the basics: how financial planning can help you

April 2009

Immunization Financing > Basics

The basics: How financial planning canhelp you

Here you'll find the background you need to understandthe financial planning process. In this section, you will beable to:

• Recognize why financial planning is crucial for im-munization managers,

• Identify the key economic and financial conceptsthat can help you complete the financial planning pro-cess; and

• Use financial planning to advocate for and supportyour programme.

In the Appendix: If you need more information, click onthe highlighted topics in gray boxes like this one to learnmore.

To get started, click on Financial Planning.

Please visit our website for content updates: http://aim.path.org/

Copyright © 2003 - 2009 PATH and/or other contributing authors. All rights reserved.Terms of use: This document may be freely reviewed, abstracted, reproduced and translated, in part or in whole,but not for sale and not for use in conjunction with commercial purposes.

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April 2009


Introduction to financial planning

Title Page

1. What is financial planning? 3

2. Step 1: Raise the idea 3

3. Step 2: Ask questions 3

4. Step 3: Identify sources of information 4

5. Step 4: Form a team 5








What is financial planning?

An immunization programme will reach its goals only if ithas adequate and reliable support. Financial planning isan ongoing process that makes it possible to manageyour programme's finances by:

• identifying the costs and resource requirements ofyour programme,

• pointing out the gap between your costs and theamount of funds you expect to receive for the pro-gramme,

• exposing any risks to the future funding of the pro-gramme,

• highlighting programme inefficiencies; and• developing strategies to overcome the funding gap,

reduce funding risks and address programme ineffi-ciencies.

Financial planning is a crucial part of programme plan-ning and long-term financial sustainability. It is also anongoing process. Establishing financial planning prin-ciples, and sticking to them, will help your programme notonly now but in the future. Next, we'll look at how to be-gin the financial planning process.

In the Appendix: see A financial planning frameworkand Financial planning principles.

Step 1: Raise the idea

The first step is to raise the idea of financial planning withyour colleagues. To do this, you must become familiarwith the arguments for writing a financial plan. If you con-vince others of the importance of undertaking a planningprocess, they are more likely to be involved and commit-ted to the idea.

Step 2: Ask questions

Immunization Financing > BasicsIntroduction to financial planning

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Consider the following key questions:

• How much does it cost to achieve your programme's objectives?• How much funding is available?• How do the funds get from their source to their eventual use?• How do you allocate the funds within the programme?• Is there a prioritization process?

The answers will guide your thinking and direct you to the information you need to col-lect.

You also must think about your programme's goals and which of these goals will havethe most impact on your finances. For example:

• Certain components of your programme, such as vaccines, are extremely importantfor financial planning. Vaccines typically account for 25%-55% of programme costs.

• What changes do you plan for your programme? For example, purchasing vehicles,making improvements to the cold chain, introducing a safe injection policy and con-ducting surveillance work all demand significant extra resources.

Web Activity: Test Your Understanding

Step 3: Identify sources of information

You will need information on:

• programme objectives,• programme finances: past expenditures, future

costs, past and future government and donor contribu-tions,

• the health sector: the current system, policies, finan-cial management and allocation processes and anychanges that are taking place or are planned to takeplace; and

• national macroeconomic context and policies andthe projected national budget, including the Ministry ofHealth budget.

Collecting this information can be time consuming. Youwill need to ask the right people and search in the rightplaces.

In the Appendix: see Where is the information?



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Step 4: Form a team

Putting together a good team is very important. Youneed:

• the right people,• the right skills; and• the right amount of time.

You need a focused and manageable group of people.Start with a core group of 4-6 people. Decide who willlead and who will coordinate the team. Here is an ex-ample of a team that includes crucial members:

• representative of the Ministry of Health's budget or fin-ance department (leader),

• EPI manager (coordinator),• representative of the Ministry of Health's policy and

planning department,• representative of the Ministry of Finance's health de-

partment; and• representative of a partner organization. (Ideally this

representative will come from your country's donor co-ordination group, such as the Interagency Coordinat-ing Committee.)

