OPERATIONS MANAGEMENT

Submission 1

Submitted by:

SHOULDICE HOSPITAL Akshay M M 1911304

Lakshay Arora 1911308

Sangeeth Asokan 1911309

Prachi Jayaswal 1911338

Santosh Kumar 1911351

Ronita Mondal 1911355

Contents
INTRODUCTION 2
HOW SUCCESSFUL IS THE HOSPITAL? 2
HOW DO YOU ACCOUNT FOR ITS PERFORMANCE? 3
STRATEGIES FOR PROFIT MAXIMIZATION 4
OPTION 1: MAKING SATURDAY WORKING 4
a) Current Scenario: Not Working on Saturdays 4
b. Working on Saturdays 6
OPTION 2: INCREASING CAPACITY OF BEDS BY 50% 6
a) Working on Saturdays 7
OPTION 3: EXPANDING GEOGRAPHICALLY 8

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INTRODUCTION
Dr Earle Shouldice started the Shouldice hospital in Toronto, a specialised hospital to perform hernia
operations through his superior surgical techniques. The hospital performed an average of 30-36
surgeries/day. The case highlights the working of the hospital in terms of various stakeholders. We
have attempted to analyse the hospital’s success, its performance and have come with
recommendations through which hospital could improve as well as increase its capacities.

HOW SUCCESSFUL IS THE HOSPITAL?

To evaluate if the Shouldice hospital has been successful and efficient in its operations, we looked into
the various factors that have been listed below.

1. Number of surgeries - High

Shouldice Hospital performs 30-36 surgeries/day which translates to 7.5K-9K surgeries per year. A
typical surgeon here performs 750+ operations/year while an average surgeon working in any other
hospitals perform just 25-50 hernia operations which clearly indicates the core competency and
specialization of the hospital has helped it to achieve economies of scale aka better output.

Promotion - Word of Mouth

Most of the patients of Shouldice hospital have been attracted through word of mouth. It doesn’t use
the conventional means of advertising and hence huge saving on the cost of advertisement for
Shouldice hospital. Around 10% patients belong to the province of Ontario, and a major chunk of
patients, about 60%, are from areas beyond Toronto. The geographical patient distribution clearly
shows that the hospital had a wide awareness for its services and wasn’t just concentrated in Toronto,
the place where it is physically located.

Feedback from Patients

Patient satisfaction forms an important parameter to gauge a hospital’s success. The survey results in
Exhibit 3 suggests that 86% patients felt that Shouldice Hospital cared for them. The operation
procedure, physician’s care, nursing care and food service are some of the factors that impressed most
of the patients coming in for hernia operations.

2. Profit Analysis of the Hospital

The Shouldice Hospital charges an average of $1990 (assuming 20% cases require general anesthesia).
This is way below than average $5240 charged by other hospitals and is still able to earn profits.
Shouldice Hospital holds a Cost-Leadership position, and this has proved to be a successful model for
the hospital so far.

The surgeons at Shouldice received roughly 15% more than an average Ontario based surgeon. This
has benefitted both the hospital and the doctors as it has led to a low attrition rate. The hospital also

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has a bonus system in place, both for the surgeons as well as other staff. The surgeons were paid
around $400000 as bonuses in the recent year. Also, the administrative and support staff got about
$60000 divided among themselves last year.

HOW DO YOU ACCOUNT FOR ITS PERFORMANCE?

Effective Processes
The method adopted by the Shouldice hospital is different from their counterparts in terms that a
normal operation takes only 45 minutes. The other factors of the operation procedures are- Patients
admission is done a day prior to the operation. Also, the doctors were assigned to the operating rooms
by previous noon itself so that they can screen the patients they would be operating. On an average,
a surgeon at Shouldice facility performs more than 750 operations every year compared to 30
operations per year by other surgeons.

