Business Case for Medical Laboratory Service: Addis Ababa Medical Laboratories

Subject: Case Studies
Pages: 9
Words: 2465
Reading time:
10 min
Study level: PhD

Executive Summary

Addis Ababa Medical Laboratories is a startup project aimed at the improvement of access to laboratory tests and investigations of the Ethiopian population. The project is to begin in the capital of the country, Addis Ababa, the most populated city in the country. Since the population of the country is constantly increasing, there is the need for high-quality service providing the necessary test to improve the level of the population access to healthcare facilities. A reliable laboratory provides the opportunity to control the major health indicators independently, without direct contact with healthcare providers. It can be useful for people who work long hours and do not have enough time for a detailed examination. Broad access to tests and investigations is an investment into the nation’s health. Addis Ababa Medical Laboratories will use innovative equipment which automates the samples’ procession. Thus, it reduces the cost of a separate test which is an advantage for the population with low incomes. The laboratory will provide all kinds of test and investigations. It will also help to save the patients’ time since there is no need to visit several facilities. Moreover, it will save their money due to the flexible discount system. It will be of particular interest for customers who need regular investigations such as blood test to check blood sugar for patients with diabetes or for pregnant women who pass complex tests monthly. The perspective of the laboratory is the development of a network throughout the country in the third year of project implementation. The profit is expected to exceed the expenses after three years of project development. The long period is explained by the expensive equipment that will be purchased and added to the laboratory gradually and the expected low incomes of the population. This period is the worst possible scenario. With the more favorable scenario, the project will become profitable already during the second year.

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Background

A medical laboratory with modern equipment and well-trained staff is a basis for the healthcare system. Exact and fast laboratory tests and examinations provide a timely and accurate diagnosis which in it turn is the key to successful treatment process (1). Since healthcare is not properly organized in the developing countries, they can be a ground for quickly growing and profitable medical laboratory business. For example, Ethiopia is one of the world countries with steady and rapid population growth (2). At present, its growth rate is 3.02% per year (3). In case this rate of growth does not slow down, the country will double its population as of 2060 (3). Such rapid population growth together with poor economics may lead to the deterioration of access to healthcare facilities including medical laboratories. Consequently, there is the need for new facilities to meet the growing demand of the population.

Situational and Problem Statement

Although the nation is comparatively young with the medial age of 17.8 years as of 2015, the life expectancy is not high. It is estimated at the rate of 62.2 years as of 2015 (3). According to World Health Organization, the cause of 34% of deaths of Ethiopians are non-communicable diseases such as cardiovascular disease, cancer, diabetes, chronic obstructive pulmonary diseases, etc. (4). The mentioned above illnesses can be successfully cured if diagnosed in the initial stage. Moreover, some of them can be prevented on condition that the susceptibility to them is revealed. Both are possible with the regular laboratory tests and investigations.

The problem with Ethiopia in general and its capital city Addis Ababa in particular is poor availability of the laboratory facilities. For example, among 13 focused antenatal care laboratories in Addis Ababa, only 5 provided all laboratory investigations necessary for such type of laboratory (5). The situation with blood glucose test and HIV test was better. 11 or 84.6% of laboratories provided them (5). However, only 7 (53.8%) of laboratories could perform the Hepatitis B screening test (5). Besides, health care providers are not always satisfied with the quality of service provided by medical laboratories (6). Moreover, the wide access to laboratory testing can have a positive impact on the thoughtful and healthy family planning which is also a problem in Ethiopia (2). Thus, there is a necessity in a medical laboratory providing the full set of tests and investigations. The project can start with one laboratory facility in Addis Ababa with further development into a network of laboratories over the country.

SWOT analysis

Strengths
  • Innovative and contemporary equipment
  • Wide range of the provided services
  • Low cost for the population
  • Profitability due to automation of processes
  • Family discounts for tests
Weaknesses
  • Low profitability within the first year due to economic situation in the country
  • Need for a license in a foreign country
  • Need for qualified personnel
Opportunities
  • Efficiency: reduced cost of tests due to the modern materials and automation of processes
  • The perspective of development into a network
Threats
  • The existing competitors in the area
  • Mistrust of the population to a new facility

Project Description

Addis Ababa Medical Laboratories are going to meet the need of the growing Ethiopian population for high-quality health assessment. The new facility will be equipped with contemporary appliances that allow complicated tests within a laboratory without a need for transportation. This approach will also save costs which will result in lower prices for the tests. The automation of samples processing saves time and labor force thus also contributing to the price reduction.

