There may be several reasons for an organization to develop a capital business plan. The most common of these are probably the obligation to replace antiquated equipment, the desire to inaugurate a new service line, and the need to respond to the forces of competition. If it is to be successful, the development of a capital business plan must involve key team members. Within the oncology department or treatment center, these are the administrator, the physicians, the medical physicist, the dosimetrist, or radiation therapists, and the financial officer or bookkeeper. Outside the department or center, the necessary team members are the chief financial officer, equipment vendors, and lenders.

The first step in capital business planning is a thorough assessment of the needs of the institution. Current utilization of equipment must be analyzed in detail, with particular attention being paid to the role of that equipment in advancing the organization’s strategic plan. This exercise will, at the same time, clarify the degree to which new equipment is needed. The evaluation will also determine the likelihood that the new pieces of equipment being considered for acquisition will support the strategic plan of the enterprise.

The affordability of proposed acquisitions must, of course, be assessed with care. At this time, the probability of receiving certificate-of-need approval (in states where this is still required) should be investigated.


Gaining a complete understanding of any technologies being considered for acquisition is part of the process of capital business plan development. The members of the planning team must be educated concerning the available equipment; acquiring this knowledge is likely to require site visits to facilities that have the relevant technology or technologies in place.

The technical specifications of competing products should be obtained and understood, both to promote general knowledge of each technology involved in the plan and to permit detailed comparisons to be made. In addition, the organization should be certain that the intended acquisitions are the best possible match for the uses to which the facility will put them; this involves an assessment of the institution’s probable procedural volume, in addition to the specific studies or interventions that it expects to perform.

The team should, using the information gathered at this stage, be able to determine whether the facility would be better served by the acquisition of new or remanufactured equipment. The equipment options that will be needed should also be selected at this time (keeping in mind the projected procedural volume and the intended area of installation for the equipment).

An assessment of the internal support available for the proposed acquisitions should be conducted by the team. Specifically, the space, electrical, plumbing, heating, cooling, shielding, reinforcement, staffing, and maintenance needs of each piece of equipment must be considered. If deficiencies are noted, the means and cost of correcting them should be described within the capital business plan.


Technology assessment should be followed by the procurement of knowledge concerning the market in which that technology will be deployed. The team should determine whether the same modality being proposed for acquisition is already being made available within this market; competing modalities used to diagnose or treat the same conditions should also be considered during this phase of analysis. If competing facilities and/or modalities are present, a determination of their degree of market penetration should be made so that planning can take into account the market share that is likely to be available. The market penetration of competitors will also determine, to some degree, the resources that will need to be devoted to marketing a new service.

Of course, planning will be heavily affected by whether a proposed new service is reimbursable (and, if not, whether it is expected to become so). A procedure for which patients are expected to pay out of pocket will naturally take longer to pay for itself, unless demand for the procedure is very high; return on investment may also be more difficult to predict with any degree of precision if no fixed reimbursement amount is known in advance.

The acceptance of an examination or intervention by managed care payors should be investigated as part of market assessment. A procedure may be reimbursable, but reimbursement for it may be denied in some cases (through the preapproval process) by certain managed care plans. If this is so, accurate capital planning projections will be made only if the team can determine the likely approval percentages for various managed care plans and the share of the facility’s potential customers covered by those plans.

Even when reimbursement is in place and the approval of a procedure by managed care plans is routine, procedural volume will depend, to a large extent, on the acceptance of the procedure by the physicians who refer patients to the facility. Investigating the ordering patterns of referring physicians and understanding the number of referrals that might be shifted toward the proposed new service or device are important parts of capital business planning.


A capital business plan must include project costs (including working capital), volume estimates, revenue calculations, operating costs (which include the cost of marketing), staffing costs, and a prediction concerning the halo effect (in which an institution’s perceived leadership in one arena can increase its market share in others and a new service can provide use of existing services within the facility or institution).

Before the financial factors relevant to the capital plan can be assessed, the team will have to select vendors by issuing a request for proposal (RFP), negotiate with the chosen vendors to determine a price, and decide which financing methods (such as grants, philanthropy, leasing, or debt) will be employed for acquisition. In order to make the figures on which financial projections will be based as reliable as possible, the team should be certain that the RFP is complete with technical specifications, sales terms and conditions, service terms and conditions, information-system connectivity requirements, timelines, and training needs. It should also be certain, through advance notification and negotiation meetings, that the vendor understands exactly what will be expected before quoting a price.

There are several ways, in addition to the simple net margin, of expressing the financial merits of a given investment. Most organizations have minimum or benchmark guidelines that indicate which financial statistics are to be used in a proposal and what the minimum requirements for consideration are for each of those statistics.

The earnings before interest, taxes, depreciation, and amortization (EBITDA) are a measure of the revenues that will be generated, while net present value can calculate the cost of failing to pursue an acquisition by using a discount rate and a series of future payments (negative values) and income (positive values). Average return on investment (ROI) is annual cash flow, over a given period, divided by the cost of the investment.

The internal rate of return is the interest rate that is received for an investment consisting of payments (negative values) and income (positive values) that occur at regular periods. The payback period is the number of years that will elapse before the enterprise has recouped the cost of the capital investment.

The capital business plan that defines the financial effects predicted for its proposal in all of these ways (see table, page 48) is more likely to be understood by its readers and will be more readily ranked for approval (in situations where competition for capital with the proposals of other departments and services is the norm). Various readers will be more interested in and familiar with different expressions of financial merit. For example, a project may have an EBITDA of 25%, a net present value of $570,000, an average ROI of 34%, an internal rate of return of 46%, and a payback period of 3 years. Each reader of the plan may be interested in (or convinced by) a different combination of these figures.


When this stage has been reached, all of the necessary data have been gathered, considered, and compiled in a form that will illustrate the worth of pursuing the proposed technology acquisition. The tasks that remain are the writing of the narrative portion of the capital business plan and the construction of tables and charts summarizing financial expectations.

The business plan should begin with an executive summary, followed by a project description with supporting narratives. The text should state the reasons for the proposal clearly, adding all details that readers will need to evaluate the plan. This part of the plan should also include the reasons for the proposal that are not visible in financial tables, such as the reduction of exposure to medical liability, improvements in the quality of care provided by the institution, enhancements of competitive capabilities, improvements in patient throughput, reductions in operating costs, improvements in the ability to attract grant funding for research, and technology-related factors that enhance the institution’s ability to obtain or maintain its various accreditations.?

The strategy behind the plan’s proposals should be described next, followed by the business analysis and market analysis. Projected volumes should be given in all relevant detail, and operational and financial assessment (with exhibits such as tables, graphs, and charts) should follow. The action plan and timeline should be outlined. Reimbursement issues should be discussed, and the notes and observations made during site visits should be condensed and added. In the final section of the plan, the financing method should be described.


The requirements of the enterprise may determine which elements must be included in a capital business plan. A plan meeting only these minimum requirements will not, however, be as informative or persuasive as it could be. If the planning team makes the effort needed to generate a thorough, believable plan, it will have invested that effort not only in gaining approval for the plan, but in creating a blueprint that will make all subsequent implementation steps take place more quickly and smoothly. Skimping at the planning stage is unlikely to produce the desired results over the longer term, so facilities should invest the time and care needed to develop a sound capital business plan.

Eduardo Mercado, MBA, is administrator, Pinellas Radiation Oncology Associates, Clearwater, Fla, [email protected], and chairperson, Society of Radiation Oncology Administrators, Oak Brook, Ill.