CASE: KING EDWARD HOSPITAL

by: Alvarado, Benipayo,

Ong-Lopez, Sangalang,
Tenorio, Wong

Question 1:
How well is the hospital
currently utilizing its
beds?

Solution 1
Capacity Utilization Rate = Actual
beds utilized/Available beds
30 patients x 3 days x 5 days per
week = 450 beds utilized per week
90 beds x 7 days per week = 630
beds available per week
Capacity Utilization Rate Per Week =
450/630 = 0.7143 or 71.43%

Question 2:
Develop a 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?

Solution 2
Capacity Utilization Rate = Actual
beds utilized/Available beds
30 patients x 3 days x 6 days per
week = 540 beds utilized per week
90 beds x 7 days per week = 630
beds available per week
Capacity Utilization Rate Per Week =
540/630 = 0.8571 or 85.71%

Interpretation
The capacity utilization rate
averaged in a week would increase
from 71.43% to 85.71% if adding 30
operations every Saturday.

Is the capacity sufficient

enough?
The capacity is sufficient enough for
the additional patients given that the
projected capacity utilization rate is
85.71% which is less than the ideal
capacity utilization of a 100%.

Question 3
Now look at the effect of increasing the number of beds by
50%. a) How many operations could the hospital perform per
day before running out of bed capacity? (Assume operations
are performed 5 days per week with the same number
performed on each day.) b) How well would the new
resources be utilized relative to the current operation? c)
Could the hospital really perform this many operations? Why?

Solution 3A
90 + (90 x 0.50) = 135 bed capacity
30 + (30 x 0.50) = 45 operations
per day before running out of
bed capacity

Solution 3B
Capacity Utilization Rate = Actual beds
utilized/Available beds
30 patients x 3 days x 5 days per week =
450 beds utilized per week
135 beds x 7 days per week = 945 beds
available per week
Capacity Utilization Rate Per Week =
450/945 = 0.4762 or 47.62%
Relative to the current operation, the
resources are not being utilized well.

Solution 3C
12 full-time surgeons, each being
able to operate on 4 patients per day
12 x 4 = 48 operations per day
Project capacity: 45 operations per
day
Ideal capacity: 48 capacity per day
The hospital can still perform
this many operations.

Questions 4
Although financial data are sketchy, an estimate from a
construction company indicates that adding capacity would
cost about HK$ 1,000,000 per bed. In addition, the rate
charged for the hernia surgery varies between about
HK$9,000 and HK$20,000, with an average rate of
HK$13,000 per operation. The surgeons are paid a flat rate
of HK$ 6,000 per operation. Due to all the uncertainties in
government, health care legislation, King Edward would like
to justify any expansion within a 5-year time period.

Assuming that the total expansion cost is paid/distributed

evenly over a 5-year time period with 0% interest rate,
and disregarding the time value of the revenue

Yearly Additional Income After

Surgeon Costs and Expansion Costs

HK$ 25,200,000 (HK$

45,000,000/5) = HK$ 25,200,000
HK$ 9,000,000
= HK$ 16,200,000
If the expansion decision is based on
the added yearly income, it could be
justified based on the computations
that this is a very good investment.