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Building Small Hospital Report

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Updated: Jun 14th, 2019

Executive Summary

The purpose of this report is to elucidate the factors that would contribute to the successful opening of a new hospital. The report begins with a brief introduction about the medical science industry. The report then addresses the rationale of the proposed change plan and why the same is necessary.

The next part of the report addresses ‘who would be benefitted’ by this project and the proposal is also analyzed financially in the subsequent sections. The budget forms one of the main parts of this report. The report concludes with a brief discussion of the identified risks and the importance of change management in this particular proposed project.

Introduction

Medication is required by every individual at certain points in their respective lives, either for sustenance of life or prevention of death. The sections of this report address a proposal of a new hospital along with a detailed discussion of the budgetary implications for the same.

Everything required to set up a new venture of a hospital has been put in writing so that the relevant parties have a clear understanding of the objectives and the steps that are required to initiate a project of building up a new hospital.

The case for Change

Need of the Intervention

At present, there is a lack of sufficient medical facilities in the city in question. This has been due to a historical lack of funding for the health sector and increasing pressures of over population on the existing hospital system.

The program will change the situation by providing another hospital to reduce pressure on existing hospitals and providing better quality healthcare for patient in the area. This proposal addresses the government policy issue of providing better quality health care for all members of the community American Hospital Association (2012).

Key Benefits

The key anticipated benefits will be that the new hospital will reduce the amount of pressure that is currently on existing hospitals, therefore, increasing the quality of treatments that will be available to all patients in the city in question.

Parties Benefitted

The community will benefit from having more hospitals and increased quality of service for all hospital treatment. This will be expected to increase the average life expectancy of the community in the long term. Doctors and nurses will benefit as the traffic to hospitals will be reduced reducing their workloads.

As soon as the new hospital is operational, doctors and nurses will have their workloads reduced. The government will benefit by having one of their key election promises fulfilled. This is beneficial to the government in the medium term because it increases their chance of re-election (Davis, 1972).

Involvement of the Stakeholders

The stakeholder is someone who can affect or be affected by the new hospital project. For the purpose of this project, stakeholder engagement includes, but is not limited to, community engagement.

It is important to have stakeholder engagement captured in the budget to analyze the expenses on the hospital. Increases stakeholder support for the hospital, the same, improves the capacity for community members and partner organizations to fulfill key roles and responsibilities successfully in the hospital.

For example, the members of the community have been engaged by a communications program that highlights the advantages of the new hospital project. The result of this communication plan was that the new hospital project has overwhelming support from the community. Stakeholders are people who have an interest in the development.

They may be the people who provide the existing service, the people who will refer patients to the service, people who will be asked to cover the default situation if the proposed service does not proceed, people who will fund the service, people who will benefit by not funding the existing service, clients/patients of the service, personnel in the existing service, staff who may work in the new service.

It is also important that while there may be an extensive stakeholder analysis in a real proposal, the assignment is limited by a word limit and hence elucidates a brief discussion about the stakeholders, Smith, 2005).

Analysis of the proposal

Objectives

The objective of the hospital project is the following:

The construction of the new hospital will be completed by December 2016. The hospital will be fully operational by July 2017. The hospital will have the capacity for 5000 patients (Schneider, 2008).

Consideration of the Alternatives

  1. The other alternatives that have been considered include
  2. Build Nothing
  3. Build 2 smaller hospitals in 2 different locations
  4. Build an extension to the existing hospital

Identification of the Involved Costs

The objective of the budget plan is to provide better facilities and also in terms of financial goals of the hospital, control costs, create awareness and to maintain statistical budget for future implementation. The following describes the capital expenditures that must be incurred for the construction of the hospital (Pencheon, 2006).

Capital Budget for Hospital Project

The following budget has been created based on the level of activity levels that have been estimated.