The tests provided by Addis Ababa Medical Laboratories will include (7):

  • Microbiology (investigation of microorganisms such as bacteria, viruses, and parasites).
  • Hematology (Testing of red and white blood cells, CBC, blood sugar, hemoglobin, blood proteins in blood).
  • Clinical fluid analysis (laboratory chemical analysis of bodily fluids, such as blood, urine).
  • Ultrasound (internal organs and obstetric sonography).
  • X-ray.

Computer tomography will be added as soon as the laboratory becomes profitable.

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The tests’ results will be provided within 24-48-hour period depending on complexity. There will be two options for receiving the results: in person at the office, and through e-mail. In addition, there will be a possibility of anonymous tests (such as HIV or Hepatitis) with the opportunity to get the results on the phone.

The major customers of Addis Ababa Medical Laboratories are expected to be young women (mainly pregnant) and children. This distributing is conditioned by the average young age of the Ethiopian population.

Patients' Distribution

Solution Description

The major concept of Addis Ababa Medical Laboratories is high quality of service. It will be monitored and maintained with the help of quality assessment (8). The procedures of quality analysis and control will be implemented on regular basis. The analysis results will be published on the web-site of the laboratory.

The Addis Ababa Medical Laboratories provides direct to consumer laboratory testing. It means that the patients do not need to contact the healthcare provider but get the necessary tests immediately at the laboratory (9). It may stimulate the population to more self-control over their health.

The automation processes will provide the decrease of time spent on processing of one sample and minimize the human resources involved in the process. As a result, the price for laboratory tests will reduce (10). Lower prices will attract more patients. Since the economic situation in the country is not steady, the cost of medical service is decisive for the possible customers when they select the facility to have tests. The families in Ethiopia are traditionally big (3). Thus, family discounts will be another factor to attract consumers in the conditions of the competitive environment.

Cost/Benefit Analysis

The costing will include:

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Objective Cost Period
Laboratory equipment:
Major laboratory equipment $1,000,000 Once in 5 years
A single major machine $100,000 Once in 5 years
1 bench top small instrument $20,000 – 50,000 Once in 5 years
Reagents up to $ 3,000 Monthly
Other equipment:
Furniture for the waiting room and blood drawing rooms $20,000-30,000 Once in 5 years
2 computers, software, laser printer and Internet connection $10,000 Once in 5 years
Stationary and printed products $1,000 Monthly
Fixed costs:
Rent $ 3,000 Monthly
Utilities not available yet Monthly

The period of equipment exploitation is estimated at five years. Major equipment deterioration is 20% of its initial value annually. The maintenance expenses are planned in accordance with deterioration. The change of the major equipment is planned after five-years’ period.

The project will start with minimum staff since the major processes are automated.

Stuff plan:
Pathologist $200,000 Yearly
Scientists $80,000 Yearly
Technicians $50,000 Yearly
Cleaners $45,000. Yearly
Clerical officer $45,000 Yearly

Besides, the costing will include quarterly quality control and quality assurance. These processes will be provided with the involvement of the third parties and payed on the contracts.

Approximate cost of quality control assessment
Quarterly control, 3 times a year $2,000*3=$6,000
Annual control $10,000
Total: $16,000

Personal IT service is not planned during the years 1 and 2. An IT specialist will be invited to develop a web-site and provide the functioning of necessary software. With the development of a network a separate IT department will be created.

IT specialist $100,000 (Yearly, obligatory for the first 2-3 months, then on invitation in case of necessity).

The benefit analysis is an integral part of business planning (11, 12). During the first year of functioning the expenses will prevail. The best possible result will be zero profit. In case the calculations prove to be inefficient, the company will have minus profit. During the following years, with the increased investment and the development of laboratory network, the growth of profit is expected.

