University of Southern Indiana
Romain College of Business
Department of Economics and Marketing
ECON601 Managerial Economics Econ601.AO1/NO1
Summer 2020 Timothy J. Schibik, Ph.D.
Case / Project Analysis
Analysis Due — Friday, June 26, 2020 (by Midnight) 50 points
Case / Project Analysis – The purpose of this final case/project assignment is to assess your ability to use the analytical tools you have learned in this class to solve a business problem.
The chapters in the text have given you the analytical tools you need to solve many business problems. The problems listed below illustrate scenarios faced by real businesses.
Chapter 24 in your text covers several examples. Your text authors and your instructor would offer several cautions/experience-based suggestions for your answers à
CONSIDER THE FOLLOWING CAREFULLY:
- “What about the organizational design?”Figure out what is causing the problem, and then think about how to avoid the problem. A lot of papers identified a bad decision, and then suggested reversing it. But they neglected to address the issue of why the bad decision was made, and how to make sure the same mistakes wouldn’t be made in the future.
- “Don’t define the problem as the lack of your solution.”For example, if the problem is “the lack of centralized purchasing,” then you are locked into a solution of “centralized purchasing.” Instead, define the problem as “high acquisition cost” and then examine “centralized purchasing” vs. “decentralized purchasing” (or some other alternative) as two solutions to the problem.
- “What is the trade-off?”Every solution has costs as well as benefits. If you list only the benefits, it makes your analysis seem like an ex post rationalization of a foregone decision, rather than a careful weighing of the benefits and costs. If you spent some time thinking through the tradeoffs, show it. If not, then you should.
- “What is the problem?”Please remember to actually identify and define the problem. This should be done before you begin to apply step #2 below.
- Avoid mistaking the symptoms for the problem!
Instructions –
Step #1 – Pick a business problem (pick only 1). You have two choices for how to proceed through this final assignment:
- You can pick one of the three problems identified below, or
- You can develop/identify a problem of your own.
- Note: if you choose this second option, you MUST fully explain the problem (as in the problems provided) so that a determination of the reasonableness/correctness of your solution can be determined.
Step #2 – Identify and FULLY EXPLAIN the problem to be addressed AND the source of the problem
- Start by answering our three questions à
- Who is making the bad decision?
- Does the decision maker have enough information to make a good decision?
- Does the decision maker have the incentive to make a good decision?
NOTE: Simply answering the three questions will NOT fully explain anything.
Step #3 – Given everything you have learned in this course, propose and DEFEND a solution to the problem identified in step #2.
Procedural Issues/Guidelines –
The case analysis will typically be between 3-4 pages in length and must include a complete theoretical justification/defense of your proposed solution. Please be VERY specific in your problem identification and justify the source of the problem. You should pay specific attention to answering your instructor’s favorite question – WHY?
DO NOT assume the reader knows the background materials. Your final analysis should be readable (and understood) by any colleague from your workplace.
Treat this final analysis as a policy brief written for your immediate supervisor in terms of format etc.
Note: USI, and the Romain College of Business, follow the A.P.A. Style Manual
Possible Business Problems – Note: These problems are based on real-world situations and borrow heavily from published news stories and academic articles/postings (citations are available). Please do not simply “Google” possible answers (your instructor does know how to follow this path).
#1 – Inefficient allocation of donated kidneys for transplant.
Currently (as of January 2019), there are approximately 95,000 people in the U.S. awaiting a kidney transplant. In 2018, approximately 21,000 kidney transplant surgeries were performed. On average, approximately 5,000 people die annually while waiting for kidney transplants in the United States. And yet, as in each of the last ten years, more than 2,600 kidneys were recovered from deceased donors and then discarded without being transplanted, government data show (information is taken from a 2018). More recently, a government study noted that less than half of the potentially transplantable kidneys available were recovered from potential donors.
The bottom line is that very few recovered kidneys were either actually transplanted (those organs recovered but not used typically wound up in a research laboratory or medical waste incinerator) or were never recovered in the first place. In many instances, organs that seemed promising for transplant based on the age and health of the donor were discovered to have problems that made them not viable. But many experts agree that a significant number of discarded or unrecovered kidneys — perhaps even half, some believe — could be transplanted if the system for allocating them better matched the right organ to the right recipient in the right amount of time.
One reason for this inefficiency is the government’s performance evaluation metric for transplant programs: If the number of failures exceeds expected levels by 50 percent, the program is put on a watch list and risk decertification. Transplant surgeons are graded on the one-year survival rate of their patients but face no penalty when patients die on waiting lists. As physicians control the transplant decisions and have an interest in the success of transplant programs, the government “incentive” encourages physicians to reject all but the best candidates for transplant.
What would you suggest as a solution to the problem of the allocation of kidneys?
#2 – Ever Increasing Hospital Pharmacy Costs
Each year, hospital executives are faced with the same daunting task of finding ways to tighten the budget belt one more notch. It’s a sign of the times against looming — and in some cases significant — reimbursement cuts from Medicare and a regulatory backdrop demanding more for less.
Historically, the pharmacy department represents one of a hospital’s highest cost centers. Keeping pace with rising drug costs and staffing needs account for the majority of the pharmacy budget and are the main drivers of annual requests for increases. However, while the clinical side of the house focuses on gaining access to medical advances and newer, more effective drug treatments, the finance department is focused on, at best, maintaining the status quo in terms of pharmacy spending.
It’s a double-edged sword. New regulations and quality expectations are requiring that pharmacies allocate more resources to ensure that appropriate initiatives are in place that promote the highest level of patient care and safety. At the same time, the pharmacy represents a prime area of focus for improving cost efficiencies and benchmarks for appropriate reimbursement.
Going forward, hospital pharmacies will have to improve operational practices to ensure staff time is used for the most optimal tasks. What would you suggest as some options/solutions?
#3 – Air Conditioning in UPS (or FedEx) Delivery Trucks.
The summer of 2019 has been an exceptionally warm one across the country. The information below was taken from an NBC News Story from July, 2019.
Over the past decade, the online shopping boom has been a windfall for UPS. Gross revenue has risen almost 40 percent to nearly $72 billion, and its U.S. workforce has ballooned to 396,000, making UPS one of the nation’s biggest employers. The number of delivery vehicles has surged almost 24 percent since 2011 and the number of delivery drivers is now 74,000.
But UPS does not air-condition most of those familiar brown trucks or many of its loading facilities. On a long hot day of deliveries, the temperature in the cargo area of a truck can soar to 140 degrees and higher. UPS drivers have recorded temperatures as high as 152 degrees, according to photos and video provided to NBC News.
These working conditions are beginning to take their toll on drivers and loaders alike. Across the country, some UPS workers caught between rising temperatures and the growing pressure of the delivery economy have found their bodies are breaking down. At least 107 UPS workers in 23 states have been hospitalized for heat illnesses since 2015, according to state and federal worker-safety data and hundreds of pages of documents obtained by NBC News through freedom-of-information requests.
The only U.S. employer with more heat incidents reported to federal regulators than UPS is the U.S. Postal Service — which also doesn’t currently air-condition the majority of its delivery trucks. (The Postal Service has more employees than UPS — 630,000.).
Yet, UPS has no plans to air-condition its delivery fleet, and drivers said they feel uncomfortable complaining at a company that offers one of the nation’s best paying jobs for workers without college degrees.
Moving forward, what suggestions would you have for UPS (and their competitors) regarding this issue?