Realizing the Dream: Decision-Making in Action

BACKGROUND

GEO Medical Laboratory (an actual company whose name

has been changed for this case) is a business that provides

services at affordable prices to people in need of quality

medical laboratory tests and scans. The company is located

in Kokomlemle, a suburb of Accra, Ghana. In the first three

years of its existence, the company sold medical equipment

to hospitals and clinics. Eventually, the company’s focus

switched to providing laboratory services and, more recently,

ultrasonography services. Today, GEO Medical Laboratory

provides about 30 different laboratory services. More than

half of the laboratory services requested by clients are tests

for sexually transmitted infections, while pelvic and obstetric

scans are the most often demanded scan services. In addition

to its chief executive officer, the company has four employees:

two ultrasonographers, one laboratory technician, and one

administrative assistant. On average, they attend to about

300 patients per month, with approximately 40% requesting

laboratory services and the rest needing scan services.

Wallas Akorful, the CEO of GEO Medical Laboratory,

works alongside his employees, providing laboratory services.

As is common with many of his enterprising classmates,

Wallas holds two undergraduate degrees—a bachelor’s

degree in medical laboratory science from the University of

Ghana and a bachelor’s degree in entrepreneurship from the

Ghana Institute of Management and Public Administration.

Upon graduation, he followed up with an internship at

the Korle Bu Teaching Hospital and worked there as a

laboratory technician for several years. He had dreamed of

setting up a medical laboratory from the first moments of

his National Service duty at a teaching hospital in Accra but

had been hesitant to take on the risks associated with this

entrepreneurial venture until after his mother became ill and

was close to death five years ago.

If it were not for his own training and experiences in

the hospital, there is no telling what might have happened

in his mother’s case. The first laboratory results did not

confirm the clinical findings of his mother’s medical doctor,

so Wallas had asked for further tests to be taken at other

facilities. Because his mother was too weak to travel the 100

kilometers for the second test, he decided to visit her and

take samples for himself. He took two samples, sent one

to a private laboratory, and ran tests on the other sample at

his workplace. The results from these last two tests were

the same and quite different from the initial results. In

addition, the new results correlated with the clinical findings

of the doctor. Wallas realized from this incident that basic

laboratory services were the key to quality healthcare. After

this experience, he felt the need to take up the risk to serve

humanity and save lives by setting up a laboratory facility

that would provide reliable and quality medical tests at

affordable prices.

Right after his mother’s situation, he started his own

entrepreneurial venture by selling medical equipment

and putting aside most of the funds toward the dream

of owning his own lab. Two years ago, Wallas had heard

about some mismanagement at Manna Healthcare, a local

family planning and reproductive health care facility, which

led to the closing of the laboratory services there. He was

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ISSN 1940-204X

Realizing the Dream: Decision-Making in Action

© 2 0 1 7 I M A

Nathan K. Austin, Ph.D.
Morgan State University

Phyllis Y. Keys, Ph.D., CMA, CFM
Morgan State University

Afua A. B. Agyekum
Ghana Institute of Management and
Public Administration and
Morgan State University

able to garner an agreement with Manna Healthcare that

allowed him to operate his laboratory on the premises. The

agreement required GEO to pay 40% of all its earnings from

laboratory services to Manna Healthcare in exchange for

rent, utilities, and janitorial services. Furthermore, Manna

Healthcare agreed to refer its patients with laboratory service

needs to GEO. So, using the funds saved from his earlier

work experiences, Wallas purchased laboratory equipment,

computers, and furniture to open his own facility on Manna

Healthcare’s premises. Last year, he noticed that Manna

Healthcare was outsourcing its ultrascan services, so he had

added equipment and specialized technicians that allowed

him to offer scan services in addition to the lab services. The

addition of the scan services now required GEO to pay 40%

of all its earnings from both scan and laboratory services to

Manna Healthcare. Table 1 contains information about the

initial investment in equipment.

More recently, however, Wallas has been concerned about

the number of clients who are using his services. For some

reason, the managers of Manna Healthcare are not keeping

to their part of the agreement to supply him with clients.

The number of clients has declined drastically. He suspects

that someone at the health facility is directing patients to

other laboratories where they have relatives or friends with

the same tribal affiliation. As such, revenue that is generated

can barely meet the operational cost of the laboratory.

LABORATORY INTAKE

Patients visit Manna Healthcare where a health assistant in

the reception area takes their vital information. The health

assistant gives the patient a clinical request for service,

referring them to GEO Medical Laboratory when the

patient needs laboratory tests, scans, or both. In the area of

the facility that belongs to GEO, an administrative assistant

takes the clinical request, calculates the cost of services for

the patient, and writes the total on the request form. The

administrative assistant then sends the patient to Manna

Healthcare’s cashier to make a payment, after which the

patient returns for the required test.

