Magnetic resonance imaging (MRI) are a becoming a must-have for hospitals that need to serve their customers well. The machine uses radio waves and magnets to produce borne and other organ images in black and white. The images obtained from the process are used for diagnosis purposes. The price of an MRI is high given that few companies around the world manufacture the machines. The cost of an MRI depends on the magnetic field strength that currently ranges from 0.2 -3 Tesla. An institution planning to obtain an MRI should determine the price of the machine, the cost of the structure, the installation and operation costs and the resale value of the of the MRI (Bourne & Sutcliffe, 1996). Similarly, the benefits accrued from installing the machine should be determined, and a costs benefit analysis should be conducted to decide whether or not it is worth pursuing the project.
Opportunity Cost
The concept of opportunity costs is concerned with the best foregone alternative course that should have been pursued had an organisation decided not to pursue the current project. It is the cost of capital that an institution will have used to invest in a project (Gruen & Howarth, 2005). The opportunity cost in the MRI project, in this case, is the capital used to obtain the machine, construct an MRI suite, install, construct the support area, and employ a specialist and other costs involved in the project. The capital invested could have been used in another project like modernising the current facility, engaging in other projects and investing in income-generating activities.
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Pursuing the MRI project requires a clear understanding of the cost implications and the benefits accrued from the project. The future cash inflows must, therefore, be determined with precision while including the risk factor involved. If the project generates more cash flows than the investment, then it is worth pursuing the project (Lumby, 2015). However, if the initial and maintenance cost is higher than the benefits, the project should be discontinued. The future cash flows are discounted at a rate of 2% to determine the present value of future cash inflows.
According to the cost-benefit analysis performed, the clinic can go ahead with the project of installing the MRI. The analysis indicates that the machine will have more cash inflows than the outflows base on a conservative assumption of the amount to be collected each year annual growth (Gruen & Howarth, 2005). The clinic should, therefore, consider other factors like the sources of funds in its decision to acquire the machine.
Cost-Benefit Analysis and Future Growth
Cost-benefit analysis is used for investment purposes to determine whether an organisation should pursue a project or not. It helps the management to select investment projects that yield high returns and therefore can guarantee the future growth of an institution. The cost-benefit analysis uses monetary and non-monetary measures to determine the gains expected from an investment helping in the planning activity (Farrow, 2015). The ability to conduct a cost-benefit analysis implies that an organisation can align its short term and long term growth with its investment decisions.
Plan of Action
The cost-benefit analysis shows that the MRI has more benefits both quantifiable and non-quantifiable to the organisation. Similarly, other positive outlooks are likely to come up for example if the MRI leads to more referrals and an increase in the patients visiting the facility. Based on the cost-benefit analysis alone, the clinic should go ahead with the project. The clinic should also consider other factors that are likely to affect the project like budgetary constraints, space, and capacity constraints (Taillard, 2013). However, if all other factors are in support of the MRI, the clinic should go ahead and invest in the project.
References
Bourne, M., & Sutcliffe, C. (1996). Management accounting in healthcare . London: The Chartered Institute of Management Accountants.
Farrow, S. (2015). Adding Value with Benefit-Cost Analysis: Forecasting Net Social Benefit from Impacts of Slot Machine Gambling in Maryland. Journal Of Benefit-Cost Analysis , 6 (02), 281-304. http://dx.doi.org/10.1017/bca.2015.45
Gruen, R., & Howarth, A. (2005). Financial management in health services . Maidenhead, England: Open University Press.
Lumby, S. (2015). Corporate Finance . Cengage Textbooks.
Taillard, M. (2013). Corporate finance for dummies . Hoboken, N.J.: John Wiley & Sons, Inc.
