Activity-Based Costing (ABC) for Health Activities

Costing of Health Activities Services Costing of Health ACTIVITY-BASED COSTING (ABC) www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

OVERALL GOAL OF THE COSTING Costing of Health Activities To Develop a costing estimation of community-based services delivered by National Societies The study should collect data available at administrative and financial records and provide relevant information on community based programmes that could allow decision makers, donors and programme planners and other stakeholders to respond to the following questions: What are the key components of HIV and Aids interventions (Counselling and Testing, Treatment, Home based Care, referral and counter referral What is the standard unit cost per beneficiary www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

Definition of the Concept of Activity- Based Costing (ABC) Costing of Health Activities The Activity Based Costing (ABC) is a methodology for allocating Resources to Activities and allocating Activities to Cost Objects www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

ABC Costing VS Traditional Method Costing of Health Activities ABC Costing Traditional Method Product and Services consume Resources Not fit for programme costing but rather for facility based costing Services and Products consume Activities, Activities consume Resources (human resources, equipment) Activities are considered a the basic Cost Object Expenses should be separate and matched to the level of Activity that consumes the Resources Programme based costing www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

Overview of the Costing Methodology Costing of Health Activities Resources Activities Services www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

Overview of the costing Methodology Costing of Health Activities The purpose of this model is to allocate costs. This model is based on the principle that activities incure costs through the consumption of resources. As end users demand products or services, activities must be performed. www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

Interest of ABC Costing Costing of Health Activities Track resources within a programme Address the same programme contents with alternatively management strategy Approach the same programme goals with alternatively sets of activities Estimate the incremental cost of raising the programme coverage Identify cost implications for alternative strategies of programme targeting Evaluate the cost impact of technology change and substitutions in programme resource mix www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

Overview of the Step by Step Costing Methodology Costing of Health Activities Step 1. Costing Matrix or Catalogue Step 2. Annual Volume of Services (Sum of Activities) Activity/Service Definition Activities Drivers (Outputs metrics or Volume) Step 3. Fixed Costs Definition and Calculation (from the Ledger) Step 4. Variable Cost per Service Step 5. Unit Cost Calculation Step .6 Reporting and Analysis www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

Step 1. Design the Costing Matrix or the Costing Catalogue Costing of Health Activities Service Population Select Target Population Output Units Cost Categorie Units Select Service Select Output Unit Select Cost Category Select Unit Outreach PLHIV adults Person contacted Salaries and wages Test kits and lab reagents Day/person Testing Antiretroviral treatment Person tested Kit PLHIV under 15 Serodiscordant couples Year-person of adult ART Medicines, ARV Commercial Sex Workers ART Men who have sex with men TB treatments delivered People who injects drugs IO treatments delivered Year-person of condom protection One-month treatment Year-person of Pediatric Condom distribution Medicines,TB One-case treatment Referral Transport Monthly endowment Home visit Office Renting Dozen Psychosocial SupportTB patients Condoms Set www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

Step 2. Annual Volume of Services (Sum of Activities) Activity/Service Definition Costing of Health Activities Briefly describe the key activities and health service provided performed by the programme or project. Try to keep this list to the main activities that are somehow linked to customers. Examples: HIV Counselling and testing ARV treatment Psychosocial support Condom distribution www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

Step 2. Annual Volume of Services (Sum of Activities) Activities Drivers (Outputs metrics or Volume) Costing of Health Activities Define the beneficiary population (pregnant women, PLHIV, OVC, sex workers, general population etc..) Calculate the volume of each activity or service delivered to beneficiaries (Refer to programme report) Examples: # of people counselled and tested # of condoms (male/female) distributed # of people reached with HIV prevention messages www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

Step 3. Fixed Costs Definition and Calculation (from the General Ledger) Costing of Health Activities Definition A fixed cost is a cost that does not vary in the short term, irrespective of changes in production or sales levels, or other measures of activity. A fixed cost is a basic operating expense of a business that cannot be avoided, such as a rent payment. Example: The rent on a building will not change until the lease runs out or is re-negotiated, irrespective of the level of business activity within that building. Examples of other fixed costs are insurance, salaries and property taxes. www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

Step 4. Variable Costs Definition and Calculation (from the General Ledger) Costing of Health Activities Definition A variable cost is a cost that could vary, depending on the volume of activities, services or production. Example: For a programme the following cost could be considered under variable costs Transport for supervision Medical and non medical supplies Allowance Training costs Communication fees www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

Step 5. Unit Cost Calculation Costing of Health Activities FIXED Cost + Variable Cost / Outputs Metrics * This cost is automatically generated in the table * # of beneficiaries, # of item distributed, etc. www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