Remember: Always make sure roles and responsibilitiesare clear and always keep your EPI team fully informedof progress.




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Key concepts

Title Page

1. Financing vs. economics 7

2. Financial sustainability 7

3. Economic and financial costs 7

4. Economic evaluation 8

5. Steps in economic evaluation 9

6. Costing 9

7. Budgeting 10

8. Expenditure 10

9. Accounting 11

10. Put costing, budgeting and expenditure together 11

11. Cost effectiveness and cost benefit analyses 12

12. Cost effectiveness analysis 13

13. Capital and operational costs 13

14. Shared and programme-specific costs 14

15. Fixed and variable costs 14

16. Depreciation and annualization 15

17. Opportunity cost 16

18. Social cost 16

19. Immunization as a public good 17

20. References 18








Financing vs. economics

Financing focuses on how much money you will need foran activity or programme and where you are going to getit. It involves budgeting, usually reflected in the price of aproduct, and resource mobilization.

Economics focuses on the total value of goods or ser-vices in your programme. Although often expressed as asum of money, it places a value on goods and servicesthat are not being bought or sold. For example, an eco-nomic evaluation of a programme would take into ac-count the value of volunteers' time, or the value of timeparents spend bringing children for services. But be-cause no money is involved, a financing analysis wouldnot consider the value of volunteers' or parents' time. Be-cause economic evaluation takes a more complete lookat a total programme, it is often used to prioritize activit-ies or objectives.

Financial sustainability

Financial sustainability is the ability of a country to usedomestic and supplementary resources efficientlyand reliably to provide immunization services that areaccessible, safe, equitable, of high quality and successfulin reaching the population.

Signs that your programme has reached financial sus-tainability include:

• shared responsibility between government and devel-opment partners,

• financing that matches realistic programme objectives,• reliable and adequate financial resources; and• efficient use of resources.

Economic and financial costs (2)

Costs are the value of resources used to produce goods or services. The value is usu-ally expressed as a sum of money. There are two main ways these resources can bemeasured:

• Financial costs are the actual amounts of money spent on goods or services. For

Immunization Financing > BasicsKey concepts



example, the financial cost of human resources in an immunization programme is theamount of salaries paid to health workers. The financial cost is usually equal to theprice of goods.

• Economic costs are the total value of resources - financial and non-financial - usedin a programme. For example, the economic cost of human resources in an immuniz-ation programme is the amount of salaries paid (the financial cost) and the value ofany volunteer work undertaken (such as in a campaign) and the cost of parents' timeused to bring their children to the clinic (which otherwise could have been used togrow food or earn money).Economic costs are covered in more detail later in this chapter in relation to depreci-ation and annualization, opportunity cost, and social cost.

Financial costs are important when forecasting a budget and determining what fundingyou will need. Financial costs are used in a financial plan. Economic costs can be moreimportant when setting priorities and determining the efficiency or cost effectiveness of aservice.

Economic evaluation

Economic evaluation:

• ensures that the benefits from health care pro-grammes are greater than the costs of implementingthe programmes; and

• maximizes the amount of good health in a societyfor the minimum cost.

Economic evaluation is a comparative exercise. To bemeaningful, it should involve assessment of at least twoalternative strategies. It can be used to compare:

• alternative objectives within a single programme(Should I improve coverage or introduce a new vac-cine?),

• alternative strategies to achieve the same objectivewithin a single programme (Should I improve cover-age through outreach or campaigns?); or

• alternative health programmes (Should I start an im-munization programme or a malaria programme?).

It does this by comparing the costs and consequencesof each action. By doing so, an economic evaluation canassist you in setting priorities and making decisionsabout the allocation of resources. It can also be used toimprove programme efficiency and equity.



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Steps in economic evaluation (1)

All methods of economic evaluation put a value on the costs and consequences of an in-tervention by using the same three steps:

• identify inputs and consequences,• measure inputs and consequences using appropriate physical units (for example,

hours of time, consumable items used); and• assign a value to inputs and consequences (for example, each hour of someone's

time is worth $5).

