Community Hospital in Ypsilanti: Janice Portfleet Case

Introduction

Case Study: Janice Portfleet is a nurse manager of a 12-bed critical care unit (CCU) for a community hospital in Ypsilanti, Michigan. Her superior has just notified her that the productivity level in the CCU has declined. Nurse Portfleet is asked to cost out nursing services for her unit, using activity-based costing (ABC).

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Is this a helpful response to the decline? Why?

Activity-based counting refers to the process of evaluating the costs of products and services by assigning them to different processes or activities, thus allowing to change indirect costs to direct costs. This process aims to estimate the costs of products or services more accurately, which helps to identify inefficient activities, non-profitable services, and other expenses that affect the business’ productivity level and its profitability (Nayab, 2011, sec. 2). In order to increase efficiency, the management could exclude the inefficient products from the product line, raise their costs to cover the expenses, while at the same time decreasing the costs of more profitable goods and activities, or alter the processes of production or service providers in order to cut the costs.

Therefore, the activity-based counting method provides management with a tool for identifying high costs that can be addressed in an attempt to raise the productivity level. The implementation of this approach, however, is a challenging and costly process, where data collection requires time and substantial resources (Nayab, 2011, sec. 3). The effectiveness of the process is not guaranteed, because some costs might be too hard to trace or assign to an individual service (Nayab, 2011, sec. 3), which is why most businesses do not consider it a useful tool for addressing the decrease in productivity.

Nevertheless, the use of this model of cost counting in various medical institutions and care units has been proved successful. For instance, Maher and Marais (1998) conclude that the implementation of activity-based counting in the studied care unit allowed identifying that the majority of high costs were created by the use of a particular anesthetic. The switch to a modern alternative has lead to the reduction of patient demand for nursing services, which could potentially allow cutting the nursing expenditures (p. 141).

More recent research also suggests that the limitations of activity-based counting method in nursing units could be overcome if time-driven activity-based counting is used instead of the traditional activity-based counting (Lim, Kim, & Park, 2011, p. 500). Overall, there is a potential for success in the productivity increase of the critical care unit if activity-based counting method is applied, but the implementation of this costing system would still be difficult and would cause a short-term increase in expenses.

What would this process entail?

The process of activity-based counting for a CCU would include several steps to analyse the source of excessive costs and to assign them to specific activities (Nayab, 2011, sec. 1). First, it would be necessary for the unit to conduct an analysis of its activities, including operations and services, as well as day to day functioning. Next, the nursing management is required to gather data with regards to the costs of these activities.

At this stage, it would also be useful to identify any indirect or overhead costs. The third step of the activity-based counting is to link all costs, both direct and indirect, to the activities, products, or services rendered. Once the tracing is complete, the management has to establish output metrics for these activities. Lastly, a cost analysis is performed, which aims to distinguish unprofitable activities, services, or products, which have to be targeted in order to increase productivity. The management would then have to decide on a suitable plan of action, either to eliminate the excessive costs completely or to limit them by changing certain processes.

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References

Lim, J. Y., Kim, M. J., & Park, C. G. (2011). Analysis of cost and efficiency of a medical nursing unit using time-driven activity-based costing. J Korean Academy of Nursing, 41(4), 500-509. Web.

Maher, M. W., & Marais, M. L. (1998). A field study on the limitations of activity-based costing when resources are provided on a joint and indivisible basis. Journal of Accounting Research, 36(1), 129-142. Web.

Nayab, N. (2011). Pros and cons of activity-based costing. The Bright Hub. Web.

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StudyCorgi. (2021, January 23). Community Hospital in Ypsilanti: Janice Portfleet Case. Retrieved from https://studycorgi.com/community-hospital-in-ypsilanti-janice-portfleet-case/

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"Community Hospital in Ypsilanti: Janice Portfleet Case." StudyCorgi, 23 Jan. 2021, studycorgi.com/community-hospital-in-ypsilanti-janice-portfleet-case/.

1. StudyCorgi. "Community Hospital in Ypsilanti: Janice Portfleet Case." January 23, 2021. https://studycorgi.com/community-hospital-in-ypsilanti-janice-portfleet-case/.


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StudyCorgi. "Community Hospital in Ypsilanti: Janice Portfleet Case." January 23, 2021. https://studycorgi.com/community-hospital-in-ypsilanti-janice-portfleet-case/.

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StudyCorgi. 2021. "Community Hospital in Ypsilanti: Janice Portfleet Case." January 23, 2021. https://studycorgi.com/community-hospital-in-ypsilanti-janice-portfleet-case/.

References

StudyCorgi. (2021) 'Community Hospital in Ypsilanti: Janice Portfleet Case'. 23 January.

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