Fuzzy Set Theory to Help Resolve Governmental Hospitals’ Health Care Decision Conflicts

• In Event: Emerging and Innovative Research Session

Abstract

While cost allocation decisions form considerable attention in the management accounting literatures, many such studies are contradicting, inconclusive and lack rigorous analysis of this complex decision. They often seek to develop product or service weights in order to make operating decisions with the sole objective of maximizing the firm's profitability. But before developing these weights, the studies must first rank these products—which is a complex endeavor that is often driven by many hierarchical financial and non-financial goals and objectives. Ranking is also difficult due to using such complex concepts as time, uncertainty, cost and interdependencies between accounting systems and manufacturing systems and among the products of the product mix. These concepts are inherently fuzzy and coextensively applied often with a confluence of variables operating simultaneously.

This paper applies an advanced mathematical model to account for a hospital cost allocation decision. The model combines the powers of fuzzy-set theory (Zadeh, 1965) and the analytic hierarchy process (Saaty, 1978). De Korvin and Kleyle’s (1999) fuzzy-analytic-hierarchical process (FAHP) can help to optimize decisions involving ambiguous variables and the web of prioritized strategies and goals of cost leadership, product differentiation, financial objectives of earnings, cash flows and market share and nonfinancial goals such as tradition and owners’ convictions and philosophies underlying the ranking of many cost allocation and similarly complex decisions, such as products in the product mix.

In verifying the efficacy of this application, we use data from seven Michigan spinal-cord injury facilities in applying the FAHP model to rank and otherwise develop more optimal strategies and goals and compare our results to the decisions of hospital management.

Authors

• Mohamed Bayou, University of Michigan-Dearborn

• Alan Reinstein, Wayne State University

• Xin Yu, Igate Patni Americas

• Gerald H. Lander, University of South Florida-St. Petersburg