THE CRIMSON GROUP, INC.
CONSULTING AND LEADERSHIP TRAINING IN HEALTH CARE
Home Programs Faculty Research Curriculum Center Public Resources My Account
Member Sign In
Shopping Cart  
My Account
My E-Packets
Browse Bibliography:
By Keywords:
 

By Type:
New/Updated Items
Popular Items
Cases
Background Notes
Primers and Books

By Functional Area:
Finance/Financial Management
Financial Accounting
Financial Analysis and Management
General Management
Management Accounting
Management Control Systems
Marketing
Operations Management
Organizational Behavior

By Setting:
Developing Country
For Profit
Health Policy
Healthcare Management
Nonprofit
Nonprofit Organization Management
Public Sector Management

Curriculum Center Browse Bibliography Build EPacket Pricing Structure Distribution Process Management Control in Nonprofit Organizations
 
Granite Valley Medical Center
Author(s):
Young, David W.
Functional Area(s):
   Finance/Financial Management
Setting(s):
   Healthcare Management
Difficulty Level: Intermediate
Pages: 7
Teaching Note: Available. 
Copyright Clearance Fee:  $9.00  Sign in to find out if you are eligible for an Academic Price of $5.00 
Add Item to a new E-Packet

Add To Cart

Order an Free Inspection Copy

Back to Bibliography
First Page and the Assignment Questions:
I don’t object to the priority given to medical equipment by the board. At the same time, though, requests for administrative or support service capital frequently have significant cost-saving potential, and should not continue to be overlooked. There must be some way to assess these requests on their merits without infringing on the hospital’s ability to provide the best possible patient care.

    The speaker was Dee Anne Willis, CEO of Granite Valley Medical Center (GVMC). She was expressing concern that in her 12 years at the hospital, both administration and support services typically had taken a back seat in the capital budgeting process. This concern was of particular importance to Allen Klein, GVMC’s newly hired chief financial officer, who faced several decisions regarding the hospital’s capital budgeting process. His decisions needed to be made quickly since the medical center was just weeks away from the October 15 deadline to submit both operating budgets and capital requests.

    Mr. Klein already had been approached by various senior managers in the hospital regarding their department requests for capital purchases. All had welcomed him with friendly greetings, followed immediately by informal presentations of their departments’ proposed capital improvements. It did not take long for Mr. Klein to realize that he needed to understand better how the capital budgeting process worked, both formally and informally.

BACKGROUND

    GVMC was a 330-bed tertiary care hospital in a mid-sized Canadian city, located several hours from two major urban centers. Established in the 1930s, GVMC had grown with support from provincial revenues. It also had issued bonds on several occasions to finance large expansions and improvements. Recent financial statements are contained in Exhibit 1.

    GVMC served a regional patient base of over one million. It was the only regional hospital, and one of only two in the province with facilities in cardiology, oncology, and neurology. Its specialty in these fields included teaching and research as well as clinical care. It prided itself on its state-of-the-art technology and overall medical expertise. In fact, it was widely regarded for the innovative work and research conducted by its medical community, particularly in the neurological and oncological sciences.

The Current Capital Budgeting Process

    Mr. Klein was delighted to find that the hospital’s available funds for capital purchases had grown at a rate of about 10 percent per year during the past 5 years. How the funds were distributed, however, was not so clear. The process began in each service area, where individuals submitted requests to their department head for new and replacement equipment and machinery. Capital requests included items costing $1,000 or more. Anything under $1,000 was included as an operating expense by the department. Once all new requests had been received by department heads, they were reviewed and ranked, and then ranked again incorporating all requests outstanding from the previous year. At that point, any requests not deemed necessary by the department were dropped from the list.

Assignment:
1.    What are the key elements of GVMC’s strategy?
2.    Why does the existing capital budgeting system need to be changed?
3.    How do you think the two projects will fare under Mr. Klein’s new capital budgeting technique? As part of your assessment,         calculate each project’s net present value (NPV) and internal rate of return (IRR). Then fill out Exhibit 2, and comp-
        lete Exhibit 3.
4.    Assuming only one project can be accepted, which one should it be? Which one do you think will be accepted?