1. -38- HMP654/EXECMAS Useful EXCEL Functions

2. -39- HMP654/EXECMAS Break-Even Analysis Break even analysis determines the volume of service needed to ensure that revenue generated will exceed costs. Applications in health care Basic Model –Revenue growths with increasing service volume –Total cost growths with increasing service volume but at a slower rate than revenue

3. -40- HMP654/EXECMAS Break-Even Analysis –The break-even point is the level of service volume at which total revenues equal total costs. –A service volume higher than the break-even point implies that revenues exceed costs.

4. -41- HMP654/EXECMAS Break-Even Analysis Basic Linear Model –Total Revenue = Unit-revenue x Service volume TR = REV x N –Total Costs = Fixed Cost + Variable Cost TC = FC + VC –Variable Cost = Unit-cost x Service volume VC = COST x N

5. -42- HMP654/EXECMAS Break-Even Analysis Basic Linear Model Fixed costs are those that are incurred regardless of how much service is provided. Variable costs are items of expense that relate to the direct cost of providing care and are expressed as costs per unit of service delivered.

6. -43- HMP654/EXECMAS Break-Even Analysis Solution to the Basic Linear Model TR = REV x N TC = FC + VC VC = COST x N Want to find N* for which TR = TC N* = FC/(REV - COST)

7. -44- HMP654/EXECMAS Break-Even Analysis Case Problem - (A) p. 21

8. -45- HMP654/EXECMAS Break-Even Analysis Solution to the Case Problem

9. -46- HMP654/EXECMAS What-If Analysis Break-Even Analysis

10. -47- HMP654/EXECMAS Break-Even Analysis Model Variations

11. -48- HMP654/EXECMAS Break-Even Analysis Model Variations

12. -49- HMP654/EXECMAS Break-Even Analysis Model Variations

13. -50- HMP654/EXECMAS Break-Even Analysis Sensitivity Analysis with Two-input Data Tables

14. -51- HMP654/EXECMAS Break-Even Analysis Sensitivity Analysis with Two-input Data Tables