why and how to conduct a cost...
TRANSCRIPT
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Why and How to Conduct a Cost Analysis
Presenters: Stewart Landers and
Alexia Eslan, Senior Consultants at JSI
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JSI Research & Training Institute, Inc.
• Stewart Landers and Alexia Eslan
• Public health consulting company
• CDC Capacity Building Assistance (CBA)
provider
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Objectives
• Identify your organization’s purpose for conducting a cost analysis
• Learn how to set parameters for the scope of a planned cost analysis
• Have simple cost analysis and time study tools that can be utilized at your organizations
• Name the major steps in completing a cost analysis
• Begin to interpret results
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Definition and Importance of a Cost Analysis
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What is a Cost Analysis?
1) The act of breaking down a cost summary into its constituent [parts] and studying and reporting on each factor (Merriam Webster Dictionary)
2) The accumulation, examination, and manipulation of cost data for comparisons and projects (BusinessDictionary.com)
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What Does a Cost Analysis Do?
• It helps you determine your expenses related to the services you provide.
• It provides a tool to gather your expenses and tie them to the services you provide.
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What is the Purpose for Conducting a Cost Analysis?
• Increases understanding of how to use funds
• Helps determine which services to focus on
• Helps set charges/fees
• Assists in negotiating charges with various payers
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Benefits of a Cost Analysis
• Develop, implement and analyze efficiency
• Control costs
• Project incremental costs
• Financial viability
• Successful contract management
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Decisions Prior to Starting a Cost Analysis
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Decision Tree Tool
• Scope of the cost analysis:
– All services
– All HIV services
– Only HIV prevention services
– Specific program services (HIV testing, HIV education)
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Cost Allocation
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Cost Allocation
• Allocating direct expenses – Salaries
– Wages
– Fringe benefits
– Consultants
– Supplies (HIV tests)
– Publications
– Travel
– Etc.
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Cost Allocation
• Allocating indirect expenses
– Utilities
– Rent
– Audit and legal
– Administrative staff
– Equipment rental
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Cost Allocation
• Allocation of staff
– Each and every person
– Time study
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Cost Allocation
• Allocation of In-kind and Staff Volunteers
– Staff volunteers
– In-kind administration, facilities, equipment, supplies
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Completing a Cost Analysis
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Cost Analysis Tools
• Program Cost Analysis (PCA) Tool
• Unit Cost Analysis Tool
• Staff Time Allocation Tool
• Time Study Tool
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Program Cost Analysis (PCA) Tool
• Assists in determining costs for entire HIV prevention program compared to all agency costs
• Good for budgeting, strategic planning and advocacy
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Components of PCA
• Administrative
• Patient Transportation
• Medical
• Laboratory
• Pharmacy
• Other Health Services
• Other Non-direct Health Services
• Employee Health and Welfare
• Facility Costs
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PCA Example
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Unit Cost Analysis Tool
• The cost of services is determined by the expenses and utilization
• Considers all of the resources associated a particular service and calculates how much it costs
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Unit Cost Analysis Steps
• Step 1: Define the unit of service
• Step 2: Determine the number of units of
service provided
• Step 3: Calculate the direct costs
• Step 4: Calculate the indirect costs
• Step 5: Calculate depreciation
• Step 6: Calculate the unit cost
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Define the unit of service
• What service do you want to focus on?
• How do you define a unit of this service?
• How can you “pull” the information?
• How do others define it?
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Determine the number of units of service provided
• Practice Management System
• Database
• Audit
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Calculate the direct costs
• Very important to unit cost analysis
• Largest cost: Staff Time
– Use staff time allocation tool or time study tool
• Other cost information
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Calculate the indirect costs
Common bases for allocation include:
• Ratio of selected service to all services
• % of total revenue attributed to the service
• % of practice square-footage devoted to the service
• % of total direct costs attributed to the service
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Calculate depreciation
Straight-line depreciation:
Original value – Resale value = Depreciation Cost
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Calculate the unit cost
Direct costs per unit + Indirect costs
per unit + Depreciation costs per unit =
Total Cost per Unit of Service
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Unit Cost Analysis Example
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Unit Cost Analysis Example (cont.)
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Staffing Allocation Matrix
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Time Study Tool
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Interpreting Cost Analysis Results
• If applicable, compare to what you are currently billing or budgeting for services provided
• Compare unit costs of services provided
• Are you making a loss or profit?
• Can you afford to continue offering the same set of services?
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Review Market Rates
• What are the fees for comparable services in your area?
• Are you competitive?
• Do you offer more than, the same, or fewer services as other providers?
• What “discounts” are you offering and when?
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If Billing…Establishing Fees
• The fee scale you establish will be based on the outcome of the cost analysis
• The cost analysis creates the “reasonable cost” of providing services
• The fee scale should generate sufficient income, along with other sources of revenue, to maintain the program
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Developing Fees
FEES
Reflect
operational costs
Competitive
Reasonable
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Resources
• AAFP cost analysis article and tool: http://www.aafp.org/fpm/2004/0400/p41.html
• CBA@JSI: http://cba.jsi.com/
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Thank you!
You can download the tools from this webinar or from our website (cba.jsi.com)