discus 1/2
Student 1
Slide [1] Introduction
Thank you everyone for attending the meeting. As part of Ashley Regional medical center’s mission to making Communities Healthier, and always to strive to give our customers the best healthcare possible, we seek to do that with the implementation of advanced technologies (Ashley Regional Medical Center, n.d). The intent today is to have a short review of the new technology solution and walk through a financial analysis to see if it makes sense for our clinic.
Slide [2] Agenda
Our meeting will be brief, and stick to a high level discussion. We will review the market opportunity first, followed by the proposed solution. In order to best assess that solution we will walk through a sensitively and scenario analysis prior to the final recommendation to move forward or to reject the solution.
Please feel free to ask questions throughout the review, discussion is encouraged.
Slide [3] Market Opportunity
We are the first choice care center for expecting parents in the region. Not only is this because of our excellent care, but for our use of innovative technologies in the newborn intensive care unit. Parents feel comforted to know that their new life will get the attention they need when they deliver with us. Isansys has a new wearable sensors that can help in the monitoring of a patient vitals and provide real time input to staff. This type of information technology supports our data driven patient care expectations.
Slide [4] Scenario Analysis
This technology comes at a very large expense to Ashely Medical. Based on projected cash flows, the NPV estimates are positive at a discount rate of 18%. Further analysis is required to be able to support the decision making process before we can confidently accept or reject the solution, given its large upfront investment of $800,000.
When evaluating these types of financials, several assumptions are made that directly impact the viability of the projected financial analysis. This adds a degree of forecasting risk that needs to be included in the upfront review (Brealey et al., 2020).
A scenario analysis can help off-set some of the forecasting risk. This is a basic form of what-if analysis that identifies areas that could change the NPV, such as sales is higher or lower than originally projected? Several of these “what-ifs” may have a positive or a negative impact on the actual NPV. If we start with the worst case scenario it will allow us to know the worst possible NPV. This would be the lower bound and if the lower bound is positive than the project should be accepted. We can do the same with the best what if scenario as well, which gives us the best possible outcome, known as the upper bound (Brealey et al., 2020).
Historically as an organization we have typically see a 15% variance in the projections from the base case. As a result we will use that same percentage in the scenario, given its historical likelihood in the company. The scenarios presented assume the what-if of a possible 15% change from the base case with an 18% required return to analyze the upper and lower bound limitations.
Slide [5] Sensitivity Analysis
Another way to look at the decision is with a sensitivity analysis. This is useful in identifying exact areas where forecasting risk would greatly impact the viability of the investment. As you will see the theory is that if you freeze all variable, except one you will be able to see how sensitive the estimated NPV is to the changes based on that variable (Brealey et al., 2020). Continuing with the 15% variance in projections from the base case, we see how two variables such as units and fixed cost affect the base case. These were chosen given the local competition could directly impact our units if they implement something sooner (lower bound), or if we beat them to it (upper bound). The fixed cost are more within our control and good to assess as another variable.
Slide [6] Risk to Assessment
There are always additional areas to be aware of outside of what was presented today. Some of those risk are, but not limited to, new and better technologies, product doesn’t perform as expected and acceptance of the technology all present high risk to the financial outcomes. Additionally if there is a delay in implementation or changes in fixed cost this could also have an impact (lower) on the finical justification of the project.
Slide [7] Recommendation
Predicting the future to justify today’s decisions always comes at a risk. There is no magic to ensure the decision is perfect, however, the sensitivity and scenario analysis combined with NPV can help identify the what-if’s as well as the worst and best outcome based on the what-if’s identified. This helps minimize forecasting risks
Ashley medical wants to continue to evolve to provide the best possible care for their patients. Based on the financial analysis utilizing simulation and scenario analysis that consider best case and worst case situations, indications are strong that this solution will help with that mission. It is recommended that the Isansys wearable sensors should be approved, and Ashley Regional medical center should move forward with the $800,000 investment.
Slide [8] References
References
Brealey, R. A., Myers, S. C., & Marcus, A. J. (2020). Fundamentals of Corporate Finance. McGraw Hill Education.
