ACTIVITY-BASED COSTING (ABC)

OVERALL GOAL OF THE COSTING 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

Definition of the Concept of Activity-Based Costing (ABC) The Activity Based Costing (ABC) is a methodology for allocating Resources to Activities and allocating Activities to Cost Objects

ABC Costing VS Traditional Method 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 Traditional Method Product and Services consume Resources Not fit for programme costing but rather for facility based costing

Overview of the Costing Methodology Services Activities Resources

Overview of the costing Methodology 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.

Interest of ABC Costing 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

Overview of the Step by Step Costing Methodology 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

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

Step 2. Annual Volume of Services (Sum of Activities) Activity/Service Definition 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

Step 2. Annual Volume of Services (Sum of Activities) Activities Drivers (Outputs metrics or Volume) 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

Step 3. Fixed Costs Definition and Calculation (from the General Ledger) 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.

Step 4. Variable Costs Definition and Calculation (from the General Ledger) 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

Step 5. Unit Cost Calculation FIXED Cost + Variable Cost / Outputs Metrics * This cost is automatically generated in the table * # of beneficiaries, # of item distributed, etc.

1. IDENTIFY ANNUAL VOLUME OF SERVICES (Sum of Activities) PROVIDED

2. FIX COSTS DEFINITION AND CALCULATION (Use financial Report or General Ledger records)

3. VARIABLE COSTS DEFINITION AND CALCULATION PER SERVICES (Use financial Report or General Ledger records)

3. VARIABLE COSTS DEFINITION AND CALCULATION PER SERVICES (2) (Use financial Report or General Ledger records)

3. VARIABLE COSTS DEFINITION AND CALCULATION PER SERVICES (3) (Use financial Report or General Ledger records)

4. UNIT COST CALCULATION PER PERSON SERVED

Summary points from 7 countries - 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