Explain the concept of opportunity cost.
Preparation Use Plowman\'s Cost-Benefit Analysis Template to complete Part 1 of this assessment. Use the following scenario that continues the scenario from Assessment 2 as the foundation for this assessment: One of the physician\'s groups in the clinic would like to purchase an MRI machine.Explain the concept of opportunity cost. Currently, clients who need an MRI must schedule an appointment at another facility, adding time and cost to any treatment they may need.
The machine will be available for all the physicians in the clinic and will require additional staff to operate the equipment and the office area where it will be housed. You must prepare a cost-benefit analysis to present to the physicians so they may decide whether to move forward with the purchase. Be sure to consider the non-monetary costs, such as productivity, as well as the non-monetary benefits, such as improved customer satisfaction. Although these may be difficult to quantify, they are important costs and benefits that must be considered. Requirements Prepare a two-part cost-benefit analysis. Part 1 Complete the cost-benefit analysis template for the purchase of an MRI machine for the clinic. Part 2 Based on the cost-benefit analysis, write a 2–3-page summary: Explain the concept of opportunity cost. Explain how the cost-benefit analysis aligns with organizational needs and future growth. Recommend a plan of action that is supported by the cost-benefit analysis. (Should the clinic purchase the MRI machine, or not?) Reference specific areas of the analysis in your recommendation. Submit both parts of the assessment at the same time. Please note that you will need to attach each part separately since they are different types of documents. Additional Requirements Include a title page and reference page for Part 2. Number of pages: 3–4, not including the title page and reference page (Part 2 only). At least two current scholarly or professional resources (Part 2 only). APA format for citations and references used in Part 2. Times New Roman font, 12 point (Part 2). Double-spaced (Part 2) Explain the concept of opportunity cost.
Explain the concept of opportunity cost.
Opportunity cost is a tradeoff between what can and cannot be done. In fact, it is occasioned by the financial reality of limited resources whereby there are competing occasions for the available resources to be applied while their limited nature means that not all of the occasions can be pursued. In the present case, the clinic recognizes that there is a need to have an operational MRI machine installed in the facility. These machine would enable the clinic gain a competitive advantage and occupy a favorable position within the medical industry. This is particularly true when it is considered that currently the clinic’s patients who require MRI services must schedule appointments in other facilities, thus adding to the time and money they spend in seeking treatment. However, there is a constraint to the possibility of the facility installing a new MRI machine. This constraint is occasioned by the resources limitation, particularly funds whereby the clinic’s profit orientation determines that it must only invest in ventures that present acceptable profit margins. This means that even with funds being available, the clinic would have to make the decision to invest in a new MRI machine to address the present need or continue with the prevailing status quo in which patients continue to be referred to other medical facilities for MRI services. Still, the concept of opportunity cost concedes that whether the clinic decides to invest in a new MRI machine or not, either one of the two decisions would be accompanied by risks. In the case of purchasing and installing a new MRI machine, the clinic would have to spend money on making the purchase, installation and operation. Should the clinic decide not to make the purchase, then it would continue inconveniencing clients by adding to the time and money they spend in seeking treatment (McTaggard, Findlay &Parkin, 2013). In this respect, opportunity cost refers to a case whereby resource limitations forces an institution to make decisions concerning different investment options despite the existing need.
Explain how the cost-benefit analysis aligns with organizational needs and future growth.
Cost-benefit analysis is a tool applied in decision-making. In fact, it is used to determine whether an investment decision is worth making in terms of financial losses and gains. To be more precision, it helps to determine the best course of actions in terms of major expenditures. From a financial perspective, it entails evaluating the negative financial factors (costs and expenditures) and comparing them to the positive financial factors (benefits, savings and incomes) within a defined time period before determining if the investment would be profitable (Madura, 2014). The analysis first begins by identifying, quantifying and adding up all the expenditures and costs that would be associated with the project. These are then subtracted from the benefits, savings and incomes realized from the investment. The difference from the two calculation then acts as an indication about whether the planned investment decision is advisable. It is important to ensure that the analysis includes all the properly quantified costs and benefits to ensure that accurate decisions are made in terms of predicting profitability over definite time periods (McTaggard, Findlay &Parkin, 2013; Porter-O’Grady &Malloch, 2016).
Cost-benefit analysis aligns with the facility’s organizational needs and future growth by acknowledging that getting the most out of investment, options and ideas is only possible through deliberate planning. In this case, cost-benefit analysis facilitates the achievement of this objectives by offering tips and insights into the uncertainties and risks associated with each decision. At the conclusion of the analysis, the facility would be better able to arrive at reasonable conclusions around the advisability or feasibility of the situation or decision. For that matter, the analysis supports decision-making by offers an evidence-based and agnostic view of the situation under review minus influences from bias, politics or opinion. Through offering an objective view of the significances of each decision, the analysis acts as an invaluable tool for making purchase and allocation decisions, and developing business strategy. As a planning tool, the analysis is able to meet the facility’s need for growth and expansion by identifying the best investment options from a financial perspective (Madura, 2014).
Recommend a plan of action that is supported by the cost-benefit analysis.
The cost-benefit analysis that has been amortized over four years reveals that purchasing the MRI machine for use by the facility is a justified decisions. Over four years, the MRI machine operation will cost $2,658,000 while improving benefits by $3,505,000. The analysis shows that the MRI machine will save the facility approximately $17,645.83 every month, $211,750 every year, and $847,000 over the first four years. Based on these results, it can be determined that it is advisable to purchase and install the MRI machine as the next course of action since this decision is supported by the financial figures as facts. In this respect, the clinic should purchase the MRI machine Explain the concept of opportunity cost.