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 companys 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 degreesa bachelors degree in medical laboratory science from the University of Ghana and a bachelors 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 mothers case. The first laboratory results did not confirm the clinical findings of his mothers 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 mothers 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 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 Healthcares 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 Healthcares 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.

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 entrepreneurs 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

CASE QUESTIONS

4. Assuming a multiproduct situation, how many patients and how much total revenue does GEO Medical Laboratory need to break even in a month?

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)

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