Improving managerial decision making: the case of a hospital laboratory

Attempting to reduce costs, a hospital laboratory replaced its continuous flow analyzer, which performs 20 tests at once with a discrete analyzer able to perform a combination of the 20 tests. In order for this change to result in actual cost savings, physicians had to reduce their utilization of the laboratory. The laboratory administrators, however, assumed that the required test reduction could be realized. This assumption proved to be incorrect. Physicians continued to order a large number of tests per sample (e.g., 14). As a result of this incorrect decision laboratory costs increased by $124,200 per year. These results highlight the need to test the accuracy of managerial decision-making assumptions. The ease and low cost of conducting pilot studies to test the validity of such assumptions dictates that administrators insist that they be conducted before managerial strategies are implemented.