Resource and Revenue Management in Nonprofit Operations

52 Pages Posted: 24 Jul 2008

See all articles by Francis de Véricourt

Francis de Véricourt

ESMT European School of Management and Technology

Miguel Sousa Lobo

INSEAD - Decision Sciences

Date Written: July 3, 2008

Abstract

Nonprofit firms sometimes engage in for-profit activities for the purpose of generating revenue to subsidize their mission activities. The organization is then confronted with a consumption vs. investment tradeoff, where investment corresponds to providing capacity for revenue customers, and consumption corresponds to serving mission customers. Exemplary of this approach are the Aravind Eye Hospitals in India, where profitable paying hospitals are used to subsidize care at free hospitals. We model this problem as a multi-period stochastic dynamic program. In each period, the organization must decide how much of the current assets should be invested in revenue-customer service capacity, and at what price the service should be sold. We provide sufficient conditions under which the optimal capacity and pricing decisions are of threshold type. Similar results are derived when the selling price is fixed but the banking of assets from one period to the next is allowed. We compare the performance of the optimal threshold policy with heuristics that may be more appealing to managers of nonprofit organizations, and assess the value of banking and of dynamic pricing through numerical experiments.

Keywords: capacity allocation, revenue management, dynamic pricing, nonprofit

Suggested Citation

de Véricourt, Francis and Sousa Lobo, Miguel, Resource and Revenue Management in Nonprofit Operations (July 3, 2008). ESMT Working Paper No. 08-006, Available at SSRN: https://ssrn.com/abstract=1162686 or http://dx.doi.org/10.2139/ssrn.1162686

Francis De Véricourt (Contact Author)

ESMT European School of Management and Technology ( email )

Schlossplatz 1
10117 Berlin
Germany

Miguel Sousa Lobo

INSEAD - Decision Sciences ( email )

United States

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