Capital costs are one-time costs for items that have a useful life of over one year – such as buildings, vehicles or medical equipment.
Cost is a general term that refers to the value of resources/inputs used to produce a good or service. This can refer to financial, economic, unit or average, or other types of costs depending on the ingredients included (see below). Costs may be incurred by health care providers (provider costs), but may also include costs incurred by patients or society (societal costs).
Cost function shows the relationship between costs and components of cost (e.g., personnel, capital) or cost and the determinants/drivers of costs (e.g., scale, coverage, type of provider, time etc.).
Discount rate is the rate at which future costs are discounted to account for time preference.
Economic costs (aka opportunity costs) reflect the full value of all resources utilized in producing a good or service. Economic costs reflect “opportunity costs” since they represent resources consumed, that thus forgoes the opportunity to devote those resources to another purpose.
Economies of scale occur when long-run average cost decreases as output increases. After minimum efficient scale is achieved, long-run average cost may increase (diseconomies of scale). Economies of scale are also used in some texts to describe any decrease in average cost associated with site size or scale, even where some costs are fixed (short run). In other texts this is referred to instead as ‘economies of capacity’.
Economies of scope occur when average costs decrease when services are jointly produced, compared to when they are produced separately.
Expenditures reflect the financial outlay that an agent (e.g., government, donor or individual) spends during a period of time for goods and services. Expenditures can refer to the entire sum required by specified health services, or it may pertain only to those outlays incurred by a subset of the organizations involved in delivering the service. For example, the PEPFAR Expenditure Analysis initiative focuses only on that portion of costs that are incurred by PEPFAR. Note that expenditure data are usually reported using the cash basis method of accounting, that is, no amortization to capital goods is applied; all capital goods expenditures are recorded in full as they are incurred.
Financial costs reflect financial outlays for goods and services needed to carry out a public health or medical intervention (in the context of global health), and as such are similar to expenditures. However, in contrast to expenditure data, financial costs depreciate capital expenditures over time.
Fixed costs are those costs that do not vary with scale (changes in the level of output). These costs would be incurred even if the output were zero. Common examples include items such as buildings and equipment, but “fixity” depends on context even for personnel, as noted in the text.
Gross cost is a costing approach where input use is estimated in total across all inputs. Gross costing is a contrast to micro-costing which estimate the costs of each input separately.
Incremental cost is a positive difference in cost between interventions or different amounts of an intervention.
Marginal cost is the cost of producing one or more unit(s) of a service/output.
Non-traded goods are services and commodities that cannot be traded on the international market.
Overhead costs refer to costs that cannot be directly traced to the provision of a service, such as administration, security personnel, buildings and general equipment. These costs may be referred to in some texts as indirect costs. Due to terminology confusion, the Reference Case recommends use of the term “operational” activity cost.
Recurrent costs are the value of resources/inputs with useful lives of less than one year. This includes supplies and personnel.
Shadow price is the estimated price of a good or service for which no market price exists. As noted in the text, there is another meaning for this phrase in optimization analyses.
Start-up costs are the one-time commitment of resources required to establish a program to the point where service delivery can begin. Some of these resources may be donated or subsidized; thus, the financial costs may be less than the full economic costs. Start-up costs typically include some capital costs, but also include activities related to planning, staff training, materials development, infrastructure expansion, legal fees, or personnel recruitment. Some start-up costs should be amortized; for example, if staff training needs to be repeated every five years, training costs would be spread over five years.
Sunk costs are costs that have already been incurred and that cannot be retrieved. For example, the depreciation of an asset (say, a CAT scanner) that occurs from the moment of purchase to some future date is sunk from the perspective of that future date.
Unit costs (aka average costs) are the mean cost of producing one unit of a good or service, dividing total costs by total output in a specified time period. For example, if an HIV treatment program costs $1 million annually to provide 1,000 patient-years of ART, the unit cost would be $1,000 per patient-year. Unit cost is thus the average cost per unit of service of a particular type of good or service.
Variable costs are those costs that vary with scale (changes in the level of output). An example is expendable supplies such as test kits in an HIV counseling and testing program. Service delivery personnel costs are usually considered variable, since a substantial increase in caseload will require more staff, though small increases can often be accommodated within the existing staffing pattern.