You may encounter problems in all three phases. Some items are difficult to identify be-cause health care interventions can have hidden or unknown costs and con-sequences. Not all costs and consequences can be measured in appropriate physicalunits since some interventions have intangible consequences, such as reduction of painor increase in quality of social performance. Placing a value on inputs and con-sequences is the most difficult aspect of conducting an economic evaluation. Measuresof value exist only where there are true markets, and these cover only a minority ofhealth inputs and consequences.

Costing

Costing, budgeting and expenditure are three termsthat are often confused in financial planning, althoughthey have quite different meanings and uses.

Costing: (3) The costing of an immunization programmeis the estimate of the actual value of goods or servicesused. For example, a costing analysis would include thevalue of overhead and maintenance costs of the buildingin which immunizations take place, even though the pro-gramme may never actually pay money for overhead ormaintenance of the building.

Programme costing can provide useful information forcost effectiveness and cost benefit analyses. It can beused to:

• assess the most efficient strategies for improving cov-erage or introducing a new vaccine,

• evaluate different options for programme improve-ment; and

• identify potential cost savings within the programme



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to improve efficiency.

It also provides the basis for developing a programmebudget.

Budgeting

A budget is a detailed plan for the future showingwhich financial resources will be needed, for what andwhen. Budgeting is the process of drawing up this plan.Budgeting can also mean looking at financing availabletogether with the resources needs, but this module firstdiscusses each of these separately.

For a budget to be most useful you must compare it toyour actual activities and expenditure at the end ofeach budget period, generally yearly. What money didyou actually receive and how did you spend it? Whatwere the major discrepancies? How will this change thebudget next time?

A budget provides useful information on:

• how much money is needed in the future (usually for 5or more years),

• when or which year that money is needed; and• what the money is planned to be spent on.

Expenditure (3)

Expenditure is the amount of money actually spent in a period of time. For example, ex-penditures may be the amount spent on vaccines or per diems in one year.

Expenditure is different from cost. For example:

• Assume your programme spends $1,000 on vaccine in one year, but the amount ofvaccine purchased provides for two years of services.

• In the first year, $500 worth of the vaccine is used to immunize children. The re-mainder stays in the warehouse.

• In this example, your expenditure is $1,000 - the amount of money your programmespent.

• The cost, or value, of the vaccine your programme actually used is $500.

Expenditures may be different from the budget, the plan for getting and spending



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money. This may happen if your programme:

• has insufficient funding (expenditure will be less than the budget),• does not have sufficient supplies to conduct services (expenditure will be less than

the budget); or• makes purchases that are unplanned; for example, due to an epidemic (expenditure

will be more than the budget).

Despite these drawbacks, expenditure is often used as the basis for forecasting thenext year's budget.

An analysis of expenditure provides useful information on:

• fluctuations in spending and possible fluctuations in donor contributions; and• the regularity of funding flows, by highlighting where funding bottlenecks might occur.

Accounting (3)

Accounting is a country-, government-, agency-specificsystem of tracking every dollar received and spent. Ac-counting is not the focus of this e-learning course be-cause systems tend to be different in each country. Butcosting, budgeting and expenditure should be consistentwith accounting practices.

Put costing, budgeting and expenditure together

Costing, budgeting and expenditure work together. They are part of a cycle in which in-formation from one process can be used to guide another. For example, a costing studycan provide information for planning your budget. And analysis of expenditures com-pared to your budget will identify areas where budgeting can be improved.




In the Appendix: see What are the challenges?


Cost effectiveness and cost benefit analyses

Cost effectiveness and cost benefit analyses are the most common forms of analysesused in immunization programmes. They are used, however, for different purposes.

A cost effectiveness analysis compares different ways of reaching the same goal tofind the least expensive way of achieving it. For example, a cost effectiveness analysismight assess whether outreach teams or immunization campaigns are more successfulin immunizing children. Cost effectiveness is measured using one standard, such as thenumber of children immunized or the number of lives saved.

