Capital Project Are Very Important

Capital project are very important part for any healthcare organization. As they greatly affect the issues related to: patient care, facility operations, and quality control for all locations. Over the past few years, almost every industry was going through: the recession (as healthcare was no exception). It is therefore, very important for all facilities to: select and invest in only those capital projects that will bring tremendous profits (for the organization in the long run). ("Capital Projects,"2009)

Proper planning and implementation are required to ensure the success of any capital project in healthcare. In this paper, we take the example of an imaginary health care organization called: IMS (Institute of Medical Sciences) operating in California. as, we will study the capital project of: a new healthcare facility that is being planned and its implementation. Together, these different elements will provide the greatest insights, as to how various organizations are accounting for these issues.

Before any kind of approval of the new facility, the management of IMS considered: the costs and benefits of the project. These estimates helped them in deciding whether the proposed facility would bring profits for the organization over the long-term. The estimations of the costs and benefits for the hospital were: based on a period of one year.

Nearly 4000 visits were estimated for the new healthcare facility in first year of operation and the price of an average visit (P) was calculated to be $50. The staff salaries for the hospital were: budgeted at $159,250 and the faculty costs were estimated to be around $83,500. The spending on equipment was estimated at $28,300. Nearly $16,500 was the cost estimation from consultant contracts used in: the pharmacy and medical quality control. Annual rent for the premises was calculated to be: $900 monthly or $10,800 yearly. The estimated total fixed costs for a one-year period was calculated to be $298,350. (Foster, 2005)

The variable costs for the facility were estimated as follows: $14,900 for the purchase of supplies; $24,700 for donated supplies; $5,400 for buying medications / chemicals; and $7,000 for consultant fees (via referrals). The estimated total variable costs for the one-year period were $52,000.

We now use the Break-Even Analysis formula of: Q = FC / (P -- VC), to determine the basic standards for generating a profit. Inside the formula, Q stood for the quantity of service visits required to break even. While, at the same time: FC denoted the fixed cost for the project, P is the prices charged for the various services and VC is the variable cost per visit. At which point, we divided the total variable costs by: expected number of visits ($52,000 / 4000). Once this took place, we came up with a VC of $13. Entering all the values into the formula gave us a result for Q. Of 8,064. Thus, 8,064 visits are required for the hospital to break even. In order to generate any kind of operating profits, they must go beyond this number every single year.