Page 88 - DMGT501_OPERATIONS_MANAGEMENT

Operations Management

Notes
Question
What are the challenges faced by the management in managing capacity at Apollo and
what solution can you suggest?
Solution: There are no problems significantly arising due to the parking area but there are
problems while registration and waiting for the doctors. People take 5 minutes to register
at the counter and the number of patients waiting to get registered id just double of those
who actually get registered in an hour. People may get miffed during this period. The
hospital has put in just three attendants who are not able to address the problems well.
Therefore the management should look forward to increase the number of attendants at
the registration desk.
The problem of waiting line at a particular doctor's chamber is genuine and hard to
manage. But however the demand can be pushed to the lean periods or the doctor who has
more patients visiting can be asked to visit the hospital for more days. The patients
waiting in line to see the doctor can be kept engaged through variety of options like
television, magazines etc.

Overall, efficient management in all the sections including the parking lot , can help the
hospital manage the demand.

3.9 CVP Analysis

Cost-volume-profit (CVP) analysis is a technique that examines changes in profits in response
of changes in sales volumes, costs, and prices. Firms perform CVP analysis to plan future levels
of operating activity and provide information about:

1. Which products or services to emphasize
2. The volume of sales needed to achieve a targeted level of profit
3. The amount of revenue required to avoid losses
4. Whether to increase fixed costs

5. How much to budget for discretionary expenditures
6. Whether fixed costs expose the organization to an unacceptable level of risk
CVP analysis begins with the basic profit equation.
Profit = Total revenue – Total costs

Separating costs into variable and fixed categories, we express profit as:
Profit = Total revenue – Total variable costs – Total fixed costs
The contribution margin is total revenue minus total variable costs. Similarly, the contribution
margin per unit is the selling price per unit minus the variable cost per unit. Both contribution
margin and contribution margin per unit are valuable tools when considering the effects of
volume on profit. Contribution margin per unit tells us how much revenue from each unit sold
can be applied toward fixed costs. Once enough units have been sold to cover all fixed costs, then
the contribution margin per unit from all remaining sales becomes profit.
If we assume that the selling price and variable cost per unit are constant, then total revenue is
equal to price times quantity, and total variable cost is variable cost per unit times quantity. We
then rewrite the profit equation in terms of the contribution margin per unit.

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