All of the clients’ payments go directly to Manna

Healthcare, which reimburses GEO for its portion of the

revenues at the end of the month. From the revenues,

Wallas must pay the operating costs of the laboratory and

scan services, including the salaries paid to workers and the

cost of consumables used in providing services. Based on

historical usage of scans and lab services, Wallas estimates

that the average price for scans is GHS$36 (US$9) and the

average for lab services is GHS$45 ($11.25).

OPERATIONAL COSTS

The operational costs for GEO Medical Laboratory

include costs for consumables in three areas. Some of these

consumables are used for both laboratory and scan services;

these include A4 sheets of paper for printing reports, toners,

envelopes, and medical gloves. There are also consumables

where usage increases with the number of patients, such as

thermal print paper, chemical substances (called reagents) for

running lab tests, medical gloves, and syringes. Within this

group of consumables, some are used solely for laboratory

services. Examples are test kits, test tubes, cotton swabs,

alcohol, and bandages (or plaster, the common name for

bandages in Ghana). Other consumables, such as gel,

are used solely for scan services. See Table 2 for a list of

consumables used in Wallas’ laboratory.

Owners of businesses similar to GEO Medical Laboratory

and operating in the area where Manna Healthcare is

situated pay an average rent of GHS$500 (US$125), utilities

of approximately GHS$400 (US$100), and janitorial services

that average GHS$60 (US$15) each month. Due to the

revenue sharing agreement, Wallas avoids these specific

costs each month. He is obligated, however, to pay his

workers regardless of the level of activity in the business;

and, on average, their compensation totals the equivalent

of GHS$2,488.80 (US$622.20) each month, including the

GHS$800 (US$200) that Wallas takes in his role as lab

technician. Ultrasonographers receive commission at a rate of

6% for each client they service. See Table 3 for details on the

compensation paid by GEO

Medical Laboratory.

GEO Medical Laboratory sometimes encounters

operational challenges that result from the provision of both

the laboratory and scan services. One of such challenges

concerns the use of consumables that serve both the laboratory

and scan services. Wallas indicates that “When we have

shortages, for example on gloves, because maybe we have

not been able to purchase as a result of logistic or monetary

constraints, my decision is that we use what we have for the

lab service because they are in danger of coming into contact

with blood and other body fluids.” He further suggests that,

even though the ultrasonographers wear gloves when they

are in full supply, the technicians’ potential for coming into

contact with bodily fluids is minimal. Thus, gloves are only

used as an extra precaution. Wallas often forgoes his salary

when there are a shortage of clients or when there are cost

constraints due to high inflation in Ghana.

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NEW OPPORTUNITIES

Wallas married a young woman, Ama, from his native area

of Winneba three years ago, and their son will soon be one

year old. His wife had been very supportive of his dream

to make the business a success but was worried about the

fact that he had yet to recover his initial investment of

GHS$100,000 (US$25,000), consisting of all his savings from

the 10 years of traditional work he did with the government

and private hospitals, sales of medical equipment, and his

private consultancy for other medical laboratories. Just last

week, Wallas told Ama, “At the moment, I am still on the

path to recovering my investment in the company, but it is

much better than before we added the scan services. If we

had just continued with lab services, it would have been very

difficult. When I did the calculations, it would have been

best to close up or find a new location with an increased

need for lab services. But with the scan services, business

has picked up.” To improve the situation further, Wallas has

been thinking of advertising the company by visiting nearby

health facilities and schools to inform them of the various

services his company provides. Negotiating is a common

practice in the entrepreneur’s region of Ghana. That means

that the final cost of consumables can be very erratic, and the

change across periods can be quite drastic. Table 4 contains a

list of services provided by GEO Medical Laboratory.

Soon after speaking with his wife, Wallas received a

call from an old classmate asking if he were in a position to

provide health screening for students at a high school. The

classmate explained that her company wanted to subcontract

the order from the high school and indicated that he had

readily come to mind. He got a call three days later from

Aban, the manager of his classmate’s company, requesting a

discussion about the contract. He recounted the outcome to

his wife that evening:

Aban: “I have heard a lot about you and your competence,

and I believe you can help us.”

Wallas: “I am honored. Thank you. What kind of screening

service is involved?”

Aban: “The headmaster wants health screening to test

the blood groups of students, their sickle cell status, eye

screenings, and pregnancy tests for the girls.”

Wallas: “We provide almost all those services. The only

service we do not provide is eye screening. That is not a

problem. I can get an optician to do that. But that will come

with an additional charge.”

Aban: “This is a very good project, but the funding we have

available is not much. We are prepared to pay GHS$12

(US$3) per student. There are 150 girls and 122 boys in all.”

Wallas: “Boss, that amount is very inadequate. The normal

charge per student for these services would be much higher.

