Economics – Decision Management Reduce Costs


Answer questions below based on – Chapter 12 – “Analyzing Managerial Decisions: Medford University” Brickley, J., Smith, C., & Zimmerman, J. (2016). Managerial economics and organizational architecture (6th ed.). New York: McGraw Hill/Irwin. Medford University is a research university with about 10,000 students. It has a good liberal arts undergraduate program, a top-rated medical school, and a fine law school. It employs about 12,000 people. A majority of these employees work at the university hospital. Lately, the university has faced significant financial pressures. It is in intense competition for quality students with other colleges. Recent financial donations have been small. The hospital is under intense pressure to reduce costs because of changing health care regulation and insurance coverage. The university currently spends about $100 million annually on fringe benefits (health insurance, retirement plans, and so on). It also faces large future payments of promised medical benefits to cur- rent and future retirees. The president of the university, Hiromi Kobayashi, has appointed a task force to design a new fringe benefit package. The task force consists of faculty and staff from departments throughout the university. The task force has been asked to consider the university’s tenuous financial condition. President Kobayashi wants to reduce expenditures on fringe benefits (while maintaining the quality of the faculty and staff). The president has appointed the chief administrator of the hospital as the chair of the task force. The president also has appointed one of her key assistants, the vice provost, to serve as secretary of the task force (to take minutes and coordinate meeting schedules). 1. Why did President Kobayashi appoint a task force to consider the issue of fringe benefits? She could have asked the university’s human resources department to design a plan. 2. Should the president anticipate that all members of the task force will strive to cut university expenses? What actions can the president take to increase the likelihood that the task force members have this objective as a major priority? 3. Why did the president appoint the administrator of the hospital as the chair of the task force? The chair, in turn, has delegated much of the work to subcommittees (a health insurance committee, a retirement committee, and so on). What advice would you offer the chair in appointing subcommittee chairs? Explain. 4. Does the president want to commit to accepting the committee report or does she want to re- serve the right to make modifications? Explain. 5. Why did the president appoint a key assistant as secretary of the task force?

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