Capital Budget 2016
2016
Land $5,000,000.00
Construction Costs $120,000,000.00
Ambulances $2,000,000.00
Medical Equipment $50,000,000.00
Furniture $4,003,002.00
Fixtures and Fittings $20,203,040.00
Total Capital Expenditure $201,206,042.00

Activity Budget for Hospital Project

The following is the estimated amount of patients to be treated at the new facilities in the hospital. This has been divided into X-rays, surgery and orthopedics

Annual budget for treating patients
Sales Price
per treatment
Estimated
patients per year
Total revenue
from treatment
X rays $3,000 10000 $30,000,000
Surgery $30,000 1000 $30,000,000
Orthopaedics $40,000 2000 $80,000,000
Total sales $140,000,000

(White, 1991)

Cost Analysis of Hospital Project

Annual budget for operating expense for X-rays
Unit of activity per year Unit of activity cost Budgeted activity per year
Electricity (Variable Cost) Days hospital open $500 per treatment 10000 $5,000,000
Gas (Variable Cost) Days hospital open $700 per treatment 10000 $7,000,000
Water (Variable Cost) Days hospital open $400 per treatment 10000 $4,000,000
Maintenance Expense (Variable Cost) Days hospital open $360 per treatment 10000 $360,000
Rent (Fixed Cost) N/A $100,000
Medical Supplies (Variable) Patients Treated 20 per treatment 10000 $40,000
Total operating costs $16,500,000
Annual budget for hospital employees (Variable Cost)
Treatments Rate per treatment Yearly Salary expense
Doctor salary (Variable) 10000 $300 $3,000,000.00
Nurse salary (Variable) 10000 $200 $2,000,000.00
Orderly salary (Variable) 10000 $100 $1,000,000.00
Total salary expense for X-rays $6,000,000.00
(Schneider,2008)
Annual budget for operating expense for Surgical Department
Unit of activity per year Unit of activity cost Budgeted activity per year
Electricity (Variable Cost) Days hospital open $500 per treatment 1000 $500,000
Gas (Variable Cost) Days hospital open $700 per treatment 1000 $700,000
Water (Variable Cost) Days hospital open $400 per treatment 1000 $400,000
Maintenance Expense (Variable Cost) Days hospital open $360 per treatment 1000 $360,000
Rent (Fixed Cost) N/A $100,000
Medical Supplies (Variable) Patients Treated $20 1000 $1,000,000
Total operating costs $3,060,000
Annual budget for surgical employees (Variable Cost)
Treatments Rate per treatment Yearly Salary expense
Doctor salary (Variable) 1000 $300 $300,000.00
Nurse salary (Variable) 1000 $200 $200,000.00
Orderly salary (Variable) 1000 $100 $100,000.00
Total salary expense for surgery $600,000.00
Annual budget for operating expense for orthopedics
Unit of activity per year Unit of activity cost Budgeted activity per year
Electricity (Variable Cost) Days hospital open $500 per treatment 2000 $1,000,000
Gas (Variable Cost) Days hospital open $700 per treatment 2000 $1,400,000
Water (Variable Cost) Days hospital open $400 per treatment 2000 $800,000
Maintenance Expense (Variable Cost) Days hospital open $360 per treatment 2000 $720,000
Rent (Fixed Cost) N/A $100,000
Medical Supplies (Variable) Patients Treated $20 2000 $40,000
Total operating costs $4,060,000
Annual budget for hospital employees (Variable Cost)
Treatments Rate per treatment Yearly Salary expense
Doctor salary (Variable) 2000 $300 $600,000.00
Nurse salary (Variable) 2000 $200 $400,000.00
Orderly salary (Variable) 2000 $100 $200,000.00
Total salary expense for orthopaedics $1,200,000.00
Total expenses for all departments $171,420,000.00

Budgeted Income Statements

The following gives the budgeted income statements based on the information provided from the departmental totals

Budgeted Income Statement for the next 5 years
2015 2016 2017 2018 2019
Revenue $140,000,000 $154,000,000.0 $169,400,000.0 $186,340,000.0 $204,974,000.0
Operating expenses
Electricity (Variable Cost) $6,500,000 $7,150,000.0 $7,865,000.0 $8,651,500.0 $9,516,650.0
Gas (Variable Cost) $9,100,000 $10,010,000.0 $11,011,000.0 $12,112,100.0 $13,323,310.0
Water (Variable Cost) $5,200,000 $5,720,000.0 $6,292,000.0 $6,921,200.0 $7,613,320.0
Maintenance Expense (Variable Cost) $1,440,000 $1,584,000.0 $1,742,400.0 $1,916,640.0 $2,108,304.0
Rent (Fixed Cost) $300,000 $330,000.0 $363,000.0 $399,300.0 $439,230.0
Medical Supplies (Variable) $1,080,000 $1,188,000.0 $1,306,800.0 $1,437,480.0 $1,581,228.0
Wages (fixed Cost) $7,800,000 $8,580,000.0 $9,438,000.0 $10,381,800.0 $11,419,980.0
Total expenses $31,420,000 $34,562,000.0 $38,018,200.0 $41,820,020.0 $46,002,022.0
Operating profit $108,580,000 $119,438,000.0 $131,381,800.0 $144,519,980.0 $158,971,978.0