Training and Development

The Shouldice Hospital specifically uses their own devised “Shouldice Method” as their standard
surgery procedure. The adoption of this procedure by the surgeons forms an integral part of recruiting
them. Along with it, the recruitment process gives stress on the experience, education, individual
interests and habits. A typical surgeon once recruited is trained in learning and practicing the
“Shouldice Method” until habituated. There is peer to peer discussions amongst the surgeons during
unusual occurrences. This enables shared learning and also adds to the team building effort.

Managing Cost of Operations

The infrastructure and the facilities of the hospital is managed in such a way that helps in maintaining
low cost of operations without compromising the patient’s satisfaction. The patients have to take a
walk to make a telephonic call or watch television because the patient rooms did not have television
sets or telephones. This enables them to socialize with other patients. Even in terms of housekeeping
staffs, there are just three staff as they believe on the opinion that changing linen is not necessary for
a patient’s four day stay. The parents who accompany their children are also not charged any extra
costs as it is compensated by the reduction in the nursing costs. The furnishing costs of an operating
room ranges at around $30K , much lower than the other hospitals.
Handling Patients
Shouldice commands its promotion through word of mouth publicity, which can be observed from the
fact that most of the patients who come to Shouldice hear about it from the past patients. The patient
management process involves certain sequential and standard steps. A questionnaire is sent to any
out of town patient for preliminary diagnosis. Post this, operating dates is fixed and is communicated
to the patients along with a brochure explaining the method.
On arrival, the patient is examined by one of the surgeons after which they are sent to a room having
two beds. Nurses conduct an orientation program having routine information. After admission &
orientation, the patients are served dinner which is followed by recreational activities. This unique
patient management keeps them motivated.

Patient Reviews
The unique procedure and patient management at Shouldice is well accepted by the patients who feel
that the Shouldice experience is better and different from that of the counterparts. This is reflected
by the survey which shows that the satisfaction is high among the patients. The fee structure of the
Shouldice also is an addition factor as it is less costly than the other hospitals i.e. a charge of $320/day
compared to $650/day of other hospitals as surgical fee. All of this show that the patient of Shouldice
are pretty satisfied with the nature of service received.

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STRATEGIES FOR PROFIT MAXIMIZATION
Looking into the operations of the hospital, we have come up with 4 options which can be
implemented to change the profitability of the organization:

Assumptions and observations used for analysis:

1. In the case it is given that few numbers of cases are rejected because of the occurrence of obesity
in the patients or represent an undue medical or it was determined that they did not have a
hernia. We assume that the no. of such cases is 10% of the total no. of patients coming to the
hospital.
2. No. of surgeons given in the case is 10 and in the organization chart is 12. We are considering no.
of surgeons = 10 (the no. in the case) for all our calculations
3. The no. of recurrence cases is assumed to be 10% of the total hernia cases.
4. The data given in the case and the exhibits does not include the working hours of the
housekeeping people. So, we are assuming that their activity does not contribute to the
bottleneck.
5. We assume that the Surgeons (and hence Operating rooms) are working for 8 hours per day (as
per the case, timings are 7:30 to 16:00, and considering 12:30-13:00 as break time)

OPTION 1: MAKING SATURDAY WORKING

a) Current Scenario: Not Working on Saturdays

The infrastructure of the hospital is listed below:

Now if we calculate the capacity of each resource we will be getting the below data :

1. Time taken for Operation = (0.9 X (45+15) + 0.1 X (90+15)) = 64.5 min = 1.075 hrs
2. Capacity of Operating room = 5 X (8/1.075) = 37.20 ~ 37
3. Capacity of Surgeons = ((5/1.075) X 10) + ((3/1.075) X 4) = 57.67 ~ 57
4. Capacity of Assistant Surgeons = (8/1.075)X8 = 59.53 ~ 59
5. Capacity of Anaesthetist =70
6. Capacity of Nurses = 126

