Basic Costing Tool

BASIC COSTING TOOL

The Basic Costing Tool for an NGO fund holder PBF approach (this section is drawn from (Soeters, 2010):

The ‘basic costing tool’ assist PBF initiators to quickly cost the outline for a new project whereby the approximate budget can be calculated for a given target population. For this an MS Excel spreadsheet has been developed based on several NGO fund holder PBF projects since 2002. It has standard sheets for the costs linked to human resources, subsidies for health centre and hospital packages, performance based investments in health facilities, as well as support for regulatory activities. It includes the investments and operational expenses for purchasing agencies and local associations. It further provides a budget for technical assistance, baseline studies, audits and evaluation as well as training costs. It also contains standard subsidies for school education and rural development activities in case this is applicable.

Factors that increase of reduce the budget required for a PBF intervention

First of all the budget is population-based whereby proportionally more subsidies are required when the target population of the PBF intervention increases. Some costs are fixed such as for the purchasing agency which implies that it is unwise to target a population smaller than 300,000. The budget for a fully fledged PBF health program is around $ 3, 00 per person per year.[1] This includes support both for the primary level as well as the first referral hospital level and with a reasonable amount of money to target disfavoured regions, health facilities and individual vulnerable people. So a three year project for one million people would come at $ 9 million. At least 70% of the budget should cover the health package subsidies, contracts with the local associations, health facility infrastructure improvement and training.

Factors that increase the required budget are:

a)Multi-sector PBF interventions such as for schooling and rural development may double the required budget to $ 5-6 per capita per year;[2]

b)The starting condition of infrastructure and equipment. If in poor condition and if the equipment is deficient an additional budget should be planned to be able to provide start-up subsidies or advances.

c)The availability of qualified staff. If it is difficult to find qualified national staff for example because PBF is new in a given country there may be the need to recruit international expertise;

d)When the intervention is in a very remote or scarcely populated area;

e)Free health care or nominal user fees. If government imposes FHC for curative services, this will reduce the revenues from cost-sharing and requires a higher PBF budget.

Factors that decrease the required budget are when there are other resources already available for example from fixed salary budgets or other sources. When health facilities are autonomous to set user fees this reduces the budget and makes the system much more flexible in case of budget cuts or irregularity of payments.

The costing tool contains the following sheets

1. The “proposal” sheet connects with links the other sheets and allows to immediately reviewing the consequence of any change in the assumptions in all the other sheets. This is very practical to review the budget. If for example there is a fixed budget then any increase or reduction in the budget in one component should be balanced by a reduction in another component. The costing tool also quickly calculates for what population the budget may be applicable. A three year budget for 1 million people but an initial scan shows that the budget is only $ 1.00 per capita then in that case either the duration should be reduced or an alternative project should be designed for a smaller population. The only entry in the proposal sheet that must be made is the target population and the duration of the project. This sheet may also propose an overhead costs for the organisation which implements the project which may be between 3 - 7%. The proposal sheet also automatically calculates the proportion of the budget that can be considered transaction costs or the cost-transfer ratio, which should not exceed 30%. It compares the costs for the purchasing agencies and technical assistance to the costs for PBF subsidies, health facility investments, training and studies. There are diseconomies of scale in smaller projects.

An example of the EXCEL costing proposal sheet is shown in the following table containing all the budget lines from the other sheets. See table below: example of summary sheet for the costing of a two-year PBF project:

Table: Example of summary sheet for the costing of a two-year PBF project

1. The second sheet is the rate table in which the exchange rates of the day are being presented. The EXCEL spreadsheet allows any currency to be used and by changing the rate it will recalculate in all sheets the consequences of the change. The main currency may be in US Dollar (World Bank) or Euro (EC) but also in any other local currency.
2. The third sheet on human resources mostly concerns the costs for paying basic salaries and performance bonuses of the purchasing agencies, fund holders. It may also contain a budget for technical assistance and for the baseline and evaluation studies.
3. The fourth sheet contains the investments in infrastructure and equipment if required. This part may be reserved for purchasing agencies to pay health facilities investment units. The system allows disfavoured health facilities with poor infrastructure or equipment problems to receive additional support. This sheet also contains investments such as means of transport, equipment and internet connections for the purchasing agencies.
4. The sheet “minimum health package” contains the indicators at the primary health centre level. The identification of the indicators has also been explained in the module output indicators. In a health project this budget line only may constitute 50% of the total budget.

