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# Group 1: Ayes, Angustia, Chan, Co, Garcia, Macapinlac, Tumibay,

Vega
Class of Prof. Manuel Tenmatay
Shouldice Hospital A Cut Above
1. How well is the hospital currently utilizing its beds?

Monday
Tuesday
Wednesd
ay
Thursday
Friday
Saturday
Sunday
Total

30

30
60

30
30

30
90

30
30
30

90

30
30

30

30

30

30

90

60

30

Sunday

Saturday

Friday

Thursday

Wednesday

Tuesday

Monday

## Using the formula: Capacity utilization rate = capacity used/best operating

level, these are the following beds used per day and per week.
Beds Required
Check-In
Day

30
30

Monday:60/90 = 66%
Tuesday: 90/90 = 100%
Wednesday: 90/90 = 100%
Thursday: 90/90 = 100%
Friday: 60/90 = 66%
Saturday: 30/90 = 33%
Sunday: 30/90 = 33%
Average capacity utilization rate per week: 71.43%
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 additional patients?

Monday
Tuesday
Wednesd
ay

30

30
30

30
30
30

30
30

30

Sunday

Saturday

Friday

Thursday

Wednesday

Tuesday

Monday

Beds Required
Check-In
Day

Thursday
Friday
Saturday
Sunday
Total

30
30*
30
90*

30

30
30*

30
90

90

90

60

60*

30*
30
60*

## Monday: 90/90 = 100% *

Tuesday: 90/90 = 100%
Wednesday: 90/90 = 100%
Thursday: 90/90 = 100%
Friday: 60/90 = 66%
Saturday: 60/90 = 66% *
Sunday: 60/90 = 66% *
Total: 85.71% *
* Changes due to effects of adding operations on Saturday.
Bed capacity would change on Monday, Saturday and Sunday. There
would be an increase in the bed capacity utilization from 66%, 33%, 33%
to 100%, 66%, 66%, respectively. Furthermore, the total bed capacity
utilization rate averaged in a week increased from 71.43% to
85.71% this is still within Haywood-Farmer and Nollets critical zone of
70100%. The hospitals capacity is sufficient to accommodate the
additional patients, however the capacity cushion is now lower at
16.67%.
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.) How well would the new resources be utilized relative to the
current operation? Could the hospital really perform this many
operations? Why? (Hint: Look at the capacity of the 12 surgeons
and the five operating rooms.)
By increasing the number of beds by 50%, the current 90-bed hospital will
be a 135-bed hospital. With this, the hospital can perform 45 operations
per day before running out of bed capacity, as seen because of the 100%
bed capacity utilization rate on Tuesday, Wednesday, and Thursday.

Monday
Tuesday
Wednesd

45

45
45

45
45
45

45
45

45

Sunday

Saturday

Friday

Thursday

Wednesday

Tuesday

Check-In
Day

Monday

Beds Required

ay
Thursday
Friday
Saturday
Sunday
Total

45
45
90

45
135

135

135

45

90

45

45

45
45

The new resources would be utilized with the same rate as current
operations, as compared in the table below.
Old
Utilization New
Utilization
Rate
Rate
Monday
66%
90/135 = 66%
Tuesday
100%
135/135 = 100%
Wednesda 100%
135/135 = 100%
y
Thursday
100%
135/135 = 100%
Friday
66%
90/135 = 66%
Saturday
33%
45/135 = 33%
Sunday
33%
45/135 = 33%
To determine if the hospital can perform this many operations, one should
compute the equipment (operating room) and labor (surgeon)
requirements per day and compare it to the current equipment and labor
capacity per day.
Equipment:
Given:
Operations start at 7:30am and end at 4pm = 8 hrs ~ 8 hrs
1 hr/operation = 8 operations/operating room/day
5 operating rooms = 40 operations/day
Computation and Interpretation:
45/40 = 1.125 * 5 operating rooms = 5.625 operating rooms ~ 6
operating rooms
Shouldice hospital needs 6 operating rooms to be able to serve the
influx of patients from the proposed expansion. With the additional
patients, the equipment capacity is not sufficient (120%
utilization rate) with a negative capacity cushion of 16.67%.
Labor:
Given:
5.625 operating rooms (from computation above)
12 surgeons
1 surgeon per operation
Computation and Interpretation:
5.625 operating rooms * 1 surgeon = 5.625 surgeons ~ 6
surgeons

## Shouldice hospital needs 6 surgeons, which is currently achievable.

The labor capacity is sufficient (50% utilization rate) with a
capacity cushion of 100%.
Due to the lack of 1 operating room, Shouldice hospital cannot perform
45 operations per day.Shouldice hospital will only be able to perform
40 operations per day.
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 \$2000 (U.S.
dollars), with an average rate of \$1,300per operation. The
surgeons are paid a flat \$600 per operation. Due to all the
uncertainties in government health care legislation, Shouldice
would like to justify any expansion within a five-year time period.
With the given 5 operating rooms, having a maximum of 40 operations a
day, this is the new table of beds required in Shouldice Hospital:

Monday
Tuesday
Wednesd
ay
Thursday
Friday
Saturday
Sunday
Total

40

40
80

40
40

40
120

40
40
40

120

40
40

40

40

40

120

80

Sunday

Saturday

Friday

Thursday

Wednesday

Tuesday

Check-In
Day

Monday

Beds Required

40

40

40
40

## Therefore, Shouldice Hospital should expand their 90-bed hospital to a

120-bed hospital to accommodate the additional patients.
Expansion computed using ONLY the additional revenue from the
expansion:
Given:
Revenue:
o \$700/operation (average rate/operation surgeons fee;
\$1,300 \$600)
o Expansion will bring additional 50 operations/wk (10
operations per day for 5 days in a wk) = 2,600 operations/yr
o \$700 * 2,600 operations/yr = \$1,820,000/yr

Cost:
o \$100,000 per bed * 30 beds = \$3,000,000
Value:
o Revenue Cost
o \$9,100,000 (\$1,820,000 * 5 yrs) \$3,000,000 = \$6,100,000

## Thus, expansion over a 5-year period is financially profitable with a value

of \$6,100,000.
Expansion computed using the additional revenue from the expansion
AND current revenue:
Given:
Revenue:
o \$700/operation (average rate/operation surgeons fee;
\$1,300 \$600)
o Expansion will bring total 200 operations/wk (40 operations
per day for 5 days in a wk) = 10,400 operations/yr
o \$700 * 10,400 operations/yr = \$7,280,000/yr

Cost:
o \$100,000 per bed * 30 beds = \$3,000,000
Value:
o Revenue Cost
o \$36,400,000 (\$7,280,000 * 5 yrs) \$3,000,000 =
\$33,400,000

## Do nothing computed using current revenue:

Given:
Revenue:
o \$700/operation (average rate/operation surgeons fee;
\$1,300 \$600)
o 150 operations/wk (30 operations per day for 5 days in a wk)
= 7,800 operations/yr
o \$700 * 7,800 operations/yr = \$5,460,000/yr
Cost:
o None
Value:
o Revenue Cost
\$27,300,000 (\$5,460,000 * 5 yrs) \$0 = \$27,300,000
Found below is the decision tree analysis:

Alternative
Expand
Do Nothing

Revenue
Cost
\$7,280,000 * 5 \$3,000,000
yrs
\$5,460,000 * 5 \$0
yrs

Value
\$33,400,000
\$27,300,000

Based on the decision that gives the highest payoff, Shouldice hospital
can justify their 5-year expansion.

## Reference: Operations and Supply Management, 12th ed., Jacobs, Chase,

&Aquilano; Chapter 5, pp. 139-140.