A cost benefit analysis seeks to value and compare all costs and benefits, bothprivate and social, that result from alternative interventions and to convert them to sumsof money. For example, with cost benefit analysis, you can calculate the amount of be-nefits your programme receives for every dollar spent. This analysis is convenient forcomparing two different health programs, such as malaria control and immunization, tosee which provides the most benefits with the most efficient use of resources. Cost be-nefit analyses are complex and costly and are not often used in immunization pro-grammes. For that reason, we will focus on cost effectiveness analysis.



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In the Appendix: see Constraints of cost analyses.

Cost effectiveness analysis

One of the best ways to use a cost effectiveness analysis is linked to the concept of mar-ginal analysis. This means that you examine the cost effectiveness of the additional(or marginal) changes you would make if you had more or fewer resources. For ex-ample, if you obtained more money for your programme, you would identify the addition-al goods or services you could buy. You would then calculate the cost of each additionand assess what kind of improvement each change would make to your programme. Fi-nally, you would compare the results to make a decision.

Cost effectiveness analysis doesn't usually detemine whether an overall programme isworth starting or continuing. But a cost effectiveness analysis can provide answers tothese questions:

• Which strategy for a particular objective provides the best value for money?• Which service or combination of services provides the best value for the funding

available?• How can extra investment best improve an intervention's performance?


In the Appendix: see Benefits of cost effectiveness analysis.

Capital and operational costs

There are three key sets of costs:

• capital and operational,• shared and programme-specific; and• fixed and variable.

We will start by addressing capital and operational costs. All costs are either capital oroperational.

• Capital, or nonrecurrent, costs are any item that lasts longer than a year. Importantcapital costs include cold chain equipment and vehicles.

• Operational, or recurrent, costs are those that must be paid every year. They in-clude vaccines, personal salaries, fuel, equipment maintenance and per diems. Annu-



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al operational costs make up 75%-90% of the total cost of a programme. Becausethey are a large part of programme costs, accuracy in assessing these expenses isvery important. Small inaccuracies can mean large discrepancies in the total cost oryour programme.

In a financial plan, costs are always classified as either capital or operational.


In the Appendix: see An example of capital vs. operational costs

Shared and programme-specific costs

• Shared or joint costs are shared by more than one service. For example, the salar-ies of health workers who provide health services in addition to immunizations areshared costs. So are the costs of health facilities that provide services in addition toimmunizations. Shared costs often represent the largest part of a government's con-tribution to an immunization programme. They are essential to the delivery of im-munization services, but they can be difficult to measure.

• Programme-specific costs apply only to the delivery of immunization services. Theyinclude social mobilization, in-service training and vaccines. They can be either capit-al or operational costs.

Including shared costs in your financial planning allows you to see the full cost of yourprogramme. Since the government usually pays for shared costs, it also reflects the truecontribution of the government to the immunization programme.

Programme-specific costs are often easier to influence than shared costs. To improvethe efficiency of your programme through cost savings, start by exploring how to reduceprogramme-specific costs without compromising service quality.


Fixed and variable costs (5)

• Fixed costs do not vary with fluctuations in volume, frequency or activity. For ex-ample, administrative salaries will remain the same whether 100 or 200 children areimmunized.



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• Variable costs vary directly or proportionally with changes in volume or activity. Forexample, the cost of syringes increases or decreases depending on the number ofchildren immunized.

This distinction is valid only for one year. In the long term, all costs are variable.

Also, most costs are fixed only in tiers. That is, at some point an increased number ofimmunizations will demand a change in a fixed cost. For example, you may have to buya new refrigerator to store more vaccines. Finally, don't confuse capital costs andfixed costs. Fixed costs can be either capital or operational.

When trying to improve the efficiency of your programme through cost savings, it is bestto start with variable costs since you are more likely to be able to influence them.


In the Appendix: see Why is the difference between fixed and variable costs important?

