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Boston Children Project

The document summarizes a pilot project at Boston Children's Hospital applying activity-based costing to measure the costs of treating patients. It presents process maps and financial data for patients making office visits to a plastic surgeon for three different diagnoses. Students use the hospital's existing cost system and a proposed new activity-based costing system to calculate and compare the costs and margins of the three types of office visits.

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Pankhuri Bhatnagar
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50 views

Boston Children Project

The document summarizes a pilot project at Boston Children's Hospital applying activity-based costing to measure the costs of treating patients. It presents process maps and financial data for patients making office visits to a plastic surgeon for three different diagnoses. Students use the hospital's existing cost system and a proposed new activity-based costing system to calculate and compare the costs and margins of the three types of office visits.

Uploaded by

Pankhuri Bhatnagar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Boston Children's Hospital: Measuring Patient Costs

The case describes a pilot project on applying activity-based costing to measure the cost of treating
patients. After an overview of Boston Children's Hospital and its local health care market environment,
the case presents process maps and financial data relating to patients making office visits to a plastic
surgeon for three different diagnoses. Students use the hospital's existing cost system and a proposed
new system, based on time-driven activity-based costing, to calculate and compare costs and margins of
the three types of office visits.

It will also assist the management of the company to improve the approach and
strategies of the organization in order to generate more value by attracting more
and more traffic of the patients and customers with impressive services and
excellent costing approaches that are more in line with the affordability and
purchasing power of the society in the target markets of the organization.
This will assist the management of the company in achieving the long term goals
and objectives of the entity including the short term targets of greater revenue and
market share in the health care industry of the country.
PRIMARY PROBLEM:
“The primary problem of the management of the organization is the present
costing principles and approaches that are being pursued by the organization.
These policies of the organization are a contributor for the reduced value and
performances of the organization than what it could actually achieve”.
The comprehensive analysis of the case study has revealed that the present policies
and approaches of the business being practiced by the management of the
company fail to identify and trace the direct costs being incurred for providing
services to the individuals and patients of the organization.
Due to this critical issue, the management of the company has failed to introduce
the cost leadership strategy and culture within the organization and this has
resulted in a minimized target segment for the organization.

Strengths

 Well-established.
 Brand acknowledgement.
 Positive recognition of the organization among the patients and customers in
terms of its health care services.
 Sophisticated and resourceful.
 Financially resourceful and stable.
 Comprehensive healthcare services to the patients.

Weaknesses

These weaknesses of the organization undermine its value in terms of financial


benefits and greater customer recognition by addressing a greater customer
segment from the services of the organization. Some of the most critical
weaknesses of the existing culture policies and approaches of the organization are
illustrated below.

 Failure to attract a great customer segment of the industry.


 Failure to capitalize on the strengths of the business.
 Ineffective costing approaches and policies of the management of the
company.

 Activity-based costing (ABC) is a costing method that identifies activities in an organization


and assigns the cost of each activity to all products and services according to the actual
consumption by each. This model assigns more indirect costs (overhead) into direct
costs compared to conventional costing.
 CIMA (Chartered Institute of Management Accountants) defines ABC as an approach to the
costing and monitoring of activities which involves tracing resource consumption and costing
final outputs. Resources are assigned to activities, and activities to cost objects based on
consumption estimates. The latter utilize cost drivers to attach activity costs to outputs.[1]
 ICMAB (Institute of Cost & Management Accountants of Bangladesh) defines activity-based
costing (ABC) as an accounting method that identifies the activities that a firm performs and
then assigns indirect costs to cost objects.[2]
With ABC, a company can soundly estimate the cost elements of entire products, activities and
services, that may help inform a company's decision to either:

 Identify and eliminate those products and services that are unprofitable and lower the prices
of those that are overpriced (product and service portfolio aim)
 Or identify and eliminate production or service processes that are ineffective and allocate
processing concepts that lead to the very same product at a better yield (process re-engineering
aim)

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