Business Planningfor Health Organizations

ID 536Spring Term, 2009

April 17, 2009

Paul Campbell

Harvard School of Public Health

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Agenda for this Session

• Homework;

• Organizational Strategy and Business Planning, Marketing;

• Financial Issues; and,

• Business Plan Evaluation.

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Strategic Planning

Business Planning

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Marketing Strategy (Mix)

• Product/Service

• Pricing

• Place/Distribution

• Promotion/Communication

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Product/Service

Important Considerations Relative to Target Groups:• Perceived benefit• Expected level of quality• Image in the community• Comparison with competition

• Differentiation• Distinctive competence

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Pricing

• Perceived (monetary) value of service

• Absolute price and its relationship to the full and marginal costs incurred providing service

• Price relative to competition

• Discounts and free care

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Place/Access

• Location

• Hours

• Transportation

• Proximity to other services

• Physical and other barriers

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Promotions/Communications

• Message

• Appropriate mode of communications

• Mass media

• Personal contacts

• Form, timing and budget for promotions

• Level of credibility

• Influencers

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Potential Segmentation Factors Include

• Geographic• Demographic

– Age– Gender– Income– Occupation– Education– Number of Children– Race/Ethnicity– Language– Literacy

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Potential Segmentation Factors Include

• Physical/medical– Medical/Family history– Health status– Risk factors

• Psychographic– Lifestyle– Personality characteristics– Values

• Attitudinal• Behavioral

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Marketing Research

• Focus Groups

• Interviews

• Written Surveys

• Behavior Observations

• Analysis of Existing Data

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Payback

Definition:

The time (years) necessary to recover the initial investment

Formula:

Investment

Annual Cash Inflows

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Payback Example

Information:

Cost of New Diagnostic Unit $5,200,000

Sale of Old Equipment $ 100,000

Annual Net Income $1,200000

Q: What is the payback period?

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Payback Example

New Diagnostic Unit $5,200,000

Old Equip Salvage Value - 100,000

Net Investment ……………$5,100,000

$5,100,000

$1,200,000 = 4.25 YEARS

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Net Present Value

Defined:

Determining the net result of subtracting the initial investment from the present value of expected returns.

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Steps in Net Present Value

1. Determine Cash Flows

2. Determine Economic Life

3. Determine Net Initial Investment

4. Determine Appropriate Rate (%)

5. Compute

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NPV Example

• Investment expected to net $120,000 annually for 8 years

• Net cost of investment = $700,000

• Comparable return = 4% (T-Note)

• Is it a good investment?

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Net Present Value

Present Value

6.733 x $120,000 = $807,960

Net Present Value

$807,960 - $700,000 = $107,960

Decision Rule: NPV > 0, Therefore Yes