Optimization Models for Revenue Management

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ACKNOWLEDGEMENT

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

DECLARATION

I [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

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EXECUTIVE SUMMARY

The purpose of this project is to enlighten and explore different models that can be used in healthcare industry for effective revenue management. Revenue generation is one of the business ingredients that transform in the long-run as one of the key success factors of the firm. Whether the business organization operates for their mutual benefits or communal, revenue management is one of the key concerns faced by the organization. Nonetheless, the process to manage revenues is essential in business practice as the revenues of a firm will ultimately affect the profit margins. This proposal will enlighten different models that have been used by previous researchers in the field of healthcare for effective management of revenues. These models are not restricted to be applied in the healthcare industry as they are applicable to any field of business. This proposal aims to explore different models that can be incorporated to acknowledge effective revenue management system. Moreover, this proposal will suggest a model that can be applied in a hospital or healthcare facility with 100 rooms for effective revenue management.

TABLE OF CONTENTS

ACKNOWLEDGEMENTii

DECLARATIONiii

EXECUTIVE SUMMARYiv

INTRODUCTION6

Background of the Study7

Purpose of the Study8

Rationale of the Study8

Aims and Objectives of the Study9

Research Question10

LITERATURE REVIEW11

METHODOLOGY21

REFERENCES25

INTRODUCTION

The purpose of this proposal is to present the guideline that will be followed to analyze the revenue optimization process in a healthcare facility. The core objective of the paper is to enlighten the practices adapted by different researchers in terms of revenue maximization. This proposal offers diverse models proposed by different researchers and practitioners through which the organizations can enhance their revenues with respect to service/products offered (Wills, Douglas, 2004, 431-434). Nonetheless, this proposal has adapted the models that can be incorporated in healthcare facilities, hospitals and any other structure operating in healthcare industry for revenue optimization. Frisch investigates production, cost, and revenue profit functions, pointing out the relationship between revenue, cost, and underlying technology (Bevan, Ham, Plsek, 2008, 89-102).

Profit optimization stems from (a) revenue optimization (when revenue is a decision variable), and (b) cost minimization. Firms must optimize production/cost (technical efficiency), and try to optimize the price-quantity mix when possible (Sirkin, Keenan, Jackson, 2005, 43-52). It is useful to recall that cost minimization is compatible with both profit optimization (producer surplus) and technical efficiency, leading to lower market prices (consumer optimum). If prices do not reflect costs, then excessive or “supernormal” profits will arise, leading to technical efficiency with allocating inefficiency (prices not converging to marginal costs). In the presence of incentive-incompatible profit optimization with allocating inefficiency, the firm will have to ...