Cash Flow Statement

Year 1 Year 2 Year 3 Year 4 Year 5
Cash outflow
Laboratory Equipment
Major laboratory equipment $1,000,000 0 0 0 0
Test cartridges $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000
A single major machine $100,000 0 0 0 0
1 bench top small instrument $20,000 – 50,000 0 0 0 0
Reagents $36.000 $36.000 $36.000 $36.000 $36.000
Other equipment
Furniture for the waiting room and blood drawing rooms $20,000-30,000 0 0 0 0
2 computers, software, laser printer and Internet connection $10,000 $2,000 $2,000 $2,000 $2,000
Stationary and printed products $12,000 $12,000 $12,000 $12,000 $12,000
Rent $36,000 $36,000 $36,000 $36,000 $36,000
Other expenses $200,000 $100,000 $100,000 $100,000 $100,000
Staff
Pathologist $200,000 $200,000 $200,000 $200,000 $200,000
Scientists $80,000 $80,000 $80,000 $80,000 $80,000
Technicians $50,000 $50,000 $50,000 $50,000 $50,000
Cleaners $45,000 $45,000 $45,000 $45,000 $45,000
Clerical officer $45,000 $45,000 $45,000 $45,000 $45,000
Total Outflow $2,894,000 $1,606,000 $1,606,000 $1,606,000 $1,606,000
Cash inflow
Sales $900,000 $1,500,000 $2,400,000 $3,000,000 $3,000,000
Total revenue $900,000 $1,500,000 $2,400,000 $3,000,000 $3,000,000
Cash flow/year -$1,994,000 -$106,000 $794,000 $1,394,000 $1,394,000
Cumulative Discounted Cash Flow -$1,994,000 -$1,888,000 -$1,094,000 $300,000 $1,694,000

The initial cost of the project is $2,894,000 including the cost of the equipment and the implementation procedures. The high initial value influences the payback period or a break-even which is prognoses as 4 years. However, the atomized equipment will allow the increase of sales and provide the annual growth of cash flow. Part of the profit will be invested in the project development of a medical laboratory network and the implementation of new technologies to increase the quality of service.

The forecast of payback period can be better traced on the diagram.

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Payback Period

A Balance Sheet

Asset Capital and Liabilities
Equipment $ 1 500 000 Capital $ 2 000 000
Goods bought $ 200 000 Creditors $ 150 000
Debtors $ 150 000
Cash at bank $ 100 000
TOTAL $ 1 950 000 $ 2 150 000
Fixed asset $
Grand Total $ 2 150 000

Another aspect of benefit is the customer’s satisfaction. The clients who are satisfied with service and pricing policy are an important component of advertising. Its increase is expected since Addis Ababa Medical Laboratories will provide the service of high quality within the short period of time.

Implementation Timeline

The period of implementation of the project is estimated at five years. The first year is dedicated to the preparation which includes project completion, the attraction of investors, licensing process, and finally the launch of the medical laboratory. The following four years will be spent on the introduction of the laboratory service at place until profit exceed the expenses. A preliminary development plan includes the provision of computer tomography equipment during the fourth year of functioning. The implementation of this aspect of plan depends on the net profit during the first three years and is not included in the cost of the project at this stage.

Year 1 Year 2 Year 3 Year 4 Year 5
Project completion X
Choice of location X
Search of investors X
Licensing X
Project start X
First profit X
Development of the laboratory network X
Provision of computer tomography equipment X
Profit equals expenses X
Profit exceeds expenses X X

Critical Assumptions and Risk Assessment

One of the points to be considered is the license for providing service in a foreign country. Its cost and the time for documents processing should be considered first of all. The risk of the project is in the possible competitors and the low purchase power of the population. The first point can be supported with the more contemporary equipment, the wider range of tests and services within one laboratory, and the higher service level. The answer of Addis Ababa Medical Laboratories will be the moderate prices, the flexible discount system, and family discounts. Finally, the task of the medical laboratory is to win the trust of the consumers with the reliable results, moderate prices, and high-quality service.

Conclusions and Recommendations

On the whole, a medical laboratory is a necessity in conditions of constant and rapid growth of population that is observed in Ethiopia. Addis Ababa Medical Laboratories is a promising project that with a thoughtful management will grow into a big network. At present, the state of laboratory service quality is unsatisfying. It does not meet the demand of the population and does not provide the service of high quality. Thus, a contemporary equipped laboratory with well-trained personnel and automated processes is a need for the city. It demands much investment which will be returned within 3-5 years depending on the market conditions. This challenging project has some risks to face. First of all, the competitors that work in the area may be an obstacle. They provide similar service in the area for some time and are already familiar to the consumer. However, Addis Ababa Medical Laboratories provides the service of higher quality for lower costs. The second problem may be the low purchasing power of the population. This risk can be minimized through the decrease of tests’ prices to make them available, and the discount system. It can be achieved due to the modern automated equipment which provides time and cost-saving work. Finally, the major concern of the project is the customers’ satisfaction. It will be approached through the development of customer service, professional staff, favorable environment, and the high standards of the provided services.

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