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1 building a new urgent care center “It`s a slam dunk,” said Kim, the marketing analyst. “The volumes we`ve forecasted ensure that the new urgent…

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1 building a new urgent care center “It`s a slam dunk,” said Kim, the marketing analyst. “The volumes we`ve forecasted ensure that the new urgent…

9.1 building a new urgent care center

“It`s a slam dunk,” said Kim, the marketing analyst. “The volumes we`ve forecasted ensure that the new urgent care center will be profitable within six months.” “Great,” replied Angel, VP of strategic management, “but I think it would be useful to walk through those numbers to put everyone at ease.” “OK, here`s how we forecasted visits,” said Kim. “There are 40,000 people living in our primary market area. National rates suggest that a population of this size will make 6,000 urgent care visits each year. Right now, our emergency department sees 2,500 urgent – but not emergent – visits each year. We believe that 1,500 of them will come to the urgent care center. Our seat-of-the-pants estimate is that Providence, the other hospital serving our primary market area, sees 2,000 urgent care patients per year in its emergency department. We expect to get half of those visits. We also expect that the added convenience of the urgent care center will bring an additional 500 visits each year. So, 3,000 visists per year, which yielding revenue of $125, give us $375,000 in total revenue. We have fixed costs of $200,000. Our best estimate is that each visit has variable costs of $20, so we`re talking profits of $115,000, for a margin on sales of 30%. “That`s nice and clear,” said Angel, “but I`d like to take a closer look. About half of the patients Providence sees would have to drive past Providence to get to our urgent care center. Do we have any indication that those folks will do that? My second concern is that our emergency department is open 24/7. The urgent care center will be open 82 hours per week. Can we really hope to capture 60% of the emergency department`s urgent care patients?”

Discussion questions:

1. What happens to profits if the urgent care center has only 2,000 visits?

2. To what extent does Kim`s forecast rely on judgment rather that data? Would additional information help resolve Angel`s concerns? What sort of data would you suggest gathering?

3. Does building the urgent care center seem risky? Can anything be done to reduce the amount of risk?

4. Would there be any advantages to planning for a small patient volume and letting your customers surprise you? Suppose you plan for 2,000 visits but volume turns to be 3,000. What happens? Would underestimating the volume be better or worse than planning for 3,000 and getting only 2,000?

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