healthcare capital budgeting

healthcare capital budgeting

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Please provide comment regrading the discussion below. 3-5 sentences only following APA. Thank you!

The article I chose to write about looks at the usefulness of a spreadsheet tool, called the Monte Carlo simulation, in helping management to understand and map out risk and possible success of a particular project. By using the Monte Carlo simulation, a manager in any kind of organization, is able to show the distribution of different outcomes and therefore the probability of success for a given project or program, (Clark, Reed, Stephan, 2010). While the authors report that many traditional finance texts recommend the use of a sensitivity analysis or scenario analysis in order to deal with financial uncertainty, they argue that the Monte Carlo simulation is in fact a better tool for doing this. They note that this is because this tool is able to look at all possible combinations of variables and how these could impact risk to the organization, (Clark, et al., 2010).

In this article, the authors use the Monte Carlo simulation to explore the probability of risk of a hospital group in purchasing an MRI machine. The healthcare group’s supposition is that the purchase of this machine will provide a significant amount of income due to a strong market. By utilizing this tool, the healthcare organization can develop a visual representation of the probability of risk to them through the purchase of the MRI, while also minimizing what the authors call an optimism bias, which is when a champion of a project downplays potential risks associated with the project, (Clark, et. Al., 2010). Ultimately, this tool is useful in allowing managers to make better financial decisions concerning risk and capital budgeting.