Case Study 1
Case Study #1: Green Valley Medical
1-Green Valley Medical Center is a nonprofit teaching hospital affiliated with a large state university and had grown since its foundation in the 1930s with continuous support from state revenues. Since it is a nonprofit organization its main goal is not to create profit for the investors, but to reach their institutional goals, which in this case is to offer good service for the region it is located in and to train the students that attend to the state university that the medical center is affiliated with.
2-The current capital budgeting process begins in each service area, where individuals submit their requests to the department head. Capital requests are classified in two different ways, what is over a $ 1000 and what is below. The latter is included as operating expenses by department. Once department heads receive all the new requests they review them, ranked them and requests not deemed necessary by the department get dropped from the list. After the department heads have their lists for their departments ready, they submit these lists to fiscal affairs where the lists are consolidated to form a final master list. The master list is then reviewed and approved by the board of trustees.
The aforementioned seems like a bureaucratic system, that in paper sounds reliable, but since we are humans, we are victims of some behavioral biases that in this case might affect the evaluation of what projects the board of trustees approves. While, reading the case it is mentioned that the general practice of the board of trustees and of the previous CFO was to give high priority to medical equipment and tended to forget about the administrative service areas. Besides giving high priority to medical equipment, there were also hierarchy problems as to which departments get this medical equipment, the departments that fill the most amount of beds, which are probably the largest ones, are more likely to get what they want, leaving the
1-Green Valley Medical Center is a nonprofit teaching hospital affiliated with a large state university and had grown since its foundation in the 1930s with continuous support from state revenues. Since it is a nonprofit organization its main goal is not to create profit for the investors, but to reach their institutional goals, which in this case is to offer good service for the region it is located in and to train the students that attend to the state university that the medical center is affiliated with.
2-The current capital budgeting process begins in each service area, where individuals submit their requests to the department head. Capital requests are classified in two different ways, what is over a $ 1000 and what is below. The latter is included as operating expenses by department. Once department heads receive all the new requests they review them, ranked them and requests not deemed necessary by the department get dropped from the list. After the department heads have their lists for their departments ready, they submit these lists to fiscal affairs where the lists are consolidated to form a final master list. The master list is then reviewed and approved by the board of trustees.
The aforementioned seems like a bureaucratic system, that in paper sounds reliable, but since we are humans, we are victims of some behavioral biases that in this case might affect the evaluation of what projects the board of trustees approves. While, reading the case it is mentioned that the general practice of the board of trustees and of the previous CFO was to give high priority to medical equipment and tended to forget about the administrative service areas. Besides giving high priority to medical equipment, there were also hierarchy problems as to which departments get this medical equipment, the departments that fill the most amount of beds, which are probably the largest ones, are more likely to get what they want, leaving the