Capital Purchase Justification Introduction According to the hospital’s five-year plan, an investment in capital equipment should boost the quality of services offered at the hospital. Many options of capital investments that hospital could invest in exist. However, this report recommends an investment in the MRI (Magnetic Resonance Imaging) equipment. This equipment involves a large capital investment upfront, but it can be profitable in the end. The hospital has considered factors such as the cost of this equipment, the facilities needed, and the return on investment of the equipment.
The above factors are among some of the factors that are considered when buying large capital equipment for an organization such as a hospital (Keefer, 2011). Cost of installing and operating the MRI equipment The recommended equipment is a GE Signa Echospeed Plus 1. 5T MRI, which is a machine of medium capacity. This machine produces exceptionally high quality scans, which are extremely detailed; this will attract more customers to the hospital. This equipment will be acquired at an initial cost of about .
million; there is also an additional cost of $400,000, which covers the redesign, and construction of an MRI room. Therefore, there is a total initial cost of about $2. 3 million. Other costs, which have been factored into this report, are the operating and maintenance costs of the equipment (Tofts, 2005). GE offers a three months free maintenance, but the hospital will have to pay for maintenance after that. There is also the cost of hiring an MRI radiologist whose salary ranges between $55,000 and $65,000 a year. Therefore, the total cost of operating the machine, in a year is about $400,000.
The return on investment of the MRI equipment In light of the significant amount that the hospital will spend upfront, it is imperative that the MRI covers the initial cost and gives the hospital a profitable turnover. Given that the rates for doing an MRI scan range from $2000-$4000, it will be an easy task for the hospital to recover its costs. There is also the fee that the hospital charges for an MRI radiologist to view and analyze the MRI scan, which is usually around $400. This charge is also another revenue stream for the hospital and contributes to the ROI of the equipment.
GE, which is the manufacturer of the equipment, indicates that the equipment has a viable life span of up to 15 years, but the warranty only covers the first 6 years of use (Price, 2011). The above figures are a clear indication that the MRI equipment can provide the hospital with an adequate return on investment. These figures, the machine’s lifespan, and the growing demand for MRI scans serve to justify the purchase of the equipment. Other factors that enhance the returns from the equipment include: Variety of clinical applications
One of the biggest advantages of MRI equipment is that it can be used to diagnose medical conditions in the heart, breast, bones, spine, and brain. This is the only imaging equipment, which can be used to diagnose issues, in all the above-mentioned parts of the body. The equipment can be used to identify stroke and blockages in the circulatory system, cardiovascular conditions, tumors, and injuries. There is an excellent return on investment in the MRI because of the variety of uses it has in a clinical setting (Keefer, 2011). Higher quality imaging
The MRI equipment uses technology, which enables high-resolution 3D imaging with a lot of clarity. This technology makes it easier to detect and diagnose conditions such as blockages in blood vessels and tumors. With such high quality imaging capability, the hospital will most likely record an increase in imaging referrals, which would increase the returns on the MRI machine (Price, 2011). The demand for imaging is also growing with an increase in the recorded cases of cancer. This makes the purchase of the machine prudent because of the need for imaging that is increasing.
Increased scanning speed The MRI machine increases the speed of performing scans with its new technology features. The machine has the capacity to display results immediately after the scan and even during the scan. This is unlike some other technologies, for example, x-rays, which allow for processing time. The MRI machine has a real time locator, which allows fast reconstruction of data, and enables a real-time display of results. The faster speeds of scans also mean that more patients can be served utilizing the machine maximally (Tofts, 2005).
Conclusion The initial investment in the MRI machine is significantly high because the cost of purchasing and installing the equipment totals to about $2. 3 million. There are also some additional costs, which are incurred during the daily operation of the machine. With such enormous costs involved in the operation of the machine, there are other factors, which justify the purchase of this equipment, mentioned in the report. The charges on MRI imaging are quite high and are enough for the hospital to recoup its investment on the equipment.
The other factors such as increased speed of performing scans, higher imaging quality and a variety of clinical application also contribute to the profitability of the investment in this machine. There is also increasing demand for imaging services. References Keefer A. (2011). How Much Do MRI Machines Cost? November 16, 2011. Retrieved from http://www. ehow. com/about_4731161_much-do-mri-machines-cost. html Price, J. (2011). Handbook of Breast MRI. Cambridge: Cambridge University Press. Tofts, P. (2005). Quantitative MRI of the Brain: Measuring Changes Caused by Disease. New York: Wiley & Sons.
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Capital Justification. (2016, Oct 14). Retrieved from https://graduateway.com/capital-justification/