7. Capacity of Hospital Bed = 30 (No. Of Beds available in Shouldice = 89. Admit, operation and
recovery keep a patient in bed for 3 days. So, they can have a maximum of 30 beds available on
a single day, which can cater to 30 Operations/day)

8. Capacity of Clinic:

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No. Of surgeons required in 1 examination = 1
No. of Examination rooms = 6
Time required per examination = 20 mins.
No. Of examinations 1 surgeon performs in a day= 3 X (60/20) = 9
No. Of examinations in a day: 6 X No. Of examinations 1 surgeons perform in a day = 6 X 9 = 54
Maximum no. of patients that can be admitted in a day = 54 X 0.9 = 48.6 ~ 48
Maximum no. of patients that can be admitted in a week = 48 X 5 = 240
Summary of above calculations:

Utilization of Beds

So, from the above analysis, we can see that the capacity of operating rooms is 37 and that of
surgeons is 57 we are still operating only 30 patients. So, the bottleneck is the number of beds.
As per the data given in the case, if a patient is admitted on day 1, operation is done on day 2
followed by recovery and discharge on day 3. This cycle continues like this from Monday to Friday
but since weekends are non-working, patients getting admitted on Friday is operated on the next
working day which is Monday. On Saturday and Sunday, no patient is admitted.
So, no. of operations the hospital does in a week = 148.
So, the resource utilization per week:

Therefore, total cost per year = $12,000,000

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 Total Annual Revenue = $13,817,440
Profit = 15.15%

b. Working on Saturdays

Assuming everything else remains the same,

The max. no. of patients that can be admitted in one week = 6X48 = 288
Total capacity of operations in one week = 6 X total operating capacity in a day = 6 X 37= 222

Annual cost = $12,000,000

Annual Revenue = $15,956,720
Profit = 32.97%

OPTION 2: INCREASING CAPACITY OF BEDS BY 50%

Capacity of beds increased by 50%, therefore new total bed capacity = 89 X 1.5 = 133.5 ~ 133
On an average, a bed is occupied by a patient for 3 days. Hence, the total bed capacity per day =
133/3 = 44.33 ~ 44
Cost of increasing bed capacity = $ 4000000
The bottleneck is now operating rooms instead of beds and the capacity of operating rooms=
44/1.075 = 37.5 ~ 37.

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a) Working on Saturdays

Therefore, Annual cost = $16000000

Total Annual Revenue = $16065400
Profit = 0.41%

b) Not Working on Saturdays

Therefore, Annual cost = $16000000

Total Annual Revenue = $17795520
Profit = 11.22%

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OPTION 3: EXPANDING GEOGRAPHICALLY

The Shouldice hospital could also try to establish a hospital with similar design outside Toronto,
possibly in the United States. But since we do not have any estimate for the demand for hernia
operations in the US, and the capital requirement for the establishment of facilities, we
haven’t gone into explaining this alternative.

IMPLEMENTATION
From the analysis of the different options available can be summarized as:
1. Saturdays to be working days keeping no. of beds constant
(no. of operations performed per week: 178, bed utilization: 90.53%, profit: 28.81%)
2. Increasing the bed capacity by 50% with the addition of one new operating room whilst
working on Saturdays
(no. of operations performed per week: 240, bed utilization: 81.6%, profit: 30%)
Among these 2 options the difference in profit margins are not too much but the 1st option have
maximum bed utilization as well as needs less capital investment in contrast to the 2nd option
which have less bed utilization and the need of a huge capital investment. So, the hospital should
go for option 1 i.e. work on Saturdays.

