1. Making Costing Fun

2. But, how much does it cost? Session Objectives: –Introduce costing as a tool for decision making (advocacy and design). –Empower participants to manage costing activities –Sensitize participants to the importance of using appropriate costing methods –Costing = FUN

3. Session Organization 1. Clearing up confusion 2. Costing and public expenditures 3. Costing a Population and Reproductive Health Package (Costing Quality Checklist) 4. Management Input Time-line Tool

4. An Innocent Question? 1. What are the available resources? (Resource Envelope, Constraints) 2. How much are we currently spending? (Expenditure Review, Flow of Funds, National Health Accounts) 3. What is the unit cost? (Average Costs) 4. What is the additional cost? (Marginal Cost)

5. Government of Zimbabwe External Finance Donor & Lenders PUBLICPUBLIC Private Sector Households PRIVATEPRIVATE Sources of Funds MOH&CH Budget Other Ministries Local Government Social Dimensions Fund (SDF) Health Services Fund (HSF) Private Insurance Out of Pocket other than HSF Funding Mechanisms Public Providers MOH&CW Public Providers Other Ministries Mission Providers Private Providers Providers Flow of Funds- Zimbabwe

6. Costing Quality Checklist Are Objectives Clearly Identified? Does the Methodology Selected Match the Objectives? Does the Methodology Account for Overhead Costs? Does the Methodology Correctly Apportion Joint Costs? Does the Methodology Distinguish Between Fixed and Variable Costs? Does the Methodology Distinguish Between Recurrent and Capital Costs? Does the Methodology Produce Average or Marginal Costs? Which Point of View Does the Methodology Take? Does the Methodology Address Opportunity Cost or Just Accounting Costs? Does the Costing Exercise Take Advantage of All Data Sources? Are the Data Collection Methods Used Appropriately? Are All the Assumptions Clearly Stated and Realistic? Were Sensitivity Analysis Undertaken to Test Assumptions?

7. CQC: Choosing a Methodology Top-Down Costing Step 1: Aggregation of total expenditure by source (gov’t, donors, households) Step2: Desegregation of expenditures by type of service and activity Bottom-Up Costing Step 1: Identify inputs into each element of the package Step 2: Cost each element Step 3: Aggregate costs QUESTION: What are the advantages and disadvantages of each approach?

8. CQC: Choosing a Methodology Question: Which approach is more likely to produce double counting of some cost elements?

9. CQC: Choosing a Methodology (Determining Factors) The objective of the costing exercise (What are the expected outputs) Time-Frame for producing results Data Availability Resource Availability

10. CQC: Choosing a Methodology (Simulation Models) Using Simulation Models Helps in understanding cost implications of policy changes. Examples include: –cost implications to alternative plans for phasing in interventions –cost implications of different forms of targeting –cost implications of alternative technical interventions –cost implications changes in the delivery strategy –cost implications of institutional reforms Perform sensitivity analysis for testing assumptions or targets. Examples include: –Assumptions about coverage rates –Assumptions about price changes (including exchange rate fluctuations) Continuously updating inputs and assumptions

11. Stages of Costing Identification : The process by which all relevant inputs into the provision of the service are identified and classified Quantification : Assigning non- monetary quantities to measure the contribution of inputs into the provision of the service to be costed. ( Natural Units) Valuation : Assigning monetary value to inputs

12. CQC : Accounting for Overhead or Administrative (Indirect) Costs? Direct Costs: resources identified with service or product. Examples: salaries, contraception, equipment Indirect Costs: resources needed to support service delivery but not directly identified with the service or the product. Examples: Administrative costs, Monitoring & Evaluation costs QUESTION : Are Medical schools costs direct or indirect costs?

13. CQC : Accounting for Overhead or Administrative (Indirect) Costs? Hints: At the Identification Stage: review to ensure all possible indirect costs are accounted for. Typical omissions include: Training (initial and refresher; training of trainers; orientation) Overhead for training institutions Supervision costs Administrative overhead At the Quantification Stage:review how overhead costs are allocated to different services (see joint costs discussion below)

14. CQC : Correctly Apportioning Joint Costs? Non-Joint Costs: Resources that are used for one intervention. Examples: cost of an IUD, cost of medicines, disposable medical supplies Joint Costs: Resources used for more than one intervention. Examples: costs of clinic resources, salaries, equipment QUESTION: How would you allocate utility costs across services provided at a health center?

15. CQC : Correctly Apportioning Joint Costs? Hints: At the Identification Stage: Ensure that cost items are correctly identified as Joint or Non- Joint At the Quantification Stage: Ensure that correct techniques are used for allocation of joint costs

16. CQC : Distinguishing Between Fixed and Variable Costs? Fixed Costs:Costs which do not vary with the quantity of output in the short run (about 1 year). Examples: rent, lease payments, fixed salaries Variable Costs:Costs which vary with the level of outputs. Examples: supplies, food, drugs. QUESTION: Can you think of an example of a fixed cost becoming a variable cost?