Depreciation and annualization

As it ages, almost any purchased item is worth slightlyless each day. This is depreciation. For immunizationprogrammes, the most important way to determine theloss in value of an item is called annualization.

Although items such as cars are purchased in one year,they are used for several years. The length of time theyare used is called the useful life. To present the averagecost of an immunization programme, capital costs mustbe shown as cost per year. To do this, the full purchaseprice of the car, for example, is converted to an annualequivalent cost by dividing the purchase price by theuseful life. This process is called annualization and themethod of division is called straight line depreciation.

By calculating the decreasing value of a capital item, youcan work out the value of that item during the years it isbeing used. For example, a programme buys a vehiclethat is expected to last 5 years and is worth $20,000. Us-ing straight line depreciation, the car has an average an-nual cost of $4,000. Therefore, at the end of the secondyear, the car has a value of:

$20,000 - $4,000 (year 1 depreciation) - $4,000 (year 2



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depreciation) = $12,000.

In this example, the car is valued at $4,000 a year, but italso loses $4,000 in value each year.

Opportunity cost

This is the cost of an opportunity passed by. For ex-ample, the opportunity cost of producing a specificproduct is the value of another product that could havebeen produced instead.

The concept of opportunity cost is always important toconsider when making decisions about your programme.You should ask: "If I follow this course of action, whatother actions must I miss?" For example, if you spendfunds on social mobilization, it may mean you cannotmake repairs to the cold chain. The concept applies tohow you spend your time, too. For example, if you spendthe day at a training workshop, you cannot work on yourfinancial plan. The opportunity cost of going to the work-shop is the work you may have completed on the finan-cial plan. Always ask: Is this a good trade-off? Is it thebest trade-off?

Everything you do incurs an opportunity cost becauseonce you decide on an action, you have lost the oppor-tunity to take an alternative action. The trick is to minim-ize the opportunity cost. Make sure your decision to dosomething or spend money provides the maximum bene-fit compared to the alternative course of action.

Social cost

A social cost is one that costs society as a whole. For example, air pollution that causesill health is a cost borne by the whole community, not only by the owners of a factory thatemits pollution. In immunization, high rates of vaccine preventable diseases have negat-ive consequences for national economies. Therefore, high rates of preventable dis-eases carry a high social cost.

The social cost of a population that is not immunized provides a strong argument for thepublic funding of immunization services. The public benefits from an immunization pro-gramme and also bears the social costs when these programmes do not exist.




Immunization as a public good

A public good benefits each person. For example, a streetlight illuminates the area foreveryone near it - whether an individual or a group of people. Similarly, immunized chil-dren benefit each person who comes into contact with them since lessened diseasetransmission helps protect everyone. As a result, immunization programmes provide apublic good. For this reason, many people believe immunization programmes are anessential investment for national health systems.




References

1. http://www.pitt.edu/~super1/. "Epidemiology, the Internet and Global Healthwebsite," Introduction to Health Economics Supercourse page. Accessed March16, 2004.

2. Kou, U. Guidelines for estimating costs of introducing new vaccines into thenational immunisation system, WHO/HTP/VAB/02, WHO: Geneva; 2002.

3. Levin, A., Edmund, J. Costing of National Immunization Programs: the Whysand Whens, Geneva: GAVI; August 2001.

4. Partnerships for Health Reform Project, Abt. Associates Inc. Glossary ofHealth Reform Terms for Translators, Bethesda, MD, February 2000.

5. Brenzel, L., Claquin, P. "Immunization Programs and Their Costs," SocialScience Medicine, 39(4):527-536; 1994.



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Advocacy: To mobilize awareness, support and resources

Title Page

1. What is advocacy? 20

2. How is financial planning used in advocacy? 20

3. How do I get started? 21

4. How do I present information? 21

5. More on advocacy and immunization financing 22








What is advocacy?

