This week's assignment is the third component of our ROI project.The focus of this week's short paper writing will be to consider the justification of the capital expenditure. Three key aspects should be considered: (1) Amount and type of expenditure (2) Attainment of key decision criteria (3) Detailed financial analysis.

Using pro-forma data taken from our outside reading "A Cost Benefit Analysis- Bardon, C. G., Wang, S. J., Middleton, B., Prosser, L. A., Spurr, C. D., Carchidi, P. J., et al. (2003). The American Journal of Medicine , 114.)" prepare a net present value analysis by calculating ahurdle rate, profitability index, for you capital project. Do not consider capital cost reimbursement from third-party payers in your calculation.

Finally, consider in your writing how you would factor risk such as technology change, Physician acceptance, competition from other HCO's, accuracy of market data and volume projections associated with the capital project (see attached hurdle rate determination worksheet below) in your discount rate.

Pro-form data:

Initial Cost Year 1 Year 2 Year 3 Year 4 Year 5 Total Costs Software license (annual) $1600 $1600 $1600 $1600 $1600 $1600 Implementation $3400 Support $1500 $1500 $1500 $1500 $1500 $1500 Hardware (refresh every 3 years) $6600 $6600 Productivity loss $11,200 Annual costs $13,100 $14,300 $3100 $9700 $3100 $3100 Present value of annual costs* $46,400 $13,100 $13,619 $2812 $8379 $2550 $2429 Benefits $42,900 Chart pull savings $3000 $3000 $3000 $3000 $3000 Transcription savings $2700 $2700 $2700 $2700 $2700 Prevention of adverse drug events $2200 $2200 $2200 $2200 Drug savings $16,400 $16,400 $16,400 $16,400 Laboratory savings $2400 $2400 Radiology savings $8300 $8300 Charge capture improvement $7700 Billing error decrease $7700 $7600 $7600 Annual benefits $5700 $24,300 $24,300 $50,300 $50,300 $154,900 Present value of annual benefits* $5429 $22,041 $20,991 $41,382 Net benefit (cost) $39,411 $129,300 $(13,100) $(8600) $21,200 $14,600 $47,200 Present value of net benefit (cost)* $47,200 $108,500 $(13,100) $(8190) $19,229 $12,612 $38,832 $36,982 $86,400 * Assumes a 5% discount rate