17. CQC : Distinguishing Between Fixed and Variable Costs? Hints: At the Identification Stage: Ensure that cost items are correctly identified as fixed or variable At the Quantification Stage: Ensure that reasonable assumptions are made about expected output changes

18. CQC : Distinguish Between Recurrent and Capital Costs? Recurrent Costs: Costs associated with inputs that will be consumed or replaced in one year or less. Examples: salaries, maintenance, medicines. Capital Costs: Costs or resources that have a life expectancy of more than one year. Examples: buildings, machines QUESTION: Are training costs recurrent or capital costs?

19. CQC : Distinguish Between Recurrent and Capital Costs? Hints : At the Identification Stage: Ensure that each cost item is clearly identified as recurrent or capital. At the Quantification Stage: Identify the expected number of years of operation for capital cost items At the Valuation Stage: Ensure that appropriate annualization rules are used in costing capital costs. Check on the valuation given when market prices are not available.

20. CQC : Average or Marginal Costs? Average Cost: The total cost divided by the number of units of output. Example: The cost of a visit to a clinic, The cost of an overnight stay at a hospital Marginal Cost: The extra cost of one additional unit of output. Examples: The cost of expanding coverage of an intervention Hints: Choosing an average or marginal cost focus depends on the objective of the costing exercise. If the objective is to look at variations across levels of delivery or regions, average costs are more important. If you are considering expansion in the delivery of an intervention then marginal costs are more important.

21. CQC : Which Point of View to Take? Possible Points of Views: The Ministry of Health (program costs) Other Government Entities (transfers such as workers compensation) Consumers (Society-users costs) e.g. transportation costs, waiting time, all costs born by the consumer Insurance Providers QUESTION: For preparing a project, which costing point of view would you take? Hints: At the Identification & Quantification Stages: Ensure that all identified costs are consistent with the costing point of view.

22. CQC : Addressing Opportunity or Accounting Costs? Accounting (Financial) Costs: Include all outlays made by the program to purchase goods and services Opportunity (Economic) Costs: The value of the most productive alternative use of the resources. QUESTION: Have you come across an Health project that calculates opportunity cost? Hints: At the Valuation Stage: Ensure that there is recognition of donated resources. E.g. commodities and volunteer labor. The question that needs to be addressed is how will the program change if donated inputs are no longer available.

23. CQC : Appropriate Data Collection Methods Completeness Reliability Representativeness

24. CQC : Appropriate Data Collection Methods Cost data needed for: Labor (salaries and benefits) Medications, Contraceptives, Vaccines Supplies Training (in-service, pre-service) Operation & Monitoring Supervision & Monitoring Equipment Vehicles (transportation costs) Buildings Information Campaigns QUESTION: Is this list complete if the point of view it that of society? QUESTION: Is this list complete if we are calculating the economic cost?

25. CQC : Appropriate Data Collection Methods Data Sources and Collection Methods: Ministerial Accounts (Ministry of Health & Family Welfare) Provider or Facility records Donor/Lender records Facility-Based Surveys (time-use surveys, equipment and supplies surveys, and utilization surveys) Household surveys Insurance records Market Surveys for Prices Interview or Expert Opinion Health management information systems (demographic and epidemiological information) Central purchasing organization Essential drugs programs

26. CQC: Assumptions, Assumptions Are the Assumptions made explicit and clearly stated? Are the assumptions realistic? Were simulations undertaken to test assumptions and identify cost implications?

27. Group Work (at tables) You are introducing a new interventions and need to quickly figure out cost implications. Use CQC to develop quick TORs (methodology, Average Vs. Marginal, use of simulation) Identify situations where taking the point of view of society (as opposed to program point of view) in costing is critical for policy choices

28. Management Inputs Time-Line At the Initiation Stage (Lining up the resources) At the Preparation Stage (Monitoring and adapting to changes in design): At the Review Stage

29. Management Inputs At the Initiation Stage 1.Identify package of interventions considered 2.Clearly state the objectives of costing 3.Identifying costing staff or consultants. 4.Develop Terms of Reference (special attention to methodology, outputs, and timing of deliverables). 5.Ensure funds are available for the costing activity. 6.Identify team members to manage the costing activity.

30. Management Inputs At the Preparation Stage 1.Monitor developments: Focus on delivery date slippage and staffing. 2.Track prioritization activities and implications for re-design 3.Track choices of service delivery strategy and technology 4.Follow-up on findings of costing outputs relating to efficiency gains and cost savings. 5.If economic evaluation is undertaken, use results for policy dialogue and advocacy.

31. Management Inputs At the Review Stage 1.Incorporate the review of findings into the final design. 2.Ensure adequate documentation of costing in Project Plan