Cost/Profit Analysis Software - A Case Study

It is essential for every enterprise to deeply understand the relations of costs that flow underneath their operations, how cost / profit centers affect one another, and how much the services they provide actually cost them. It is beyond usual business intelligence and financial reporting to not only count on the quarterly results, but give management a tool to take safe strategic decisions to maximize profits.

In one of our projects, we were assigned by a healthcare consulting group to deliver a cost/profit analysis software as part of a broader analysis study for one of the largest private healthcare groups in Saudi Arabia.

The Requirements

Simply put, the requirement was a sophisticated software solution that could be able to trace the costs flowing within the hospital environment and calculate, for each of more than 6,000 medical procedures and operations, how much exactly their real cost was at any given period.

The Solution

Being guided by the results of the analysis study conducted by the healthcare consultants, we designed and delivered a software system comprised of the following modules:

• Cost drivers engine
• Environment setups
• Cost flows tracing engine
• Reporting engine

Cost Drivers Engine: The cost drivers engine allowed dynamically defining the tens of cost drivers as a result of the study of the hospital’s departments. Healthcare consultants were able to map cost drivers to each department and drive its cost flows to other departments, which, in the end, ended to the medical services.

Environment Setups: The environment setups module allowed hospital’s finance users to map the hospital’s data and feed the software with salaries, fixed assets, depreciations, doctor commissions, services, bills, operations, and many other important information.

Cost Flow Tracing Engine: Based on the defined cost drivers, the tracing engine simulated the incoming and outgoing cost flows department by department on multiple rounds until costs ended at the medical services.

Reporting engine: The built-in reporting engine captured the cost-profit analysis results and produced both aggregated and detailed reports for every department and medical service. It also visualized the generated cost flows in diagrams.

The Results

Our solution achieved to trace millions of costs that flew within the hospital environment and produce, at an impressive level of detail, a full drill-down of all costs that ended up at each medical service.

While for roughly calculating direct costs it might not even be necessary to use software, calculating indirect costs, especially those coming from the back offices, is where most organizations usually fail. On the other hand, with our solution, healthcare consultants could even know by how many halalas (Saudi currency’s equivalent to cents) a receptionist’s salary or CEO’s chair affected the bypass operation and all the other medical operations and procedures.

Epilogue

Pricing services based on the market is a common practice. But it is much more preferable to be able to visualize and understand the cost flows that affect every part of the organization and accurately calculate the real cost of each service.

Being able to evaluate how strategic decisions (such as expansions, acquisitions, salary raises, assets purchasing and price changes) can affect profits, and fine tune them until they achieve the best possible results, under the total safety of a simulation software, is priceless.

Like for the healthcare group in Saudi Arabia, we can help your organization maximize the outcomes of your strategic decision-making through similar cost-profit analysis solutions tailored to your operations and industry.