Binus Business School: Bina Nusantara University

BINUS BUSINESS SCHOOL
BINA NUSANTARA UNIVERSITY
MGMT8044 – OPERATIONS MANAGEMENT
Individual Assignment PERIOD : 2012 SESSION 2020/2021
Case Study:
Case 2: Capacity Strategy at Shouldice Hospital—A Cut Above (Textbook, p.127)
Case: Shouldice Hospital—A Cut Above

Questions (Please refer to this questions).
1. How well is the hospital currently utilizing its beds?
Answer:
90 beds x 7 days/week = 630 beds available in a week
30 patients x 3 days x 5 days per week = 450 beds utilized
450 bed utilized / 630 available beds = 71,43%
The hospital is currently utilizing 71,43% of their beds, this is actually an ideal operating point. To increase
its rate of utilization might decrease the service quality.
2. Develop a similar table to show the effects of adding operations on Saturday. (Assume that 30 operations
would still be performed each day.) How would this affect the utilization of the bed capacity? Is this
capacity sufficient for the additional patients?
Answer:
The earlier capacity operation schedule and capacity utilization of the hospital is given as follows
Capacity utilization rate = Capacity used/best operating level

Capacity utilization of each day at best operating level 90 per day is given as follows
Monday= 60/90 = 66,66%
Tuesday= 90/90 = 100%
Wednesday= 90/90 = 100%
Thursday= 90/90= 100%
Friday= 60/90= 66,66%
Saturday= 30/90= 33,33%
Sunday= 30/90= 33,33%
Calculate the average capacity utilization as follows

66,66 +100+100+100+66,66+33,33+33,33
Average capacity utilization rate per week = =
7
71,43%
It is still sufficient, however we might risk the service quality
3. Now look at the effect of increasing the number of beds by 50 percent. How many operations could the
hospital perform per day before running out of bed capacity? (Assume operations are performed five
days per week, with the same number performed on each day.)
Answer:
90 beds x 1,50 = 135 beds
135 beds x 7 days = 945 beds available in a week
945 beds / 3 days x 5 days in a week = 63 operations per day . The hospital could perform a maximum of
63 operations per day if the beds increase by 50%.
How well would the new resources be utilized relative to the current operation?
Answer:
30 patients x 3 days x 5 days per week = 450 beds utilized 135 beds x 7 days = 945 beds available in a
week
450 beds utilized / 945 beds available = 47,62%
With the current operation, the utilization rate would only be 47,62% if the beds would be increased by
50%. If we would add additional beds, we also need to accept more patients to fully utilize the
investment.
Could the hospital really perform this many operations? Why? (Hint: Look at the capacity of the 12
surgeons and the five operating rooms.)
Answer:
Operating room maximum capacity: 8 operations (7:30 – 4:00) (one operation per hour) x 5 operating
rooms = 40 operations
12 surgeons x 4 operation per surgeon = 48 operations
7 assistant surgeons x 4 operations per surgeon = 28 operations
The case states that surgeons operate on 4 patients. If surgeons means all the full time surgeons only, we
have a maximum of 40 possible operations, thus the 30 operations per day is feasible. However, if we
would include the part-time surgeons as surgeons that operates 4 patients per day, only 28 operations is
feasible.
4. Although financial data are sketchy, an estimate from a construction company indicates that adding bed
capacity would cost about $100,000 per bed. In addition, the rate charged for the hernia surgery varies
between about $900 and $2,000 (U.S. dollars), with an average rate of $1,300 per operation. The surgeons are
paid a flat $600 per operation. Due to all the uncertainties in government health care legislation, Shouldice
would like to justify any expansion within a five-year time period.
Answer:
Option 1 – Add 50% more beds investment cost in adding 50% more beds = 40 beds x $100.000 =
$4.500.000.
Revenue: Maximum of 40 operations per days (maximum capacity for 5 operating rooms) x 5 days per
week x 52 weeks per year = maximum 10,400 operations per year
10.400 operations x $1.300 = $13.520.000
Surgeon cost: (Assuming $600 for the full-time surgeon, payment for assistant surgeon is not given
/included)
10,400 operations x $600 = $6,240,000
Maximum annual profit = $7,280,000
For five years = $36,400,000
Five years profit less the 45 beds investment = $ 31,900,000.
Option 2:
Add one more operating day (Saturday).
Revenue: Maximum of 40 operations per days (maximum capacity for 5 operating rooms) x 6 days per
week x 52 weeks per year = maximum 12,480 operations per year
12,480 operations x $1,300 = $16,224,000
Surgeon cost: (assuming $600 for the full time surgeon, payment for assistant surgeon is not
given/included)
12,480 operations x $600 = $7,488,000
Annual Profit= $ 8,736,000
Five years profit= $43,680,000
Recommendation: With 90 beds and the current operation, the hospital is doing well. Their existing
system and reputation have already set them apart as a market leader and has proven to be a profitable
setup. However, there is still an unmet demand. Option 1 to add more 50% more beds may not be
beneficial if we don’t also increase operation. Option 2 is to add one more operating day is more
profitable. I would recommend combining the two options plus hiring more staffs and adding more
operating rooms. However, due to limited information given by the case, we cant compute if this option
is needed more profitable than the rest.
5. Propose the capacity strategy for medium hospital in Indonesia as case at Shouldice Hospital.
Identify the key factors to contribute the customer satisfaction.

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BINUS BUSINESS SCHOOL

BINA NUSANTARA UNIVERSITY

MGMT8044 – OPERATIONS MANAGEMENT

Individual Assignment PERIOD : 2012 SESSION 2020/2021

Case 2: Capacity Strategy at Shouldice Hospital—A Cut Above (Textbook, p.127)

Case: Shouldice Hospital—A Cut Above

90 beds x 7 days/week = 630 beds available in a week

30 patients x 3 days x 5 days per week = 450 beds utilized

450 bed utilized / 630 available beds = 71,43%

Capacity utilization rate = Capacity used/best operating level

Calculate the average capacity utilization as follows

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