DISTRICT HEADQUARTER HOSPITAL:

FINANCIAL FEASIBILITY STUDY

Qasim Ali was considering all the information he had gathered to prepare a financial feasibility

study for District Headquarter Hospital. December $2011$ was ending and he had only three days

before his presentation before his senior manager and Mansoor Ahmad from the hospital$$s

management. This was his first assignment involving preparation of financial projections and he

was concerned that he might not have collected enough quality information to complete the task.

District Headquarter Hospital was an endeavor to fill the gap in the health care requirements and

facilities available in the suburbs of Lahore. The hospital$$s management contacted NAS

Consulting in November $2011$ to estimate the finances required to build and run the hospital.

Qasim Ali of NAS Consulting was assigned to prepare this report.

Qasim called up Mansoor, the Deputy Director, Ministry of Health, Government of Punjab for

the purpose of building and managing the hospital and asked for a meeting. Their conversation

was as follows:

Qasim: Why Punjab Government is thinking for a hospital?

Mansoor: Government of Punjab is donating a piece of land near Lahore

Cantonment area to the hospital. Government is building a hospital there because

there are not many health facilities in the area. There is a considerable gap

between the needs and the available health care facilities in Pakistan which must

be filled. I have a write$-$up about the health care situation in Pakistan which you

might find interesting $($see Exhibit $1).$

Qasim: Tell me more about the proposed project, building site and project

specifications.

Mansoor: We have formed the Public Health Board to oversee the building and

management of the hospital that will provide health care facilities to people living

in Mahfooz Pura, Bao Wala, Dagraan, Malik Pur and $90$ other villages around

Lahore Cantonment area.

The proposed site of the hospital is near Bao Wala village. It is about $3$ kilometers

from the new Allama Iqbal Airport in Lahore. The total area of the land is $7\mathrm{.}5$

kanals$1$

and the covered area of the hospital is proposed to be $9,300$ square foot. A

dispensary sponsored by Punjab Government is already providing basic health

care facilities. The building is proposed to have a basement, a ground floor, and

additional four floors. Depending on the availability of funds, the building will be

$1$

$1$ kanal is equal to $4,500$ sq ft$.$

$2$

completed in three phases: the basement and ground floor in the first phase, and

two more phases with two floors to be completed later. For your purposes you can

assume that the three phases will start in year one, three and five of the project.

The proposed capacity of this hospital is $100$ beds, with $25$ consultants providing

services to patients. In the first phase, we want to provide diagnostic services,

emergency radiology, blood transfusion, gynecology and an ambulance. We will

add operation theatres, pediatrics and general consultancy in the second and third

phases.

Qasim: What is the value of the land that Government of Punjab has donated to

the project?

Mansoor: About Rs $60$ lakhs$2$

$.$

Qasim: Do you think there will be enough demand for the facilities you plan to

provide?

Mansoor: There are about $400,000$ people in the rural areas near the hospital. The

population is growing rapidly with the construction of the new airport and the

development of housing societies in the area. These new colonies will benefit

from services provided by the hospital, particularly since there are no other major

health care facilities in the area. The hospital will also benefit from the facilities

which will come with the development of the area.

Qasim: What will be your major source of finance?

Mansoor: The hospital$$s major source of finance will be donations and grants

from welfare and development organizations, and the government. Currently,

negotiations with USAID, UKAID and CIDA are underway for grants, donations

and low interest loans. The project has been approved from Federal Board of

Revenue $($FBR$)$ as tax exempt. As the hospital expands, the fees from patients

will become an important source of funding as well.

Qasim: Okay, now let us discuss financial aspects of the project. Do you have an

idea how much the actual construction will cost?

Mansoor: Yes, we have an agreement with a building contractor. He will charge

Rs $720$ per sq foot for the basement and Rs $440$ for the ground floor. The building

costs increase by Rs$10$ per sq ft as we move up a floor from the ground floor.

These costs include the structure and finishing. We are not sure how much it will

cost to build the rest of the floors, but building costs have been rising at $10$

$2$

Rs $60$ lakhs is equal to Rs $6$ million.

$3$

percent per annum for some time now, so we can estimate costs for the next

phases.

Qasim: What about the equipment and furniture?

Mansoor: We still have to figure it out and