Advocacy refers to communication activities aimed atbuilding awareness. In this case, advocacy includes ef-forts that generate and maintain support for immunizationprogrammes. Advocacy is not a financial sustainability orresource mobilization strategy. It is, however, a verypowerful tool you can use to put financial sustainabilitystrategies in place.

Advocacy means presenting a strong argument backedby good information that persuades people to supportwhat you are doing. It requires:

• good communication skills,• the ability to build relationships with others; and• an ongoing commitment. A one-time presentation is

rarely enough to convince people to support you.

To be a strong advocate for financial sustainability youmust:

• understand thoroughly the cost and financial needs ofyour programme,

• know the people or organizations that you want to per-suade; and

• know what will persuade them (and be prepared togive it to them).

Remember: Advocacy is not a "magic bullet". It is hardwork and takes time. Results in the short term can be dif-ficult to measure, but often the long-term gains of ad-vocacy can be substantial.

How is financial planning used in advocacy?

The financial planning process and especially costinganalyses can be powerful advocacy tools for getting ad-equate and reliable funds. For example, they can:

• raise awareness and understanding of the EPI pro-gramme and its financing concerns,

• provide information on the cost and effectiveness ofprogrammes to justify continued allocation of re-

Immunization Financing > BasicsAdvocacy: To mobilize awareness, support and resources



sources; and• increase donors' confidence in the financial man-

agement of the programme. Programmes that man-age funds well and have good procedures for account-ing and auditing are more likely to win commitmentsfrom financing partners.

How do I get started?

To be a successful advocate, you must carefully plan your approach. Key steps are to:

• define the desired action or goal,• identify the primary decision makers,• describe what needs to happen before the decision makers can or will take action,• define who will convince the primary decision makers to take action; and• outline the motivations for and barriers to accomplishing your goal.

Example

Realistic goal Primary de-cision makers

What will con-vince the de-cision makersto take action

Who can influ-ence them

What are theopportunitiesand challenges

Increase in theallocation of thehealth budget toEPI

Minister ofHealthMinister of Fin-ance

Organize meet-ing with Minis-ter(s)

• Have finan-cial plan pre-pared

• Have clearargument forthe increase

Deputy Ministerfor PreventativeCareBudget or man-agement col-league

Opportunities:

• Prime Minis-ter has healthas an elec-tion priority

Challenges:

• Competinghealth priorit-ies

• Elections

How do I present information?

The most important part of any presentation is you. Unless you are prepared and under-stand your subject matter, no amount of graphs, power point presentations or picturescan help.

As an advocate you should:

• Be prepared: know what you are asking for.




• Be organized: compile your discussion points in advance.• Be focused: state your main points early in the discussion and repeat them at the

end.• Be able to show how the supporter might benefit.• Put yourself in the your supporters' places and think about what matters to them.

What other demands must they respond to and how does immunization fit into this?• Think about ways to help supporters justify an investment in immunization and

make them feel enthusiastic about immunization.

Immunization partnersIt is crucial that you recruit immunization partners such as WHO (World Health Organiza-tion), UNICEF (United Nations Children's Fund) and bilateral donors to advocate on be-half of your programme. Partners are very effective in influencing their peers and thegovernment.

Remember: Be enthusiastic and passionate about immunization.

More on advocacy and immunization financing

The GAVI (Global Alliance for Vaccines and Immunizations) Financing Task Force, hasput together more information entitled, Advocacy for Financial Sustainability: The Role ofAdvocacy in the Financial Sustainabilty Planning Process (content last updated May2004). Resources and examples are included to assist on the following:

• Key Issue 1 : Keeping Key Stakeholders Informed and Engaged Throughout the FSPDevelopment Process

• Key Issue 2 : Setting Advocacy Objectives• Key Issue 3 : Understanding Your Target Audiences• Key Issue 4 : Finding a Compelling Basis for Advocacy Messages• Key Issue 5 : Presenting and Delivering Your Advocacy Messages Effectively• Key Issue 6 : Creating and Using a Network of Supporters• Key Issue 7 : Managing Your Advocacy Activities




