Assessment 3: Cost-Benefit Analysis
Create a 5-6 page cost benefit analysis that supports a risk financing recommendation for a selected organization.
Note: The assessments in this course build upon each other, so you are strongly encouraged to complete them in a sequence.
In your current and future role as a health care leader, you can expect to conduct a cost-benefit analysis (CBA) to determine whether the positive benefits of a proposed recommendation outweigh the negative costs.
Plowman relates that “a cost benefit analysis is used to evaluate the total anticipated cost of a project compared to the total expected benefits in order to determine whether the proposed implementation is worthwhile for a company or project team.” Plowman also identified the three parts of a CBA to be the following:
- Identification of potential costs.
- Recording of all anticipated benefits.
- Examination of the differences to determine if positive benefits outweigh negative costs.
A pre-formatted Excel spreadsheet that can be used as a template for CBAs is a good tool to have in your personal toolbox. Inputting data is simply the first step. As you fill out templates, always consider the numbers within the context of an organizational mission, strategic direction, patient safety, risk-management issues, regulatory requirements, patient and stakeholder satisfaction, and also the dynamics within the health care industry.
As you prepare to complete this assessment, you may want to think about other related issues to deepen your understanding or broaden your viewpoint. You are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of your professional community. Note that these questions are for your own development and exploration and do not need to be completed or submitted as a part of your assessment.
- What steps do you need to take in order to align a CBA with an organization’s mission and strategy?
- If you were to offer three alternative recommendations after a CBA, what types of elements would you consider to differentiate them from one another?
- How would you substantiate a recommendation for reducing financial risks in a health care setting when the quality of care is involved?
- What are the three parts of a CBA?
Plowman, N. (2014). Writing a cost-benefit analysis. http://www.brighthub.com/office/project-management…
OVERVIEW AND PREPARATION
Note: This assessment should be completed third.
The following resources are required to complete this assessment.
Suppose an issue has emerged in your organization that presents significant risks to the stakeholders involved. Your supervisor has asked you to conduct a CBA, make a recommendation, and present it to the board of directors. You are expected to consider the numbers within the context of the organizational mission, strategic direction, patient safety, risk-management issues, regulatory requirements, patient and stakeholder satisfaction, and the dynamics within the health care industry.
Select a relevant issue within your workplace, or one from the resources provided for this assessment, for which a CBA may be conducted. The CBA should include one of the following course-related topics:
- Patient safety.
- Risk management.
- Regulatory standards.
- Patient and stakeholder satisfaction.
Step One: Identify Costs
Apply the process from Writing a Cost-Benefit Analysis article, linked in the Cost-Benefit Analysis Approach section of this assessment, to identify costs:
- Make a list of all monetary costs that will be incurred upon implementation and throughout the life of the project. These include start-up fees, licenses, production materials, payroll expenses, user acceptance processes, training, and travel expenses, among others.
- Make a list of all non-monetary costs that are likely to be absorbed. These include time, low production of other tasks, imperfect processes, potential risks, market saturation or penetration uncertainties, and influences on one’s reputation.
- Assign monetary values to the costs identified in steps one and two. To ensure equality across time, monetary values are stated in present value terms. If realistic cost values cannot be readily evaluated, consult with market trends and industry surveys for comparable implementation costs in similar businesses.
- Add all anticipated costs together to get a total costs value (Plowman, 2014).
Step Two: Identify Benefits
Continuing with the CBA, proceed with the identification and quantification of benefits, per Writing a Cost-Benefit Analysis article.
- Make a list of all monetary benefits that will be experienced upon implementation and thereafter. These benefits include direct profits from products or services, increased contributions from investors, decreased production costs due to improved and standardized processes, and increased production capabilities, among others.
- Make a list of all non-monetary benefits that one is likely to experience. These include decreased production times, increased reliability and durability, greater customer base, greater market saturation, greater customer satisfaction, and improved company or project reputation, among others.
- Assign monetary values to the benefits identified in steps one and two. Be sure to state these monetary values in present value terms as well.
- Add all anticipated benefits together to get a total benefits value (Plowman, 2014).
Enter the cost and benefit data you developed for the CBA in your preparation steps into the Cost-Benefit Analysis Template.
Then, write an analysis in which you do the following:
- Describe the organizational, program, or departmental issue for which you have created the CBA.