(Willis, 2008)

Break Even Analysis

The following provides a break even analysis of the three different services

Break Even For X – rays
Sales price $3,000
Variable Costs
Electricity (Variable Cost) $500
Gas (Variable Cost) $700
Water (Variable Cost) $400
Maintenance Expense (Variable Cost) $360
Doctor salary (Variable) $300
Nurse salary (Variable) $200
Orderly salary (Variable) $100
Total Variable Costs $2,560
Fixed costs
Rent $100,000
Break Even For X-rays 227.2727273 per year

Break even = fixed costs / (Sales – variable Cost) = 100000 / (3000-2560) = 227.27 x rays per year.

Break Even For Surgery
Sales price $30,000
Variable Costs
Electricity (Variable Cost) $500
Gas (Variable Cost) $700
Water (Variable Cost) $400
Maintenance Expense (Variable Cost) $360
Doctor salary (Variable) $300
Nurse salary (Variable) $200
Orderly salary (Variable) $100
Total Variable Costs $2,560
Fixed costs
Rent $100,000
Break Even For X-rays 3.644314869 Per year

Break even = fixed costs / (Sales – variable Cost) = 100000/ (30000-2560) = 3.64 surgeries per year.

Break Even For Orthopaedics
Sales price $40,000
Variable Costs
Electricity (Variable Cost) $500
Gas (Variable Cost) $700
Water (Variable Cost) $400
Maintenance Expense (Variable Cost) $360
Doctor salary (Variable) $300
Nurse salary (Variable) $200
Orderly salary (Variable) $100
Total Variable Costs $2,560
Fixed costs
Rent $100,000
Break Even For X-rays 2.670940171

Break even = fixed costs / (Sales – variable Cost) = 100000/ (40000-2560) = 2.67 orthopedic treatments per year.

Non quantifiable factors

One of the main factors that need to be considered is the change in the legal system of the country. The stakeholders must keep an active watch about the changes in the legal factors that might directly or indirectly affect the hospital. Also, a change in the attitudes of the general masses is important as one of the objectives is to create positive awareness about the hospital.

Assess the benefits

The benefits of this proposed project is likely to benefit the community and the common man of Australia. Considering the ageing population and baby boomers, it will also boost the medical environment in the country. As far as the long term goals are concerned, the hospital can target the areas of the world, where medical science is not too active to benefit those who need it the most (Sanderson, 2006).

Risks

Introduction

The risks involved is certainly about hiring of trusted and credible personnel as this is a new project and is likely to attract new job seekers. Also, the volatile political, social, technological and legal environment is an inherent risk as changes in them is likely to affect the proposed plan immensely.

Impact of the risks

The management would keep an additional back up of financial resources to overcome unforeseen circumstances, should they occur. Networking with key people in the political arena is also vital to get important information before hand so that suitable changes can be made to the existing proposed plan (McCosh, 1969).

How the Service will be managed

Describe the governance arrangements for the project

Governance arrangements for the project are strategic imperatives. The fact that the wide array of stakeholders includes persons under influence from the government, it is necessary to seek the approval of the local government. Influence from the government originates from the need to fulfill statutory requirements, considering that there are standards of operation for the health care facility.

In addition to providing a furnished hall for use, the local government has also availed sanitation amenities such as water and a drainage system. Additional assistance will originate from the use of the residents as workforce and employees in the health facility, thereby providing sufficient labor for running the facility.

Technical standards to be addressed

For this facility, it is important to have sufficient space to ensure that overcrowding does not compromise the ability of patients and staff to work. Sufficient lighting should be catered for during the renovations, considering that the building was not originally constructed for hospital use.

In addition, the application of safety standards such as seclusion of flammable and dangerous substances should be done, with such materials handled with sufficient care. Technical standards specific to the objectives of the entity include systems for booking in-patients and management of outpatients, operational standards to protect the medical staff from physical and psychological injury during the performance of their duties.

Key steps in Implementation of the proposal

The implementation stage is the crest of success for any project. It is necessary for efforts to be directed towards the following steps in order to ensure that objectives are achieved.

