surgeon = 48 operations 7 assitant surgeons x 4 operations per surgeon = 28 operations

The case states that surgeons operate on 4 patients per. If surgeons means Prev Page all the full time surgeons only, we have a maximum of 40 possible operations; thus the 30 operations per day is feasible. However, if we would include the part-time surgeons as surgeons that operates 4 patients per day, only 28 operations is feasible.

4) Although financial data are sketchy, an estimate from a construction company indicates that adding bed capacity would cost about $100,000 per bed. In addition, the rate charged for the hernia surgery varies between about $900 and $2,000, with an average rate of $1,300 per operation. Due to all uncertainties in government health care legislation, Shouldice would like to justify an expansion within a five-year time period. Option 1 – Add 50% more beds Investment cost in adding 50% more beds : 45 beds x $100,000 = $4,500,000 Revenue: Maximum of 40 operations per days (maximum capacity for 5 operating rooms) x 5 days per week x 52 weeks per year = maximum 10,400 operations per year 10,400 operations x $1,300 = $13,520,000

Surgeon cost: (Assuming $600 for the full-time surgeon, payment for assistant surgeon is not given /included. ) 10,400 operations x $600 = $ 6,240,000 Maximum Annual Profit = $7,280,000 For five years = $36,400,000 Five years profit less the 45 beds investment = $31,900,000 Option 2 – Add 1 more operating day (Saturday) Revenue: Maximum of 40 operations per days (maximum capacity for 5 operating rooms) x 6 days per week x 52 weeks per year = maximum 12,480 operations per Prev Page year 12,480 operations x $1,300 = $16,224,000.

Surgeon cost: (Assuming $600 for the full-time surgeon, payment for assistant surgeon is not given /included. ) 12,480 operations x $600 = $ 7,488,000 Annual Profit = $8,736,000 Five years profit = $43,680,000 Recommendation: “With 90 beds and the current operation, the hospital is doing well. Their existing system and reputation have already set them apart as a market leader and has proven to be a profitable setup. However, there is still an unmet demand. Option 1 to add 50% more beds may not be beneficial if we don’t also increase operation.

Increasing the number of bed by 50% would not be advisable unless they would add more surgeons and operating rooms because the existing operating rooms capacity and number of surgeons could not fill an addition of 45 beds. They would be operating the surgery rooms at over capacity. Option 2 that involves adding one more day of operation is also valid as it would utilize resource capacity. However, adding a Saturday can also have a negative impact on the work force that drive down the service quality that gives the hospital a competitive advantage. This could be offset by hiring addition staff and consequently adding operating rooms.

Adding more surgeons only and thinking they could extend operating hours beyond 4:00pm to fully utilized operating rooms is not a good option as this may disturb the scheduled dinner at 6:00pm. This get-together by patients is a major factor that contributes to the hospital’s success. ” Between the two options given, option 2 to add one more operating day is more profitable. I would recommend combining the two options plus hiring more staffs and adding more operating rooms. However, due to limited information given by the case. We can’t compute if this option is indeed more profitable Prev Page than the rest.