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Carson Manor Case Study

Executive Summary
The following case study report is for Carson Manor, a Winston based non-profit
organization that provides nursing care service for senior citizens. The report will
identify key issues that may impact Carson Manors day-to-day operation on the
basis of budgeting, cost control and cost measurement. The key issues will be
analyzed against Carson Manors objective to outsource a solution provider to
conduct a review of their current situation. This report will evaluate three bidders
based on total cost of study, potential savings, possible implementation, experience
and references. A recommendation is stated at the end of the report, which
comprises the possible solutions to the key issues and some actions need to be
taken after selecting one of the three bidders. This report would recommend that
Clarke-Hamilton Ltd. would be an optimal consultant for Carson Manor given their
highest expected savings, suitable implementation of a patient classification system,
excessive experience and positive feedbacks from users.
Background Description
Carson Manor was a not-for-profit institution that provides nursing care services for
aged people. It was founded in city of Winston 30 years ago and currently became a
medium sized institution with a bed capacity of 470 and a total of 235 employees.
Carson Manor administrator is responsible for overseeing day-to-day operations and
serving as an information conduit to Mr. Henry Davis, the director of social services.
Mr. Davis, his staff in conjunction with Carson Manor administrative staff as well as
the Carson Manor Committee of Management (CMCM) was dedicated to make joint
effort on developing policy and budget plans. The CMCM was an aldermanic
committee consisting of five volunteered or appointed aldermen. There was an
upper-level committee, which is called Committee for Community Service. This
community was responsible for reviewing majoring expenditure and decisions that
would have an impact on community service policy. Before being sent to city council
for final approval, proposals of all major expenditures should be reviewed by the
board of control consisting of the mayor and four elected controllers. Mr. Peterson,
city administrator, was the one that Mr. Henry should report to. He reported directly
to the mayor.

The Purchasing and Supply Division (PSD) was led by director Elaine Taylor. The
PSD had the following purchasing and disposal authorities such as:
* Purchasing and disposal authority for citys engineering
* Fire, landfill/sanitation departments
* Social service division
* City hall building support
Other purchasing departments were operated in the public utilities commission, the
libraries and the police department. The purpose of the bylaw was to outline limits of
the purchasing authority. One of the main objectives of the PSD was to respond to
the needs of other departments and divisions for good and services at a minimum
cost. Also, PSD should make sure the requirements are consistent with desired
quantity, delivery time and overall reliability.
Carson Manor was faced with the problem of high cost per bed compared to
privately owned institution resulting from inadequate budgeting and in effective cost
control. There was a report which analyses the comparative cost of Carson Manor
and other facilities, and gives a detailed review of the feasibility of increasing cost
efficiency and implications of possible alternatives such as contract management, indepth operational review and cost efficiency. The report was prepared by Mr.
Peterson Mr. Davies and was aimed for highlighting the difficulties in measuring and
controlling cost in the absence of a classification system. Davies and Peterson
suggested an operational review by an outside agency.
The independent consultancy study of Carson Manor was initiated by Davies and
Messrs and approved by the committee of community service, board of control and
the city council before the PSD director Elaine Taylor had the opportunity to
identify ,assess , evaluate potential study participant by issuing out request for
proposal form . She had until December 19 to evaluate the three bids placed by
Patientcare Limited, Clarke-Hamilton limited and Standardcare limited based on her
criteria and weighted scores. She needed to come up with her recommendation and
justification for selecting any one of the consulting company.
Identification of Key Issues
Financial issues

Issues relating to finance as highlighted in figure 1 are important factors for Carson
Manor to continue to operate and become sustainable.
Figure 1
Budgeting issues
Budgeting remained a long-term issue for Carson Manor. The budget was developed
by Mr. Davis, Carson Manor administrative staff and Carson Manor Committee of
Management, and it always failed to properly estimate the revenue and expenses
over a specified period of time. Part of the reasons may result from some issues
related to issues of cost controlling and measurement.
In addition, the other reason was that people responsible for developing the budget
were not using a budgeting method suitable for Carson Manor. Presumably, Carson
Manor would end up mired in a vicious cycle of budget deficits if they continued to
make underestimations. Their budget deficit may reflect inadequate municipal
funding to cover the day to day operation costs of the organization due to the
increasing demand of their patients.
Cost Control issues
Carson Manor had chronic issues about cost controlling. As what city administrator
Mr. Peterson and the director of social services Mr. Davis had identified, operating
cost in Carson Manor was neither reasonable nor affordable. In comparison to
private run institutions, Carson Manors cost per bed was unnecessarily high. For
example, cost per bed was approximately 14% higher than state average. Although
Carson Manor is not a profit making organization for older people requiring nursing
care, the organization needs to breakeven in order to meet the demands of their
patient and efficiently operate the organization.
In addition, cost controlling for not-profit organization is a practice of managing and
minimizing cost. Should the current management was not capable of controlling over
the operating costs, Carson Manor would be forced to cut back on the level of
service that they could have provided to senior citizens. Consequently, the interest of
senior citizens may be undermined as the reduced services may prevent some of
them from getting community health services that they deserve. Moreover, Carson
Manor would have to carry out the policy of rotating layoffs, or reducing the working
week.