It is in this sheet that the population based target calculation per indicator takes place, which is a very careful process of:

a)Deciding which indicators to include;

b)Which basic subsidy to give per indicator and;

c)What will be the average bonus for the regional and the health facility bonuses? In Burundi the difference between the lowest basic bonus and the highest regional + health facility bonus is 80% (sum of the inter-regional bonus of 0-40% PLUS the inter health facility bonus of 0-40%. So if the basic bonus is what has been entered then for the budget a bonus should be applied of 40%;

d)One may also add an additional 10% for the individual equity bonus;

e)At the bottom of the sheet the totalling the budget per quarter for all indicators an additional bonus may be added of 15-25% for the quality bonus.

f)What is the absolute target per indicator? This is 100% of the optimum outcome, which for example 100% vaccination coverage or deliveries but only 30% of all women in the reproductive age when the unmet demand for family planning is 30%, etc.

g)Make a simulation of what proportion of the target will be achieved each quarter. For example if the target for all deliveries is 12,000 deliveries per year but it is expected that during the first quarter of the project 50% will be achieved with a subsidy of $ 10 per delivery then the required budget per quarter will be 12,000 / 4 x $ 10 x 50% = $ 1,.000. If the expected target achievement in the next quarter increases to 60% the budget to reserve for that quarter will become $ 18.000, etc.

h)The required budget will be calculated per quarter, per year and for the complete project period.

i)The total per indicator may then also be calculated and this allows comparing in how far the contribution per indicator seems reasonable. For example only for new consultations which is one of the may be 20 indicators 20% of the budget may be required.

Detailed budget per indicator: the following table shows the detailed costing of a part of the standard format of the EXCEL costing instrument. For example, for the indicator external consultancies for adults it assumes that adults constitute 70% of all consultations, that each person visits the health facility once per year and this is divided by 12 months. That provides the target and we then assume that during the first trimester of the PBF implementation 50% of that target will be reached. The payment of the subsidy includes 15% isolation – equity bonus.

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1. The same as above will be done for the sheet complementary or hospital health package.
2. The next sheet may contain the subsidies per province with, for example, a difference of a bonus of 0% for the least vulnerable province such as the capital and the most vulnerable province (long distance to commercial centre, low income, poor soils, and poor road conditions) with a bonus of 40%. However, when the health facility starts in a province already with a bonus of 40% it may go as far as 80% bonus compared to the lowest bonus in the least vulnerable province. This sheet does not influence the overall budget but mainly distributes the equity bonuses per region and health facilities.

1. The following sheet presents the budget per province or district and which is adapted to the regional per capita differences. It may look as follows for part of the spreadsheet.

1. The next sheet may contain indicators in other sectors such as for education, water and sanitation and rural development.
2. The 10th sheet may contain support for the regulatory function and this may also be divided by a per capita budget per province or health district based on criteria such as distance from the capital and to the health facilities, cost of living, number of health facilities to supervise. Usually rural provinces will receive a larger budget. The support for the regulation may be at district level, provincial level but also at national level such as for example for supervision visits by the national PBF coordination team.
3. The next sheet may contain a calculation of the support for local NGOs conducting household interviews for verification and patient satisfaction. Usually each health facility with a primary contract of on average 10,000 populations may also have one local NGO. The reimbursement per interview may be higher when there are unfavourable circumstances such as long distances in a relatively little populated area. Poverty issue may also be factored in whereby communities are very poor areas receive a higher reimbursement per interview.
4. The next sheet may contain any operational costs for example for the purchasing organisations and the national coordination organisation.
5. The last sheet may contain a budget for training activities, courses, seminars conferences, scholarships for diploma or master degree courses, etc

This PBF standard format must sometimes be changed in a format specifically requested by an aid agency such as the EU. However, it is better to negotiate when using the PBF format as this tool, once developed, allows for quick changes in the assumptions such as for example the target population and to adapt the budget accordingly. If during the negotiations it becomes clear that the aid agency is not interested then in that case a lot of time will be gained. Only after that the initial negotiations are promising does it become a useful investment to work out the details, and to adapt the costing estimates in an aid agency adapted format.

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[1]This is a blanket assumption which holds up very well in a variety of LIC contexts

[2]This is based on such a model multi-sector PBF approach as done in South Kivu, DRC (Soeters, R., P.-B. Peerenboom, et al. (2011). "Performance Based Health Financing Experiment Improves Care in a Failed State." Health Affairs 30(8): 1518-1527.