Healing Touch Harvard Case Solution & Analysis

Healing Touch Case Study Solution

Recommendations:

It is recommended to the Hailing Touch Hospital to focus more on developing the better forecasting techniques for the generation of favourable results in the form of high profitability and lower costs, so that company may be able to maximize its funds. The costing measure would be based on activity-based cost allocation for achieving efficiency and better performance.The customers’ demand would be leading towards lower fees and higher quality of service. The objective of the company should be based on minimizing its costs and increasing profitability, which would help the company in retaining its patients through quality service. Moreover, the target of the company should be set to achieve 10% growth in profits. The measure used by the current director for growth is based on only controlling employee turnover, which needs to be altered and should opt another better measure because the profitability from projects and maximization of its capital budgets through low investment risk and financial risk should be taken into consideration.The second measure of the customer can be improved by involving the repeat services used by the patients, so that it can be measured with more accuracy. Furthermore, the company is unable to achieve the budgets, which require better forecasting techniques to convert the unfavourable results to favourable results for the company by setting SMART goals.

Financial Analysis:

The healing touch hospital’s budgets were analyzed for the last two years i.e. 2001 and 2002 by looking at the revenues and expenses budget, which are mentioned in the excel files under the file name of Q1a. The revenues and expenses variances were calculated by keeping in mind the budgeted and actual data and the results for the year 2001 show that the revenues of the company were lower than its budgeted revenues. This resulted in negative variance and thus the total revenue variance is unfavorable for the company and unfavorable results for the expenditure and operating profit of the company are apparent from the data analysis.

This also results in the negative variance for the company, which leads to unfavourable results for the company as well. However, the 2002 data for projected and actual revenues, expenses and operating profit also show negative variances for the company, which means the estimation of the company is unfavourable and it is overstated which leads to the inability of the company to achieve its budgeted targets.

The variance for the number of doctors and their salaries were evaluated through quantity and price variance. The results of the number of doctors show the negative variance and it results in the unfavourable estimation of the company whereas, the salary of the doctors have been calculated on favourable terms because the salary of the doctors was estimated higher. Nevertheless, it resulted in the lower average salary of the doctors and this can be seen from the excel sheet.

The supplies were evaluated through quantity and price variance and it shows that the number of supplies to be used were estimated at higher rate. However, the actual supplies used were lower that showed favorable results for the company. However, the price of the supplies was not estimated well, because it showed unfavorable results due to the lower estimation of price against the higher actual price of supplies.

Healing Touch Harvard Case Solution & Analysis

The Healing touch hospital is losing money, because the estimation of the company is not up to the mark and it is estimating quite poorly due to which, its variances are showing unfavourable results and in the end, the company is losing money. The same unfavourable results were found in insurance price estimates.

The two procedures which were not covering its costs by generating revenues less than its costs consist of MRI and CT scan and this shows the loss of ($24,102.56) due to MRI and ($15,076.92) due to CT scan. This would lead to the total loss in revenues and profitability amounting to around 39,179.49 dollars.

After analyzing all the three projects, ranking can be assigned based on highest NPV. Rank one is assigned to Project Gamma because NPV is $1,261,117.06, whereas, second ranking is assigned to Project Beta because NPV is $429,929.71 but Project Alpha will not be chosen because it shows negative NPV and it would be ranked three. Moreover, the company needs to borrow $564,694.06 for Project Alpha, $205,767.06 for Project Beta and $705,867.57 for Project Gamma.On the basis of 50% probability of the insecurity of Project Gamma would also result in the negative NPV and the project would not be accepted.Furthermore, the project would not be recommended because Project Gamma shows the highest NPV.

The potential liabilities are quantified and would not be added in the balance sheet, because these liabilities are part of the disclosure and these liabilities include:  defined pension fund that is over funded and the results are shown in the excel file attached. Yes, these liabilities will have an impact, because it would result in lower capital requirements for the company and the company will have to borrow less amount under each project. Yes, I would recommend the director to go for long-term debt financing because it would lead to utilize the amount of expansion of projects and results in favourable conditions for the company by generating maximum returns and profits.

The results of the above analysis show that the company should budget its income statement and all the given variables for 2003 and the results show that there will be decrease in number of patients by 3.1%, fees per patient will increase by 15%, and Medication per patient will increase by 10% and so on. Overall, the budget of 2003 shows favourable results for the company and it would be beneficial in making its strategies for better budgets, forecasting, and meeting its 10% return requirement. All the details are separately added in excel file, which can be referred for further clarification of the above-mentioned analysis and decisions.................

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