Healthcare

Chapter 10

Exercise 10-2

In the clinic renovation example, what if management thinks that the likelihood of current demand remaining is 30%, the likelihood of a moderate increase is 25%, and the likelihood of a large increase is 45%? What should they do, according to the expected total payoff?

Alternative                             State of the world                                                         Outcome

                                                    ( future demand forecasts)

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no renovation                      demand remains at 20    patients per day          demand met

        "                                               increase                to 35             "                                   not met

        "                                               increase                to 50              "                                  not met

minor renovation                  remain                   at 20              "                               demand met

        "                                               increase                 to 35             "                               demand met

        "                                               increase                 to 50             "                                    not met

major renovation                  remains                  at 20             "                                demand met

        "                                               increase                 to 35             "                                demand met

        "                                               increase                 to 50             "                                 demand met