Community Children’s Hospital can invest in one of two different projects. The first project is to purchase and operate a hotel that is located two blocks from the hospital. The CEO of the hospital has no experience operating a hotel, but the hospital does provide rooms for in-patients, and so she is familiar with cleaning requirements and managing housekeeping staff. However, the hospital does little advertising and does not have a large public relations staff. In addition, the hospital and hotel are located in a part of town that is deteriorating.

The other investment opportunity is to replace the heart monitors in the neonatal intensive care unit (critical care for newborns and infants). The new monitors would provide a range of functions, including monitoring the body temperature and blood pressure of infants, as well as monitoring heart functions. Each monitor can be used for up to four infants with information about each infant forwarded to one computer that is monitored by a special technician. The current monitors are bedside monitors that need to be read every 10 minutes by nursing staff.

REQUIRED

A. Prepare a list of business risks that the CEO faces if she buys the hotel.

B. Prepare a list of business risks the CEO faces if she replaces the heart monitors.

C. Which scenario appears to have a greater degree of business risk? Why?

D. Explain how the hospital’s risk appetite might affect this decision.