By now you should have a sense for the demand associated with each investment proposal. You have chosen a demand scenario and now its time to start working on the financial analysis of the proposals.

Starting your Financial Analysis
The initial stages of the financial analysis look at three major things. First, you’ll look at patients. You’ll do some work with the hospitals payor mixes. The Payor Mixes are tables showing breakdowns of who comes to the hospital and what type of insurance they have. Next, you’ll look at the money made, or revenue, for each proposal. Finally, you’ll look at expenses and costs for each proposal.

Specifically, you’ll need to calculate the following for each proposal:

• Normalized Payor Mix –In this section of the analysis, you’ll need to normalize the estimated payor mix so it represents 100% of the patients who will be served by the project.


• Revenue – Here you will calculate the revenue each project will generate.


• Expenses, Costs and Overhead – This section of the analysis asks you to look at the cost of purchasing, installing and operating the proposed project.


• Net Income – This section will help you look at the relationship between revenue and expenses for each year of the project.

You’ll need to add your work to your Excel spreadhseet. Don't forget you have the MRI Example if you want to refer back to a completed analysis.

What You Have
I’ve pulled together information that will help you begin your analysis. The email attachment contains the following information:

• A set of General Assumptions - I’ve also worked with our contacts at the hospital to create a set of assumptions, which you can use as the basis of your analysis. These assumptions include the hospital’s payor mix.


• Payor Mix for each proposal – In addition to the hospital’s payor mix, I’ve given you information on the estimated payor mix for each proposal. The estimated payor mix is different for each proposal because the conditions and assumptions for each proposal are different.

Don’t forget you also have the proposals themselves. They include lots of details, many of which you will need to figure out the revenues and expenses.

This is exciting! When you are done with this we’ll have a pretty good idea of which investment option will make the most money for the hospital. I look forward to seeing how the numbers come out.

Thanks,

Abby

Abigail Vincent
Sr. Consultant
WJL Consulting