1. Business Planning for Health Organizations ID 536 Spring Term, 2009 April 17, 2009 Paul Campbell Harvard School of Public Health

2. 2 Agenda for this Session Homework; Organizational Strategy and Business Planning, Marketing; Financial Issues; and, Business Plan Evaluation.

3. 3 Strategic Planning Business Planning

4. 4 Marketing Strategy (Mix) Product/Service Pricing Place/Distribution Promotion/Communication

5. 5 Product/Service Important Considerations Relative to Target Groups: Perceived benefit Expected level of quality Image in the community Comparison with competition Differentiation Distinctive competence

6. 6 Pricing Perceived (monetary) value of service Absolute price and its relationship to the full and marginal costs incurred providing service Price relative to competition Discounts and free care

7. 7 Place/Access Location Hours Transportation Proximity to other services Physical and other barriers

8. 8 Promotions/Communications Message Appropriate mode of communications Mass media Personal contacts Form, timing and budget for promotions Level of credibility Influencers

9. 9 Potential Segmentation Factors Include Geographic Demographic –Age –Gender –Income –Occupation –Education –Number of Children –Race/Ethnicity –Language –Literacy

10. 10 Potential Segmentation Factors Include Physical/medical –Medical/Family history –Health status –Risk factors Psychographic –Lifestyle –Personality characteristics –Values Attitudinal Behavioral

11. 11 Marketing Research Focus Groups Interviews Written Surveys Behavior Observations Analysis of Existing Data

12. 12 Payback Definition: The time (years) necessary to recover the initial investment Formula: Investment Annual Cash Inflows

13. 13 Payback Example Information: Cost of New Diagnostic Unit$5,200,000 Sale of Old Equipment $ 100,000 Annual Net Income$1,200000 Q: What is the payback period?

14. 14 Payback Example New Diagnostic Unit $5,200,000 Old Equip Salvage Value - 100,000 Net Investment ……………$5,100,000 $5,100,000 $1,200,000 = 4.25 YEARS

15. 15 Net Present Value Defined: Determining the net result of subtracting the initial investment from the present value of expected returns.

16. 16 Steps in Net Present Value 1.Determine Cash Flows 2.Determine Economic Life 3.Determine Net Initial Investment 4.Determine Appropriate Rate (%) 5.Compute

17. 17 NPV Example Investment expected to net $120,000 annually for 8 years Net cost of investment = $700,000 Comparable return = 4% (T-Note) Is it a good investment?

18. 18 Net Present Value Present Value 6.733 x $120,000= $807,960 Net Present Value $807,960 - $700,000= $107,960 Decision Rule: NPV > 0, Therefore Yes