Cost Measurement issues


The cost measurement was extremely difficult to be conducted within Carson
Manors current system. The main reason was the absence of a patient classification
system. In normal cases, a health institution should have a system designated to
categorize patients into several groups which would enable nursing care to be
standardized into different levels.
Unfortunately, in Carson Manors case, such a system was nowhere to be found and
quiet understandably, costs were almost untraceable. For example, every patient in
Carson Manor may be in need of different levels of nursing service, which requires
different cost basis such as nursing hour, medicine and so forth. It was not
reasonable for Carson Manor to calculate cost per bed by mixing up different cost
basis since variable costs for patients requiring intensive care are much higher than
others.
Organizational Issues
The organizational issues affecting Carson Manor are mainly caused by the
complicated reporting lines.
Figure 2
As shown in figure 2, the decision making process in Carson Manor was hindered by
this complicated reporting line. Prior to getting approved by the City Council, no
major expenditure and decision can be implemented. For example, budgeting
decisions prepared by Carson Mayor need to be passed through a couple of
hierarchical stages before it finally reaches the decision makers. In addition, the
communication between two parallel departments can be difficult as there is no
direct method to communicate within the team of Carson Manor Committee of
Management and Director of supply. Consequently, both two factors would make the
decision making process extremely inefficient.
Analysis
Budgeting Methods
As a non-profit organization, all cost forecasting and estimation should be developed
on the ground of break-even. In order for Carson Manor to create break-even
budgets, people responsible for developing the budget should try to figure out ways

to decrease the expenses. Also, there should be a technical assistant to help the
budgeting personnel prepare these budgets.
One the other hand, creating break-even budgets is not a mandatory task for nonprofit organizations. Nevertheless, Carson Manors budgeting staff may assume or
be under the influence of break-even before preparing for annual revenue and
expense budget. The solution may lead to a different decision about how to create
surplus budgets. Carson Manor may need more funding from the municipal
government while plan to further cut cost and generate more income than expenses,
creating surplus capital that can be invested in the future.
Cost Control
Carson Manor needed to look for effective methods to cut costs by cutting back
services or outsourcing a solution provider. There are other minor ways to implement
cost control and manage it by saving on utility bills, outsourcing employee payroll
and so forth.
However, cutting back services for the sake of reducing costs may be a mere shortterm expediency. As a non-profit organization, Carson Manor should be committed to
providing aged people with satisfactory services, and then attempting to achieve the
goal at a low cost. Although this practice may bring Instant savings, Carson Manor
would have to relinquish some capabilities to serve senior citizens in need of nursing
care. Moreover, the interest of senior citizen in the community would be undermined
as they would no longer receive nursing services as used to be.
It is reasonable for Carson Manor to seek a solution provider to review their current
situation and help them implement a cost saving plan. Professional management
consulting is capable of controlling operational costs, making Carson Manor to get
away financial problems so they can pay more attention on their core competency.
Cost Measurement System
The patient classification system may serve as a reasonable solution to tackle the
cost measurement issue. The system is conducive to balancing workforce by
assigning the right amount of nursing staff and resources appropriately to improve
services, and to make labor costs and operational costs traceable and manageable.
Analysis of Alternatives