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ANNEXURES
Calculating the capacities

1. Time taken to perform an Operation = (Probability of normal operations X Time taken for operation) +
(Probability of recurring case X Time taken)

= [0.9X(45+15) + 0.1 X (90+15)] = 64.5 min = 1.075 hrs

2. Capacity of Operating room = No. of operation rooms X No. of operations possible per day = 5 X (8/1.075)
= 37.2093 =37

3. Surgeons’ Capacity = (No. of Operations a surgeon can perform in the morning slot) + (No. of operations
a surgeon can perform in the afternoon slot)

= ((No. of Hours / Time taken to perform an Operation) X No. of surgeons) + ((No. of Hours / Time taken to
perform an Operation) X No. of surgeons)

= ((5/1.075) X 10) + ((3/1.075) X 4)

(Given that 6 Surgeons goes for examinations in the afternoon slot)

= 57.67 = 57

4. Assistant Surgeons’ Capacity= (No. of Operations per day X No. of Assistant Surgeons)

= (8/1.075) X 8 = 59.53 = 59

5. Anaesthetist Capacity = (No. of Anaesthetists X No. of operations possible in a day)

General Anaesthesia is required in 20% of the cases, and we are assuming that in these cases the
Anaesthetist will be present for the entire operation process. In the cases where General Anaesthesia is
not needed, the assumption is that the time taken is negligible. So, in case of General Anaesthesia, 2
Anaesthetists could perform 2 X (8/1.075) = 14.88 or roughly 14 operations
But this represents only 20% cases, and on the others, negligible time is taken. So, anaesthetist capacity in
day =70 operations

6. Nurse Capacity = ((Total No. of Nurses / No. of Nurses needed in an operation) X No. of Operations per
day) = ((34 / 2) X (8 / 1.075)) = 126.511 = 126

7. Capacity of Hospital Bed = 30 (No. Of Beds available in Shouldice = 89. Admit, operation and recovery
keep a patient in bed for 3 days. So, they can have a maximum of 30 beds available on a single day, which
can cater to 30 Operations/day)

8. Clinic Examination Capacity

One surgeon is required for each examination and the no.of examination rooms available is six.

Time taken for each examination = 20 min.

No. of examinations per surgeon per day : 3 hrs X (60min/20min) = 9

No. of examinations per day : (No. of examinations per surgeon per day) X 6 = 9 X 6 = 54

Maximum patients that can be admitted per day = 0.9 X 54 = 48.6 ~ 48 (approximately)

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Max. no.of patients that can be admitted / week =( Maximum patients that can be admitted / day )X 5 =
48 X 5 = 240

Calculations in OPTION 2:

a) Not working on Saturdays

The maximum capacity of the operating rooms would be:

No. of Operation rooms X (No. of working hours / Time taken per operation)
= 6 X (8/1.075) = 44.65 ~ 44 (since, the average time taken to perform one operation is 1.075 hrs.)

Since we are considering a case where the bed capacity is being increased by 50%, the no. of beds = 89 *
1.5 = 133.5 ~ 133
A patient occupies a bed for 3 days on average, therefore, no. of operations = 133 / 3 = 44.33 ~ 44

However, now since 6 operations are to be done simultaneously, surgeons’ capacity should also be taken
into consideration.

No. of operations performed by surgeons before lunch break (12:30pm)

= 6 X 5 / 1.075 = 27.91 ~ 28 operations:

For optimizing the whole process, we have assumed that 5 surgeons work from 1pm to 4pm on
examinations. Also, we have assumed that percentage of patients admitted is only 90%.

Maximum No. of intakes in a day = (3 X 60 X 5 / 20)X0.9 = 45(0.9) = 40.5 ~ 40

No. of Operations performed in afternoon = 5 X (3 / 1.075) = 13.953 ~ 14

Therefore, Total No. of operations performed = 14 + 28 = 42 operations

Profit Calculations:

1. Total revenue generated per week from patient’s stay = Total number of bed utilised/ week X Cost
of 1 bed per day
2. Total revenue generated from 1 patient per operation per week = 3 X (bed cost/day) + (surgical fee
per operation) + (0.2 X fee from general anaesthesia)
3. Annual revenue= 52 X (Total revenue from 1 patient per operation per week) X Total no. of
operations
4. Profit = Annual revenue / year – Total cost / year
5. Profit % = (Profit / total cost) X 100

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