This case is about a hospital that has an innovative method for hernia repair. They are quite successful and, as a result, have a "good problem" - excess demand. The question facing them is what should they do. For this case, you are asked to use a decision tree to decide if Shouldice should (1) add Saturday surgeries, (2) build a new wing to increase capacity, or (3) build a new hospital to increase capacity. Increasing capacity protects their position in the market but also has some downside risk.

Though the new wing and new hospital include fixed costs, those fixed costs would not be paid all at one time, of course. Shouldice would finance them with a loan. The loan terms for the new wing would be 6% interest over an 8 year term. The loan terms for the new hospital would be 4% interest over a 12 year term. Each of these loans would require monthly payments, and should be included in your decision tree.

For this assignment, construct a decision tree based on the additional data. Then provide an explanation of what the decision tree tells us that Shouldice should do?

Here is the data, should you want to try a decision tree forShouldice. At current capacity, the hospital performs 40 operations per day. For simplicity, we will assume that the hospital performs procedures 250 days per year. For the decision tree regarding cost of staffing, we will only consider the cost of surgeons, not administrative and support staff. The cost per surgeon, including salary, bonuses and benefits is $200k per year. Revenue earned per surgery is $1000. The variable cost to perform a surgery is $400 - this is only the cost of supplies and medical equipment and does not include salary costs. For the following options, "strong sales" means they would perform 4 procedures per day. "moderates sales" means they would perform an average of 2.5 procedures per day. Adding Saturday surgery could lead to a 20% increase in the amount of procedures performed. Assume that they will work every Saturday of the year. They will not need any new operating rooms in this scenario but will hire 2 additional surgeons. The likelihood of strong sales is 80% and moderate sales is 20%. Adding a wing could lead to a 50% increase in procedures performed. The cost of this wing is $4 million. 5 additional surgeons are needed. The likelihood of strong sales is 70% and moderate sales is 30%. Building a new hospital could lead to a 100% in procedures performed. The cost of a new facility is $20 million. 10 additional surgeons are needed. The likelihood of strong sales is 65% and moderate sales is 35%.