An important part of a financial analysis is looking at what happens over the entire life of a project. If a project is planned for 6 years, you want to know how much you will make each year. So, you can’t stop after the demand for the first year and say you’re done. You must calculate demand for each year of the project. To do this, you need to know three things:

1. Year One demand


2. Percentage rate for how fast the service will grow


3. How long the project is going to be

Year One Demand
Year one demand is the annual demand you calculated in the previous step.

Percentage Rate of Growth
As you calculate the demand for each year, you’ll need to consider how demand for the project might grow. Just like they could predict initial demand, experts have the experience to predict the range for possible growth over the life of the project. Consult with an expert to figure out how demand might grow for your project.

The growth a business experiences each year might not always be consistent. However, using the same percentage growth each year is a way to simplify the problem and make calculations a little easier.

Length of Project
Medical equipment and facilities don’t last forever. Equipment breaks down and needs to be replaced. Facilities get old and need to be updated. When conducting a financial analysis, you should determine the length of your project by how long the new equipment or facility will last, on average. For example, you can expect a facility to ‘last’ about 10 years before it will need to be remodeled and updated, so the length of your project will be 10 years. An MRI machine might ‘last’ 7 years before it will need to be replaced, so the length of this project will be 7 years.

Of course, it is possible that something might last longer than you anticipate at the beginning of a project, but using an average life span is a good planning tool. The average life span of the project you are considering is the length of the project.

An Example – the X-ray Machine
Let’s continue thinking about our X-ray example. According to the hospital’s physicians, the number of X-ray procedures performed usually goes up about 5% each year. They expect that trend to continue after they put in the new x-ray machine. They also know that, on average, an X-ray machine lasts for 10 years.

With this information, you can now calculate the demand for the remaining years of the project. 15,000 procedures in year 1 multiplied by a 5% increase is an additional 750 procedures per year.

15,000 procedures x .05 increase in demand = 750 new procedures in the second year

Year 2 = 15, 000 + 750 new procedures =15, 750

With the year two demand total, you can figure out demand for year three. 15,750 procedures in year two multiplied by a 5% increase is an additional 787.5 procedures in year three.

15,750 procedures x .05 increase in demand = 787.5 new procedures in year three

Year 3 = 15,750 + 787.5 = 16,537.5

You would continue using this pattern – basing the next year’s growth on the previous year’s total – until you reach 10 years, the length of this project.

Once you have determined the Year One demand and then projected the demand per year for the remainder of the project, you’ve got the demand figures you’ll need later.