Patentcare
Patentcare is a large operator of nursing homes with a record of five consulting
projects. Also, they own some of the facilities and lease out the rest. Patientcare will
review Carson Manor homes by gathering data to determine and evaluate their
operational policies. They will also analyze Carson Manor staff and cost, financial
situations including administrative and project cost in order to prepare report and
recommendation. The cost for implementing their recommendation if approved will
be approximately $700,000.
Features and advantages
* Collecting data and analyzing staff and cost
* Review of program and conducting of interview
* Exterminating and evaluating operational policies
* Evaluating financial situation
* Utilizing department of health general guidelines for work standards
* Experience in managing nursing homes and chronic hospitals
* Ownership and leasing experience
* Relative low cost of review and implementation
Disadvantages
* Invalid or biased references
* May nor leave Carson Manor a systems to use
Clarke-Hamilton
Clarke-Hamilton is a management consulting firm with an extensive experience and
operational reviews in eleven institutions, mainly hospitals and regional centers such
as Webster regional center, regional municipality of Gast city. Clarke-Hamilton is also
experienced in the implementation of the two types of Patient Classification System
and MIS system with a vast management consulting experience. Clarke-Hamilton

will review and examine Carson Manor pertinent documentation and suggest area
for improvement.
Features and advantages
* Discuss terms of review with steering committee
* Examining pertinent documentation and reviewing all sections
* Conducting reviews through a combination of interviews and physical tours
* Developing and reviewing recommendation with management
* Offering a patient classification system to utilize at minimal ongoing cost
* Helping Carson Manor implement recommendations
* Extensive experience on operational reviews in 11 institutions with 3 regional
centers
* Experience in implementing 2 different types of patient classification systems
* Highest potential savings among three bidders
* Satisfactory results from former reviewed organizations
Disadvantages
* Located 100 miles from Carson Manor
* No specific implementation costs given
Standardcare
Standardcare is a large operator of nursing home with extensive knowledge and
background in operational review of nursing homes such as Ward Home for the
Aged, Henford Lodge. Standardcare currently owns and manage two thousand and
four hundred nursing home beds and units. Standardcare will review Carson Manors
organizational and operational procedures, develop staffing schedules and identify
problems for potential improvement.
Features and advantages

* Experienced operator of Nursing homes with proven track records in similar


situations
* Extensive list of 15 facilities either completed or in process
* Capability to review and assess the level of service in every department
* Capability to develop staffing schedules in order to compare existing cost against
cost effectiveness
* Ability to identify problems in respect to physical environment and assist with
implementation if required
Disadvantages
* Had several uncompleted projects after implementation
* Certain operations were contracted to other companies
* High cost of service
The quantitative analysis is shown in the below table 1
Table 1
Bidder | Patientcare Ltd. | Clarke-Hamilton Ltd. | Standardcare Ltd. |
Cost of Review ($) | 35,000 | 47,000 | 77,000 |
Implementation Cost ($) | Minimal 700,000 | | Approximately 1,100,000 |
Expected Savings (Benefit to cost ratio) | | 3 to 1 to as much as 30 to 1 or higher |
88,000 to 110,000 |
Recommendation
Judging from analysis, it is recommended for Carson Manor to
* Acquire technical assistance on budgeting
* Seek a solution provider with professional expertise in operational review
* Implement a cost measurement system such as the patient classification system

In addition, Clarke-Hamilton is recommended to review and support on further


implementation plan, given the following reasons:
* Carson Manor will acquire a patient classification system and utilize it at minimal
ongoing cost
* Carson Manor will benefit from Clarke-Hamiltons extensive experience on
operational reviews in institutions including 3 aged homes
* Two different patient classification systems were successfully implemented by
Clarke-Hamilton
* Clarke-Hamilton has the highest potential savings
* Positive feedbacks from previous users
Moreover, after selecting Clarke-Hamilton, it is recommended to:
* Discuss and negotiate terms of review
* Estimate cost of implementation and savings
* Develop a implementation plan according to the recommendation of review
* Implement the patient classification system
Conclusion
To summarize, high operation cost in Carson Manor were caused by a series of
issues regarding budgeting, cost control and cost measurement. In order to tackle
these issues, Carson Manor would require technical support on budgeting, an
operational assessment on costs and a patient classification system to be
implemented. Therefore, it was high time Carson Manor outsourced a nursing home
operator or a consulting firm to review their situation.
After analyzing the three bidders, it is recommended that Clarke-Hamilton Ltd. would
be an optimal solution provider for Carson Manor. One of the reasons is that Clarke
would provide Carson Manor with a patient classification system. Also, Clarkes
extensive experience in review and implementing patient classification systems
would be conducive to the study of cost control in Carson Manor. Furthermore,
Clarke enjoys highest expected savings with the benefit cost ratio of 3 to 30 or even

higher. Last but not least, references show that Clarke-Hamilton has conducted
reviews in two organizations and received positive feedback.