  • Statutory approval from the relevant government and local authorities
  • Approval and authorization from all stakeholders
  • Acquisition of a refurbished hall
  • Acquisition of insurance, heating, fittings and furnishings to make the hall prime for use
  • Acquisition of equipment and materials for primary and auxiliary functions
  • Acquisition of the necessary workforce,
  • Dissemination of information regarding the categories of services on offer to the society

Change Management

Change management is an ongoing process aimed at aligning an organization with changes in the internal and external environment. As the service manager at the facility, it is my role to oversee the changeover process. First, the steps outlined in the proposal have to be communicated to all the stakeholders with clear indication of the timing of implementation.

Although resources are limited, the need to ensure operational standards of the facility take priority, and the need to scale up the operations later might arise. Once the refurbishing is done, the hall will be handed over to the employees who will be sourced from the residents in the location.

How the risks identified above will be managed

The risk schedule shown hereunder presents the risk exposures as measured by the NSW Treasury (2008). The risk exposures are measured depending on the consequences of the perils occurring against the likelihood of occurrence. The risk exposures are thus categorized as “Very high, high, moderate and low”. The specific measures which should be taken include:

  • Educational and sensitization programs to promote peaceful living
  • Risk assessment and occupational health surveys to avoid injury during work hours
  • Face to face consultation and talks to identify factors propagating risk factors such as violence
  • Counseling on ways of prevention and avoidance of stress and other psychological disorders
  • Organization-wide sensitization and educational programs
  • Isolation and quarantine of some individuals
  • Acquisition of security experts and personnel such as gatekeepers and access to law enforcement personnel incase chaos escalate
Risk exposure

Source: NSW Treasury (2008) Guidelines for Capital Business Cases page 38

Performance Measures

The success of any project can be determined by the fact that how closely the reality matches the plan. Though, there is ought to be some amount of deviation from the proposal, a high degree of deviation can indicate possibilities of project not going in the right direction as expected.

The stakeholders and the senior management must take an active initiative in bringing about concrete control measures to navigate the activities that lead to the ultimate completion of the proposed plan. They must also not be too reluctant on showing a certain degree of flexibility which allows enough room for unforeseen circumstances which might be beyond their control.

If the hospital is able to stick to the expected budget and are able to crack the first 50% revenue in 50% time, that would certainly indicate bright prospective for the plan. Also, the reaction and the cooperation of the existing personnel is vital in deciding the fate of the proposed project (Baligh, 1969).

Change Management

The plan that is to be implemented should be well communicated to all the relevant stakeholders and the concerned personnel to avoid any possible ambiguity. One of the main reasons for the failure of a newly implemented plan is the lack of understanding of the objectives of the plan that is proposed.

This also acts as one of the main attributes of a change management program The existing staff members should be encourages to show a proactive approach to the proposed change program as the same is being done to ensure their own welfare as well as that of the community (Bruns, 1999).

References

American Hospital Association, (2012) Statement on the Financial Requirements of Health Care Institutions and Services. Chicago: AmericanHospitalAssociation

Bruns, W. J. and D. T. DeCoster (1999). Accounting and Its Behavioral Implications. New York: McGraw-Hill,

Baligh, H. H. and D. J. Laughhunn (1969).An economic and linear model of the hospital. HealthServ.Res. 4:293

McCosh, A. (1969). Computerized cost finding systems. Hospital Financial Management. 23:18 Nov.

Davis, K(1972). Economic theories of behavior in nonprofit, private hospitals. Econ. & Bus. Bull. 24:2

Kaitz, E. (1968). Pricing Policy and Cost Behavior in the Hospital Industry. Lexington,MA: Heath,.

Pencheon, D., Guest, C., Melzer, D., & Gray, J. (2006). Oxford Handbook of Public Health. Oxford: Oxford University Press.

Sanderson, C. & Gruen, R. (2006). Analytical Models for Decision Making. London: Open University.

Schneider, D., & David, L. (2008). Public Health: The Development of a Discipline. New Brunswick, NJ: Rutgers University Press.

Smith, S., Sinclair, D., Raine, R., & Reeves, B. (2005): Health Care Evaluation. London: Open University Press.

White, K. (1991). Healing the Schism: Epidemiology, Medicine, and The Public’s Health. NY: Springer-Verlag

Willis, E., & Reynolds, L. (2008). Understanding the Australian Health Care System. Sydney: Elsevier

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