2.4 Analytics – Networks/Locations Tutorial Questions
WEIGHTED SCORING (OR FACTOR RATING)
The clinic administrator is evaluating locations to open a new central supply chain location to manage all materials needed in various clinics, as well as customer service for scheduling, insurance, and other patient needs for their major healthcare network. A project team was formed that identified the following priorities for this location decision. Then available locations were researched and rated for each of the factors prioritized. The team built the following decision matrix:
Factors
Weight
Santa Maria
Springfield
London
Economy
.25
6
9
4
Land
.15
9
7
5
Labo
.15
4
5
3
Technology
.15
3
2
9
Taxes
.20
7
3
1
Construction
.10
4
8
6
BREAK-EVEN ANALYSIS QUESTION
A medical group has evaluated their strategy and is planning to expand their network. They have identified three different potential regions to target for this expansion project. The fixed and variable costs for these three potential locations are calculated to be:
Region
Fixed Cost per Yea
Variable Cost per Custome
1
$400,000
$10
2
$600,000
$ 8
3
$900,000
$ 5
Which location is best for serving 50,000 patients?
If average revenue per patient for this medical practice is $500 per patient, what is the minimum number of patients this new location needs to serve to
eak-even?
When does Region 3 become the optimal location?
CENTER OF GRAVITY QUESTION
The medical group further researches the market and determines that projected demand is more than 100,000 patients to be served each year due to growing medical needs. Using the site location information from the prior example, Region 3 is best to target for this expansion project. Within this region, the medical group cu
ently has several medical specialists affiliated to their network. To grow that market the medical group has determined that they want to locate a central urgent care facility. In this manner further patient refe
als from the urgent care facility will feed into their existing medical specialists in that region, as well as help the medical group to determine what further medical specialists may be needed to add to that region in the future. Cu
ent demand or refe
al information for each of the medical specialists is collected along with their specific location on a map:
Medical Specialists
Number of Refe
als/Yea
Map Coordinates (x,y)
Mental Health
100
9, 3
Cardiology
20
4, 8
Family
150
5, 8
Neurology
30
7, 4
Obstetrics & Gynecology
10
2, 6
Oncology
40
3, 7
Pediatrics
50
6, 5
Near what map coordinate should a central urgent care facility be located?
DISCOUNTED CASH FLOWS EXAMPLE
Using that central location from the prior example, the medical group finds an available building for lease in that area. The medical group needs to decide whether to lease that available space for the urgent care facility over the next three years or purchase land and build a building in that area. Using that patient demand of 100,000 per year and an average revenue rate of $500 per patient, they calculate the annual revenue to be $50,000,000. The medical group estimates they need 100,000 sq. ft. and to lease that available space it will cost $20 per sq. ft. To purchase land and build a similar size building at that location it will cost $150 per sq. ft. The discount rate to be used is 5%.
Should the medical group lease the available building?
DECISION TREE EXAMPLE
The medical group is rather uncertain about the economy and is considering whether to hire full-time or part-time employees for their new urgent care facility. Additionally they are concerned that patient demand at the urgent care facility may be much lower than 100,000 patients per year as originally projected. After further research, the medical group found that the average urgent care facility in the U.S. has less than 20,000 patients per year. Additionally as previously evaluated, leasing is cheaper. Thus to support further flexibility in this network, the medical group wants to evaluate this staffing decisions. While this site is in a large metropolitan area, consider these and other uncertainties, hiring part-time workers while demand or the market grows may be best to match capacity needs in this new urgent care center. The medical group researched these different states further and calculated expected costs and probabilities for each state to be:
States of Nature
Alternatives
Low Demand (20,000/year)
Medium Demand (60,000/year)
High Demand (100,000/year)
Hire Full-time
$150,000
$350,000
$500,000
Hire Part-time
$100,000
$250,000
$400,000
Probabilities
.5
.3
.2
Using the expected monetary value or expected profit, what should the medical group do?
Draw a decision tree showing payoffs/costs and probabilities.
2 | Page(WHB)