Besides, I will need to get an optician to undertake the eye

screening. So kindly reconsider and increase the amount. I

will need some time to assess the offer and determine the

costs we will incur.”

Aban: “No problem. I will await your response. But be quick,

because we are hard pressed for time.”

His wife was worried after hearing about the conversation

and asked Wallas what he intended to do about the offer. He

indicated that right after the classmate’s call, he had called

a couple of optician friends to find out their availability and

interest in the contract as well as how much it would cost for the

eye screening test. One of them was enthusiastic about it and

offered to help for a flat fee of GHS$500 (US$125). Ama sighed

deeply and asked that Wallas think through the offer carefully,

as she was skeptical about its profitability. The total cost of

consumables and the breakdown of expected costs per student

by gender for the health screening offer are provided in Table 5.

The following morning, Wallas arrived early at work before

any of his employees. When the employees arrived, they

observed that Wallas looked disturbed and seemed to be in

deep thought about a pressing issue. Unwilling to interrupt

his thoughts, they discussed among themselves what might

be wrong with him. After about an hour, Wallas paced up

and down the corridor and finally broke the silence. He told

the employees about the offer and his dilemma in accepting

and indicated that he wanted their opinion to make the final

decision. This conversation transpired:

Laboratory technician: “How soon do they want the

screening?”

Wallas: “The man said they are hard pressed for time. So, if

we agree to it, then I am thinking we will take a day to go to

the school and take the samples and spend about a week to

analyze before giving them the results.”

Laboratory Technician: “Do you think just five of us can take

the samples in a day?”

Wallas: “If all of us have to go, we will have to close this

facility, and I don’t want to do that. So I am thinking that just

three of us will go, and the ultrasonographers would stay here

to take care of patients. We will have to get other volunteers

to help us.”

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Laboratory technician: “Will that not add to our cost?”

Wallas: “It will. I estimate that the cost of logistics,

transportation, fuel, and payments made to volunteers will

cost us about GHS$400 (US$100).”

Laboratory technician: “We are going to spend money.

Looking at how much it is going to cost us, I do not think it

is worth it.”

Administrative assistant: “At least we are going to gain

experience from it, so let us give it a try.”

Wallas: “This is our first project, and I want to see how it will

go in terms of the logistics and the experience that we will

gain from doing it. If we can determine our shortcomings,

we will be able to correct those shortcomings before offering

health services for other schools. Perhaps we can consider it

as our social responsibility. I do not know what we should do.

Let us all think about it.”

CASE QUESTIONS

1. Identify and compute the various types of cost for the

company according to cost behavior. Determine the

monthly fixed and variable costs for scan and lab services

that the company incurs.

2. Assume that GEO Medical Laboratory only provides

scan services, and determine the breakeven in terms of

units and sales. If the only services that GEO Medical

Laboratory offers are lab services, determine the number

of patients that the company would need to help in order

to break even, as well as the break-even amount. Assume

that the salary of the administrative assistant is evenly

distributed between the two services and the usage of

furniture and fittings, computer, and printer are equally

shared. What does your answer imply?

3. Determine the cost structure of GEO Medical

Laboratory. Is the company highly or lowly leveraged?

4. Assuming a multiproduct situation, how many patients

and how much total revenue does GEO Medical

Laboratory need to break even in a month?

5. How many patients must GEO Medical Laboratory

attend to in a month if it wants to make a profit of

US$3,000? How many of these patients should be

scheduled for lab services and how many for scan

services?

6. Determine the amount of revenue that the company

needs to generate in a month to earn an operating

profit of US$3,000. How much of this revenue will be

generated from lab and scan services, respectively?

7. Based on quantitative calculations, should Wallas accept

the school’s offer? Why or why not?

8. Besides profitability, what other motives might influence

Wallas’ decision about the offer from the local school?

Discuss how such offers might benefit (or harm) GEO

Medical Laboratory.

9. Give Wallas at least three specific recommendations to

increase revenue or to reduce the costs for his company.

Which of these three recommendations do you think is

the best for Wallas right now and why? Be clear about

why this recommendation is preferred.

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Table 1. Wallas’ Initial Investment

Item Cost Depreciation Rate Useful Life

Computer and Printer GHS$ 2,160 (US$ 540) 33.33% 3 years

Furniture and Fittings GHS$ 5,040 (US$ 1,260) 20.00% 5 years

Laboratory Equipment GHS$ 56,800 (US$ 14,200) 20.00% 5 years

Scan Equipment GHS$ 36,000 (US$ 9,000) 20.00% 5 years

Total Investment GHS$ 100,000 (US$ 25,000) – –

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Table 2. Consumables Used By GEO Medical Laboratory