1. IDENTIFY ANNUAL VOLUME OF SERVICES (Sum of Activities) PROVIDED Costing of Health Activities Service Population PLHIV not desagregated PLHIV counselled Pregnent Women delivered in heathl facilities People who injects drugsPerson contacted Commercial Sex WorkersPerson contacted Men who have sex with men Person contacted Output Output Quantity Home based care PMTCT HIV/AIDS prevention within to IDUs HIV/AIDS prevention within SWs HIV/AIDS prevention within MSMs 71,491 17,434 2,427 9,380 2,279 Person contacted www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

2. FIX COSTS DEFINITION AND CALCULATION (Use financial Report or General Ledger records) Costing of Health Activities SECTION 2. FIX COSTS Total Spending: 2,916,915.76 SECTION 2. FIXED COSTS Cost Category Unit Total Spending: Units Consumed 2,916,915.76 Unit Cost 1 2,077,538.25 1 370,610.51 1 128,413.70 1 297,008.71 1 43,344.60 Total Cost 2,077,538.25 370,610.51 128,413.70 297,008.71 43,344.60 Cost Category Unit Units Consumed Unit Cost 2,077,538.25 370,610.51 128,413.70 297,008.71 43,344.60 Total Cost 2,077,538.25 370,610.51 128,413.70 297,008.71 43,344.60 Salaries Rent and utilities Monitoring and Evaluation Planning and administration Communication material Set Set Set Set Set Salaries Rent and utilities Monitoring and Evaluation Planning and administration Communication material Set Set Set Set Set 1 1 1 1 1 www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

3. VARIABLE COSTS DEFINITION AND CALCULATION PER SERVICES (Use financial Report or General Ledger records) Costing of Health Activities Service: Home based care Total Spending: 1,994,722.24 Cost Category Unit Units Consumed Unit Cost 461,894.54 1,321.62 56,343.24 1,459,369.30 15,793.54 Total Cost 461,894.54 1,321.62 56,343.24 1,459,369.30 15,793.54 Salaries Rent and utilities Monitoring and Evaluation Planning and administration Communication material Set Set Set Set Set 1 1 1 1 1 - www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

3. VARIABLE COSTS DEFINITION AND CALCULATION PER SERVICES (2) (Use financial Report or General Ledger records) Costing of Health Activities Service: PMTCT Total Spending: 1,045,778.80 Cost Category Unit Units Consumed Unit Cost 266,314.04 754,745.49 24,410.40 308.88 Total Cost 266,314.04 754,745.49 24,410.40 Medico-surgical material Medical equipment Planning and administration Communication material Set Set Set Set 1 1 1 1 308.88 www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

3. VARIABLE COSTS DEFINITION AND CALCULATION PER SERVICES (3) (Use financial Report or General Ledger records) Costing of Health Activities Service: HIV/AIDS prevention within to IDUs Total Spending: 1,196,039.14 Cost Category Unit Units Consumed Unit Cost Total Cost 89,644.19 17,919.30 14,407.90 12,551.41 21,168.26 25,693.17 1,014,654.92 Salaries Trainning Non medical equipment Monitoring and Evaluation Living support to client Planning and administration Medical equipment Set Set Set Set Set Set Set 1 1 1 1 1 1 1 89,644.19 17,919.30 14,407.90 12,551.41 21,168.26 25,693.17 1,014,654.92 www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

4. UNIT COST CALCULATION PER PERSON SERVED Costing of Health Activities Population Service Output Output Quantity Variable Cost Fixed Cost Total Cost Unit Cost Home based care PLHIV not desagregatedPLHIV counselled 71,491 1,994,722.24 1,052,202.62 3,046,924.86 42.62 PMTCT Pregnent Women delivered in heathl facilities Person contacted 17,434 1,045,778.80 551,641.31 1,597,420.11 91.63 HIV/AIDS prevention within to IDUs People who injects drugsPerson contacted 2,427 1,196,039.14 630,902.63 1,826,941.77 752.76 HIV/AIDS prevention within SWs Commercial Sex WorkersPerson contacted 9,380 646,614.08 341,084.60 987,698.68 105.30 HIV/AIDS prevention within MSMs Men who have sex with men Person contacted 2,279 646,614.08 341,084.60 987,698.68 433.39 www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

Summary points from 7 countries Costing of Health Activities - fixed costs (64-71%) - care of orphans and vulnerable children has - unit cost of US $ 263.33 and is constituted 60.56% of variable costs. - Counseling and testing costs on average US $ 21.27 per person Average unit costs: - US $ 752.76 among the IDU, US $ 219.01 for MSM US $ 54.84 for sex workers www.ifrc.org www.ifrc.org Saving lives, changing minds. Saving lives, changing minds.

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