CAT Scan Purchase for Jersey Shore Hospital - Assignment Example

? Capital Purchase Justification Sarita Gogan Grand Canyon May 01, Capital Purchase Justification Capital Purchase Justification The acquisition of capital equipment is a crucial activity in a company. In some organizations, equipment is unique and cannot be found in other organizations. In the context of a hospital, we use equipment such as CAT scan, MRI, and a nuclear medicine camera. Jersey Shore Hospital is a hospital which intends to purchase a CAT scan from vendors abroad. This was identified by the radiology department of the hospital which relays the specification to the procurement and finance department to draw budget and seek approval. The purchase of the equipment is necessary to make the hospital run (Grantham, Haupt, Isbell, McClung, & Rettie, 2005). A CAT scan needs service providers. Selecting a service provider is always the responsibility of the procurement department. The procurement department will find a suitable supplier through researching the market. This will involve market survey on directories, form procurement colleagues, and the Internet. It will be necessary to search for more than three providers to evaluate. One of the economic advantages to deliver the CAT scan is that it will assist in saving cost by comparing prices and deliverability. Selection is made in terms of the provider that in delivering the CAT scan in time. We identified General Electric, Siemens and Medic Exchange. Selection process is done by choosing a provider from the phone book, Internet or using friends and family members. After settling for Siemens, the formal selection process is done. This was evaluation in terms of technical and financial evaluation. A contract was signed by the vice president because it was capital equipment which needed high authorization to Siemens to provide the CAT scan needed. It is necessary to the company to analyze the available options for making the right choice. The first step is to document organizational needs by putting the details and specifications by making the Vice President aware of our reasoning’s and justification for our actions. The company analyzed what Siemens could do concerning the CAT scan. The identifying potential sources were also considered by doing research of which organization is capable of providing the CAT scan. Information sent to Siemens is an introduction including contact information. A summary of business needs was prepared by drawing a proposal request for the CAT scan. An invitation to participate was sent to all three vendors for participation in the selection process. The date proposed was for a one-on-one discussion of key issues. The third step is to initiate vendor discussions on issues of the site and training or personnel to use the CAT scan. Then non-responsive vendors will be weeded out through both technical and financial evaluation. The fourth step is a final vendor round up. This is the final stage to make an offer and obtain the contract. One of the most important parts of the process is making a decision and sticking to it. This suggests reviewing material facts from the two meetings with each vendor, and a decision is made (Healthcare Financial Management Association (U.S.), 2009). A research article by Grantham et al. points out two aspects on how teams respond favorably to a request for information security budget costs justified with a clear ROI business case. There is also a developing concept of risk based ROI. The concept quantifies taking action of cost and risk associated and how this should be minimized by implementing a proper security infrastructure. This concept is used to purchase insurance for the CAT scan. If a security breaches occurs as a result of not implementing the proper procedures, the associated costs far outweigh the cost to replace the CAT scan. This was an issue that was addressed with the vice president. To help avoid these liability costs is the goal. This is how the percentage of return on investment (ROI) is calculated. This is often the case when actual security risks are identified in a business. On the other hand, when determining ROI for CAT scan, one needs to know what the benefits are, whether tangible or intangible. This must be clarified to the vice president so he can defend the purchase with a more intangible justification as this is a tough sale in most boardrooms. Gains like cost reduction, cost avoidance, and revenue are easily defined. ROI benefits an organization to increase savings changed earlier in the design cycle and to reduce cost of providing training. ROI cost justification process helps the executive committee engage fully in the security process enabling adequate security budget to be kept going. The components needed to prepare equipment for production are purchase, installation and other activities. Proposed capital investment like CAT scan needs to be justified. Formulas such as fixed variable cost and associated benefitsneed to be compared to the current working practices. The capital resources have annual direct cost and indirect cost for operating the resources like labor, energy, scrap and direct labor. Cost for capital equipment involves fixed cost and variable cost. The cost can include purchase price installation, personnel cost related to acquisition and project management, site preparation and costs tied to moving current equipment to make way for the proposed CAT scan. This must get the consent of the vice president. This can be used to get some dollars as resale of salvage (Hall and Lieberman, 2009). The key factor when reading capital equipment request is to look especially at figures. All the short and long term goals are key factors for capital purchase, production increase, scrap reduction, lead time reduction and offer flexibility for current systems. This benefit assists business strategy of the company which is reducing production cost and increasing market share. The CAT scan is to comply with key specifications being a statement of essential operating principles. Life-cycle expectancy of the CAT scan is considered. The actual time of buying, installing and testing the equipment is to be known before the actual production (Hall& Lieberman, 2009). Jersey Shore Hospital with authority of the vice president will consider the total cost of a new location for the CAT scan. The cost includes distribution, land, labor, utilities and construction of the site. Hidden cost is shown in the justification of purchase of the CAT scan to the vice president. Such costs are due to supplies, ship and the loss of customer if the equipment is moving away from the customer base. The company needs to maximize opportunity and minimize cost and risk for CAT scan. Justification for operating cost addressed to vice president involves conformity to overall corporate strategy. The strategies addressed involved what space the company will need for the CAT scan. Feasibility study for different operating costs and factors are associated with location. Logistics cost evaluation concerning transportation and warehousing are considered from the manufacturing point of view. Labor cost related to who will run the CAT scan is also considered. Incentives involving negotiation process with community property and tax breaks are take into account. The whole life cycle of the CAT scan is looked at this concern issues like maintenance and wear and tear. The CAT scan cost to Jersey Shore Hospital valued at $2,908.00 CIF this included 40% of the cost including distribution, land, labor, utilities and construction of the site. The grand total cost of $ 4,071.20 justification was presented to the vice president for approval. The justification had to be approved that being the best cost of acquiring the equipment. The purpose of the equipment has more importance to the hospital than its cost. The equipment would take 21/2 years to recoup full ROI after which it would still function for 10 years. In conclusion, hospital management must be concerned with investing in equipment that makes a profit and produces quality care. A capital requisition must be budgeting correctly through procurement checks and right justification to obtain the optimal value. All detailed cost analysis must be included to convince the vice president to understand and help sees the return on investment achieved. References Grantham, R., Rettie M., Haupt G., Isbell M., & McClung, B. (2005). Effective practices to select, acquire, and implement a utility Cis. New York, NY: American Water Works Association. Hall, R. E., & Lieberman, M. (2009). Economics: Principles and applications. London: Cengage Learning. Healthcare Financial Management Association (U.S.). (2009). Healthcare financial management: Journal of the Healthcare Financial Management Association, 63(1-6). The Association, California. Read More