Bob Reilly remains pleased with your work to date. He now wants you to do some c
ID: 359059 • Letter: B
Question
Bob Reilly remains pleased with your work to date. He now wants you to do some capacity analysis for Lee Jordan, Director of Medical/Nursing. Lee is concerned about bed capacity in the maternity ward. Lee wants some quick analysis done prior to exploring options for expansion. You are to meet with her for additional details. "Hello! Good to see you, how are you?" Lee greets you. "The patient load on our maternity ward seems to be increasing significantly. Since capacity expansion proposals take some time to go through the approval process and for the construction of the addition to the facility, I believe that we should do a thorough capacity analysis now and make sure that we have adequate capacity to handle the future demand." "In a medical service facility like ours we can not make exact demand predictions. So determining the number of beds needed in the maternity ward is a complex decision. When doing your analysis, you should know that the maternity ward currently has 80 beds. Our forecasted demand for next year is about 9125 patients. The number of days a bed is occupied by a patient varies. The average stay per patient is 3 days. Since actual demand at times may be higher than the average, we must have some safety capacity or a capacity cushion. I like having about 15% safety capacity so that we will not be in a crunch if demand is higher than average. This is all the data I have now. I want you to carefully examine the capacity issue and give me your recommendations. Specific questions are provided for you."
Assignment Questions For Chapter 9
1. Explain the implications of basing capacity requirements for a service facility on average demand.
2. If only the average data (such as the number of days a patient stays) is available, how would you suggest that VMH come up with a reasonable capacity plan for the maternity ward?
3. Determine the percentage utilization level of the maternity ward beds based on projected patient load. Determine the capacity cushion as a percentage based on demand projections.
4. Since Lee believes that a capacity cushion of at least 15% is desirable to provide patient service, determine how many beds are required to have a 15% capacity cushion.
5. Describe other factors that Lee must take into account as she considers capacity expansion options.
Explanation / Answer
(1)
When capacity is based on average demand, there is a good amount of probability, that the demand will not be met. The demand will always be variable following a distribution. For example, if it is a normal distribution, then for 50% of the time, the demand will be more than the average demand and if capacity is planned equal to average demand, 50% of the time it will fail to provide service to the customers. This will lead to opportunity loss for revenue generation and moreover, customer dissatisfaction with loss of customers. All these effects will act against the existing reputation of the organization which has a severe long-term implication.
(2)
Note that variability can result from two sources - a) the number of days a patient stays and b) the total number of patients visiting in a year. If only average data is available, one may need to collect more sample data from existing patient flow or last year patient flow to understand the variability (e.g. find the sample standard deviation of the number of days stay or the number of patients incoming). From this, the approximate distribution of these parameters will be found. The unit now needs to take a cut-off service level of say 95% or 97.5% and plan the capacity accordingly. Since two variables are present, a simulation model is preferable.
(3)
Projected demand level (no. of beds) = 9125 x 3 / 365 = 75 beds (assuming that a year consists of 365 days).
We have a present capacity of 80 beds. So, the utilization is 75/80 = 93.75%
Capacity cushion = 100% – Capacity utilization = 6.25%
(4)
Capacity cushion = 15%
So, Capacity utilization = 100% - 15% = 85%
No. of beds required = 75 / 0.85 = 88.24 or 89 (rounded off)
(5)
Other factors which need considerations are - a) The availability of space, b) Seasonality of demand, c) Scope for improvement in service which may result in significant reduction in the number of days stay from the present level of 3 days, d) budget constraints for facility upgradation, e) impact on overall profit of the hospital (e.g. the ROI for additional capacity vs. the loss that will happen at the present capacity level).