Excelsior College Module 7. (2022). Module Notes: Intorduction & Managing Forecasting Risk. Retrieved from https://excelsior.instructure.com/courses/28284/pages/module-7-module-notes-introduction-and-managing-forecasting-risk?module_item_id=2462457
Mission & Vision. Ashley Regional Medical Center. (n.d.). Retrieved April 23, 2022, from https://www.ashleyregional.com/mission-vision-and-high-five-guiding-principles
Wearable sensors. Isansys Products - Wearable Sensors. (n.d.). Retrieved April 23, 2022, from https://www.isansys.com/en/Wearable-Sensors
(Links to an external site.)
Student 2
PowerPoint Narration
Slide 1 (title slide): Financial analysis of implementing Isansys systems at Ashley Regional Medical Center
Slide 2 (purpose & agenda): This presentation will address the financial impacts the addition of this system will have here at Ashley Regional. Ensuring that it benefits patients, the organization, and our shareholders. I will give an explanation of the two analyses used; scenario and sensitivity for assessing this project. This will be followed by the metrics calculated during those two analyses, then an explanation of some risks associated with this project, and completed with my conclusions that were made following the analysis.
Slide 3 (scenario & sensitivity analyses overview): Scenario and sensitivity analyses are two forms of what-if analysis that aid in assessing risk. Scenario analysis is the most basic form of this type of analysis and helps to determine if different plausible scenarios were to occur, would the project still result in a positive NPV (Ross et al., 2019). This helps to determine if a project will truly be financially beneficial for the organization or if initial estimates were too optimistic and the project is overly risky. Sensitivity analysis is also an assessment of specific scenarios but it isolates specific variables such as units sold, price, fixed costs, or others to determine how sensitive NPV is to that variable. A higher sensitivity indicates that there is higher risk associated. There are advantages to utilizing both methods to gain a better understanding of the risks associated to a specific endeavor. Scenario analysis improves systems thinking and leads to the optimal allocation of resources while sensitivity analysis provides and in-depth assessment helps to fact-check against certain variables (CFI, n.d.).
Slide 4 (scenario analysis): These tables were generated utilizing a +/- 15% factor and a 18% rate of return to ensure a positive NPV for the base scenario. The 15% change was used as it can be reasonably assumed that this is a likely scenario based on the current market and the recent introduction of a new competitor.
Slide 5 (sensitivity analysis): Still following the 15% +/- change, the sensitivity analysis assessed sensitivity for number of units sold, price, and fixed costs. These elements were chosen as there is a new competitor in the market which will impact how much the organization sells and at what price so it was important to determine if those had high risks associated. It was also important to determine if fixed costs increase or decrease if that would create more risk for implementing this project.
Slide 6 (risk drawn from assessment): The new local competitor is going to impact the organization and could have much more severe affects than what was analyzed and is a risk. The risks for implementing this project remain low, as even at the calculated worst-case scenario it still has a positive NPV. There is also high reward for the best-case scenario should our highest estimates come to fruition. As seen in the previous slides, sensitivity regarding the number of units sold and fixed costs is low indicating a low risk. However, price sensitivity is high and depending on the competitor’s price, this could become an issue.
Slide 7 (conclusions drawn from analysis): Overall, it is recommended that the Isansys systems are implemented. It can reasonably be expected that the benefits to patients and shareholders will both be positive. It will be necessary to monitor the new local competitor and make an effort to proactively have the best price to remain competitive as opposed to reactive as those customers will be lost. It would be wise to temper expectations from the initial assessment of possible revenue increase. The addition of the new competitor will have impacts and our initial estimates of units sold under a specific price needed to be adjusted. These analyses aided in eliminating some of the possible errors in initial estimates, but they are still estimates and only give several possibilities of scenarios.
References
CFI. (n.d.). Scenario Analysis vs Sensitivity Analysis. Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/knowledge/modeling/scenario-analysis-vs-sensitivity-analysis/
Ross, S. A., Westfield, R. W., & Jordan, B. D. (2019). Fundamentals of Corporate Finance (12th ed.). McGraw-Hill Education.