\"From my experience, companies have to perform breakeven analysis anytime they
ID: 2440209 • Letter: #
Question
"From my experience, companies have to perform breakeven analysis anytime they are upgrading to the latest technology. This involves analyzing the capital investment (soft training and hard costs) and changes in operating costs (fuel, maintenance, etc)." -VP at StandardAero Limited Canada (degree in Mechanical Engineering, MBA)"
You need to choose a “cool” technology on your discretion.
Examples:
Buying a Tesla
Upgrading from a gas furnace to a heat pump
Installing an assembly robot
Wind farm vs gas power plant
Prepare a report with the benefits and costs. Make the report visually appealing (i.e. use pictures, graphs, color, etc).
Report content:-
1) Summary of upgrade
2) Identification of key factors in benefit/cost analysis
3) State key assumptions based on some research (these will be estimates)
4) Perform benefit/cost analysis
5) Final recommendation on performing the upgrade
6) Sources/references
Explanation / Answer
Most of the companies are confronted with a situation, where they need to decide whether to outsource a certain activity or to carry it in-house.Hospitals come across the same situation where they need to take a call whether to outsource the biomedical waste management services or to carry it in-house. This decision is generally being taken by doing cost-benefit analysis.
There are certain benefits of outsourcing the activity :
Economies of scale : The third party carries out process on a large scale and thus reduces the average cost of operations.
Reduces the risk : As the activity is carried out by an expert, so it reduces the risk.
Focus on core process : Firm can focus on the core process as the supporting activity of waste management is carried out by the third party.
Analysis is carried out on two hospitals : Sanjay Gandhi Post Graduate Institute of Medical Sciences Hospitals which has outsourced the activity of Biomedical waste management to third party and Shalimar Hospital, Lucknow which carries out the activity of Biomedical waste management in-house.
Total cost incurred in purchasing the waste management equipments such as Autoclave, Chemicals, Microwave, Incinerator etc. is calculated and the cost to carry out the waste management activity in-house for Shalimar Hospitals is calculated. The comparison is being carried out with the outsourcing cost incurred by Sanjay Gandhi Hospital for a 600-bed hospital and cost of treatment per bed per day is calculated.
Cost-Benefit / Containment Analysis of Hospital Waste Managementfor 10 yr period (for a 600-bed hospital):
Shalimar Hospital
(In-house operations)
In INR
Sanjay Gandhi Post-Graduate Institute of Medical Science Hospital
(Outsourced operations)
In INR
Cost of consumables
748000
Maximum Charge Slab @ INR 17.50 per occupied bed per day
(Calculated based on 80% hospital-bed occupancy rate and for 150 km distance travelled from Hospital to Third-party location or INR 5000 whichever is higher)
17.5*480*150
1260000
Cost of Vehicles (annualized having 10 years life in calculation)
60000
Cost of Autoclaves and other Equipments
4,08000
Manpower
13000
Electricity and Other Expenditure
21000
Annual Maintenance of Autoclaves and Vehicles @5% of Cost
110000
Maximum Charge Slab INR 19.50 occupied per day (Calculated 108000 on 80% Bed Occupancy)
108000
Total Expenditure
1468000
Thus there is a profit of 2,08000 if the activity of Biomedical waste management is outsourced to the third party.
Thus it is justifiable for the hospitals to outsource the activity of Biomedical Waste Management to the third party.
Moreover, certain additional costs are incurred. Searching Cost, Bargaining cost, Policing and Enforcement cost which is applied in case of Sanjay Gandhi Post Graduate Institute of Medical Sciences Hospitals, as they need to search for the third party, bargain with them and enforce them to follow the policies. This costs can be minimized by maintaing long term relationship with the third party and outsource the work to the same party over and over again.
References
Shalimar Hospital
(In-house operations)
In INR
Sanjay Gandhi Post-Graduate Institute of Medical Science Hospital
(Outsourced operations)
In INR
Cost of consumables
748000
Maximum Charge Slab @ INR 17.50 per occupied bed per day
(Calculated based on 80% hospital-bed occupancy rate and for 150 km distance travelled from Hospital to Third-party location or INR 5000 whichever is higher)
17.5*480*150
1260000
Cost of Vehicles (annualized having 10 years life in calculation)
60000
Cost of Autoclaves and other Equipments
4,08000
Manpower
13000
Electricity and Other Expenditure
21000
Annual Maintenance of Autoclaves and Vehicles @5% of Cost
110000
Maximum Charge Slab INR 19.50 occupied per day (Calculated 108000 on 80% Bed Occupancy)
108000
Total Expenditure
1468000
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