1. Useful EXCEL Functions

2. Break-Even Analysis • Break even analysis determines the volume of service needed to ensure that revenue generated will exceed costs. • Applications in health care • Basic Model • Revenue growths with increasing service volume • Total cost growths with increasing service volume but at a slower rate than revenue

3. Break-Even Analysis • The break-even point is the level of service volume at which total revenues equal total costs. • A service volume higher than the break-even point implies that revenues exceed costs.

4. Break-Even Analysis • Basic Linear Model • Total Revenue = Unit-revenue x Service volume TR = REV x N • Total Costs = Fixed Cost + Variable Cost TC = FC + VC • Variable Cost = Unit-cost x Service volume VC = COST x N

5. Break-Even Analysis Basic Linear Model • Fixed costs are those that are incurred regardless of how much service is provided. • Variable costs are items of expense that relate to the direct cost of providing care and are expressed as costs per unit of service delivered.

6. Break-Even Analysis • Solution to the Basic Linear Model TR = REV x N TC = FC + VC VC = COST x N Want to find N* for which TR = TC • N* = FC/(REV - COST)

7. Break-Even Analysis Case Problem - (A) p. 21

8. Break-Even Analysis Solution to the Case Problem

9. Break-Even Analysis What-If Analysis

10. Break-Even Analysis Model Variations

11. Break-Even Analysis Model Variations

12. Break-Even Analysis Model Variations

13. Break-Even Analysis Sensitivity Analysis with Two-input Data Tables

14. Break-Even Analysis Sensitivity Analysis with Two-input Data Tables