Item Cost Service That Uses Item

A4 paper GHS$ 20.00 (US$ 5.00) per month Both

Alcohol GHS$ 10.00 (US$ 2.50) per month Lab

Bandages GHS$ 30.00 (US$ 7.50) per month Lab

Cotton GHS$ 10.00 (US$ 2.50) per month Lab

Envelopes GHS$ 24.00 (US$ 6.00) per month Both

Gel GHS$ 5.00 (US$ 1.25) per patient Scan

Gloves GHS$ 120.00 (US$ 30.00) per month Both

Reagents GHS$ 5.00 (US$ 1.25) per patient Lab

Syringes GHS$ 0.50 (US$ 0.125) per patient Lab

Test kits GHS$ 5.00 (US$ 1.25) per patient Lab

Test tubes GHS$ 1.25 (US$ 0.31) per patient Lab

Thermal print paper GHS$ 10.00 (US$ 2.50) per patient Scan

Tissues GHS$ 20.00 (US$ 5.00) per month Both

Toners GHS$ 200.00 (US$ 50.00) per quarter Both

The monthly totals figures in this table are based on a sales mix of 180 patients for scan services and 120
patients for laboratory services. The variable cost reflects the total volume of 300 patients.

Table 3. Compensation Paid By GEO Medical Laboratory

Employee (# in category) Type of Compensation Average Monthly Compensation

Administrative assistant (1) Salary GHS$ 500.00 (US$ 125.00) per employee

Lab technicians (2) Salary GHS$ 800.00 (US$ 200.00) per employee

Ultrasonographers (2) Commission GHS$ 388.80 (US$ 97.20) per month

Total Compensation Payments GHS$ 2,488.80 (US$ 622.20) per month

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Table 4. Services Offered By GEO Medical Laboratory

Scans Price per scan

Abdominal, breast, or urological GHS$ 50.00 (US$ 12.50)

Obstetrics or pelvic GHS$ 30.00 (US$ 7.50)

Testicular GHS$ 60.00 (US$ 15.00)

Thrombosis GHS$ 80.00 (US$ 20.00)

Laboratory services Price per lab

Antenatal profile GHS$ 160.00 (US$ 40.00)

Blood sugar, malaria, or typhoid tests GHS$ 20.00 (US$ 5.00)

Chlamydia or gonorrhea tests GHS$ 40.00 (US$ 10.00)

Cultures GHS$ 50.00 (US$ 12.50)

Cytomegalovirus, rubella, or toxoplasma test GHS$ 30.00 (US$ 7.50)

Full blood count GHS$ 20.00 (US$ 5.00)

Hemoglobin level, urine routine exam, or stool routine exam GHS$ 10.00 (US$ 2.50)

Hepatitis B or C, HIV, or syphilis tests GHS$ 20.00 (US$ 5.00)

Hepatitis B viral load or HIVV viral load GHS$ 450.00 (US$ 112.50)

Herpes test GHS$ 60.00 (US$ 15.00)

Kidney function or lipid tests GHS$ 60.00 (US$ 15.00)

Liver function or cardiac function tests GHS$ 70.00 (US$ 17.50)

Male or female reproductive hormone test GHS$ 360.00 (US$ 90.00)

Pap smear GHS$ 120.00 (US$ 30.00)

Sexually transmitted infections profile GHS$ 300.00 (US$ 75.00)

Stool occult blood test or stool test for Helicobactor pylori GHS$ 40.00 (US$ 10.00)

We estimate that the average price for scans is GHS$36.00 (US$9.00) and the average for lab services
is GHS$45.00 (US$11.25) using past information.

Table 5. breakdown of CosT per Male and feMale sTudenTs

Special order testing for 122 male and 150 female students at GHS$ 8.00 (US$ 2.00) each

Item Cost for Male Students Cost for Female Students Total cost

Blood grouping reagents and sickle cell GHS$ 610.0
(US$ 152.50)

GHS$ 750.00
(US$ 187.50)

GHS$ 1,360.00
(US$ 340.00)

Gloves GHS$ 48.80
(US$ 12.20)

GHS$ 60.00
(US$ 15.00)

GHS$ 108.80
(US$ 27.20)

Optician GHS$ 224.26
(US$ 56.07)

GHS$ 275.74
(US$ 68.94)

GHS$ 500.00
(US$ 125.00)

Other consumables GHS$ 263.52
(US$ 65.88)

GHS$ 324.00
(US$ 81.00)

GHS$ 587.52
(US$ 146.88)

Pregnancy test kits –

GHS$ 750.00
(US$ 187.50)

GHS$ 750.00
(US$ 187.50)

Transportation and logistics GHS$ 179.41
(US$ 44.85)

GHS$ 220.59
(US$ 55.15)

GHS$ 400.00
(US$ 100.00)

Total costs

GHS$ 1,326.00
(US$ 331.50)

GHS$ 2,380.32
(US$ 595.08)

GHS$ 3,706.32
(US$ 926.58)

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