- Evaluate the cost versus benefit according to the general guidelines outlined by Plowman’s 2014 article, which you read in the preparation for this assessment.
- Make a recommendation as to whether the benefits are sufficient to outweigh the costs of the proceeding.
- Describe the systems-based context for your recommendations, integrating the CBA within the organization as a whole.
- Describe how the issue relates to the organization’s vision, mission, and strategic direction.
- Provide a rationale that explains how your recommendations are appropriate for your organization’s capacity and strategy.
Your analysis should use proper APA style and formatting and include the following sections. Each section, except the title page, should include the appropriate section heading.
- Title page: Use APA formatting and include the following:
- Assessment number (Assessment 3).
- Your name.
- The date.
- The course number (MHA-FP5014).
- Your instructor’s name.
- Abstract: Include a one-paragraph summary of analysis content. This is not an introduction to the topic, but a summary of the entire analysis. Make sure to double-space.
- Issue description.
- CBA evaluation.
- CBA recommendations.
- Context for recommendations.
- Relationship to vision, mission, and strategy.
- Appendix: Attach your completed Cost-Benefit Analysis Template.
- Written communication: Written communication should be free from errors that detract from the overall message.
- Length of paper: 5–6 typed, double-spaced pages.
- Font and font size: Times New Roman, 12 point.
- Appendix: Include your Cost-Benefit Analysis Template as an appendix to your analysis.
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
- Competency 1: Conduct an environmental assessment to identify quality- and risk-management priorities for a health care organization.
- Specify the focus and stakeholders for a cost-benefit analysis.
- Develop a value proposition for change management that incorporates quality- and risk-management concepts.
- Describe strategies to influence and impact the needed changes for quality improvement.
- Competency 2: Apply a risk-management model or framework to a specific risk-management priority.
- Conduct a cost-benefit analysis for a risk-management intervention.
- Competency 3: Analyze the process and outcomes of a care quality- or risk-management issue.
- Identify relevant internal and external benchmarks, using a systems-based perspective.
- Competency 5: Communicate in a manner that is scholarly, professional, and consistent with expectations for professionals in health care administration.
- Use correct grammar, punctuation, and mechanics as expected of a graduate learner.
Plowman, N. (2014). Writing a cost-benefit analysis. http://www.brighthub.com/office/project-management…
Resources: Cost-Benefit Analysis ApproachThe resources provided here are optional and support the assessment. They provide helpful information about the topics. You may use other resources of your choice to prepare for this assessment however, you will need to ensure that they are appropriate, credible, and valid. The MHA Program Library Guide can help direct your research.
- Plowman, N. (2014). Writing a cost-benefit analysis. https://www.brighthubpm.com/project-planning/58181…
This article discusses how to value risk reductions in the context of benefit-cost analysis.
- Robinson, L. A., & Hammitt, J. K. (2013). Skills of the trade: Valuing health risk reductions in benefit-cost analysis. Journal of Benefit-Cost Analysis, 4(1), 107–130.
This article discusses a cost analysis approach in medical education.
- Walsh, K., Levin, H., Jaye, P., & Gazzard, J. (2013). Cost analyses approaches in medical education: There are no simple solutions. Medical Education, 47(10), 962–968.
This article describes the cost-benefit methodology in terms of criminal justice policy.
- Manski, C. F. (2015). Narrow or broad cost–benefit analysis [PDF]? Criminology & Public Policy, 14(4), 647–651.
Resources: Additional Resources for Further Exploration
- You may use the following optional resources to further explore topics related to competencies.
- Kavaler, F., & Alexander, R. S. (2014). Risk management in health care institutions: Limiting liability and enhancing care (3rd ed). Jones and Bartlett. Available in the courseroom via the VitalSource Bookshelf link.
- Youngberg, B. J. (2011). Principles of risk management and patient safety. Jones and Bartlett. Available in the courseroom via the VitalSource Bookshelf link.
RISK-MANAGEMENT PROFESSIONAL ORGANIZATIONS
- The Risk Management Association. (n.d.). https://www.rmahq.org/Default.aspx
- American Hospital Association. (n.d.). American Society for Health Care Risk Management. http://www.ashrm.org/
Activity: Cost-Benefit Analysis
Click the linked Cost-Benefit Analysis title above to check your understanding of important assessment concepts. This ungraded activity is for your own self-assessment.