cost consequence analysis workshop costing paul leak
TRANSCRIPT
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Cost Consequence Analysis Workshop
Costing
Paul Leak
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Costing OverviewTime effectsWhich Costs
Cost Consequence Workshop
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Opportunity Cost
…of a choice is the next best alternative foregone.
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Opportunity Cost
Allocation Decisions.
Utilisation Decisions.
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Economic costThe sum required to obtain use of a resource.
Accounting costCost of used to generate income.
If not Opportunity Cost…
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Types of Cost
•Direct
•Indirect
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Direct Cost
…is a cost that is directly caused by the particular cost object under consideration.
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Indirect Cost
…is a cost that is not directly caused by the particular cost object under consideration.
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Cost Object
A cost which is an indirect cost for one cost object may be a direct cost for another.
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Examples
0
1,000
2,000
3,000
4,000
5,000
6,000
General Medicine Geriatric Assessment
£
Medical Nursing Pharmacy AHP Other Direct Theatre Laboratory Allocated overheads
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Cost Behaviour
•Variable Cost
•Fixed Cost
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Variable Costs
Costs that vary Directly in proportion to the level of activity.
0
5
10
15
20
25
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Units
To
tal
Co
st
(£)
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Variable Costs
Examples:Disposable glovesDental filling materialMedicines
Consider Cost Drivers
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Variable Costs
0
2
4
6
8
10
12
0 2 4 6 8 10 12 14 16 18 20
Units
Un
it C
ost
(£)
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Fixed Costs
Costs that do not vary with the level of activity.
0
2
4
6
8
10
12
14
16
18
20
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
£
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Fixed Costs
Examples:Building Rent/Depreciation
Network infrastructure costs
NHS Board
Finance teams
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Fixed Costs
0
200
400
600
800
1,000
1,200
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Units
Un
it C
ost
(£)
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Fixed Costs aren’t really Fixed:Relevant Range
0
5
10
15
20
25
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Units
£
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Cost Behaviour Summary
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Which Cost to Use
•Study Question
•Study Perspective
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Study Question
•Total Cost: Sum of costs of an activity.
•Average Cost: Total Cost/Total Activity
•Marginal Cost: Cost of change in activity
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Study Perspective
•NHS
•NHS and Social Work
•Statutory, independent, third sector
•Providers and patients & carers
•Societal
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Time Effects
•Current value of future costs & benefits•Delays and Learning effect
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Current Value of future costs
Problem:£1 now is worth more that £1 in the future.Solution:
State future costs at current value by discounting them.
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Delays and Learning effect
Problem:Effects and costs measured in the study period may be different in the future.
Solution:Projections.
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Practical Constraints
• Data• Induction
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Data
• Existing data: Barriers to Obtaining collected data; Quality.
• New data Consistency Quality
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Data Sources
• Local Accountants;• ISD-cost book and HRG datasets;• Local Information departments;• LFR returns.
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Induction
• Transferability• Analysis• Projections• Modeling