April 2009


Appendix for basics

Title Page

1. A financial planning framework 24

2. Financial planning principles 24

3. What are the challenges? 25

4. Where is the information? 25

5. Benefits of cost effectiveness analysis 26

6. Constraints of costing analyses 26

7. An example of capital vs. operational costs 27

8. Why is the difference between fixed and variablecosts important?

29

9. References 30








A financial planning framework

Financial planning is always ongoing and involves key steps. These steps are:

• establish your current financial situation,• project your future needs and resources,• analyze the results of your projections,• develop and prioritize strategies and actions for achieving your financial objectives,• assess the policy and programme context; that is,identify opportunities and chal-

lenges to financial sustainability,• implement strategies; and• monitor and report progress.

Back to: What is financial planning?

Financial planning principles

Good planning requires good information about a programme's financial status and per-formance. A financial plan must be presented so that everyone can understand the pro-cess and the results. Some key principles of financial planning are:

• Know your own programme - what it costs, what it needs and why.• Involve those with a strong interest in the programme.• Keep detailed, open and accessible financial records.• Use high-quality data. Is it consistent with other documents? Does it make sense?• Base your financial projections on a multi-year plan reflecting your programme's ob-

jectives.• Provide detailed information explaining how you calculated your costs and projec-

tions.• Interpret results.• Analyze everything.• Set and explain priorities for funding.• Use the budget as a management tool. Compare actual expenditures with your

budget and analyze any differences.

Most importantly: Be realistic.

If you follow these principles, the financial planning process will be credible, reliable anduseful. Your financial plan will be a practical instrument for discussion, planning and ac-tion.

Back to: What is financial planning?

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What are the challenges?

Financial planning will require your time and commitment. Programme managers whohave completed a financial planning exercise note that some of the main challenges in-clude:

• having too little time,• lacking experience with financial planning,• experiencing problems with data collection,• identifying sources of data, especially if the data is in another ministry or agency,• generating accurate costs and expenditures at district level,• predicting future costs,• collecting future commitments from government and donors,• discovering discrepancies with data; and• finding analysis to be more complex and difficult than expected.

These challenges should not discourage you. If you are aware of these potential prob-lems, you can plan to overcome them. You may want to draw up a timetable to guide theprocess. And do include people from Ministry of Health departments of planning and fin-ance in your financial planning team from the beginning.

The first time is always the hardest. The same programme managers who identified theproblems listed above also said they found the financial planning process extremely use-ful.

Back to: Costing, budgeting, expenditure: working together.

Where is the information?

Collecting good information depends on talking with others. They will direct you to theright places, the right documents and the right people to answer your questions. It mighttake a while, but you will get the right answers.

Which people? Which documents? (some examples)

Ministry of Health

1. EPI Team and Procurement, Logistics, Sur-veillance, IEC units

1. Programme documents

• Multi-year Plan, annual reports• Reviews or assessments• Budgets and expenditure reports

2. Departments of Finance and Planning 2. Health-sector documents



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• Five-year plan and annual plan of action• Annual Ministry of Health budget and ex-

penditure report, district budgets and ex-penditure reports in decentralized systems

• National financial management reports/procedures, budgets and expenditure re-ports

• Health reform and/or decentralization re-ports/plans including Sector-wide Ap-proach reports

Ministry of Finance or Planning National planning documents: for example,Medium-Term Expenditure Framework(MTEF), Poverty Reduction Strategy Paper(PRSP)

Partner OrganizationsWHO, UNICEF, The World Bank, Bilateraldonors (these may all be together in the ICC)

Immunization funding, activity or expenditurereportsPlanning documentsHealth-sector reviews or assessments

Tip: Be systematic about data collection. Make a list of all the documents you need andthe people you should see. As you analyze the information you collect, you will find thereare gaps and you will need to go back to fill them.

Remember: Always maintain high standards. Your financial strategies will only be asgood as the data that you use to develop them. Ensure information is up to date and ofgood quality.

Back to: Step 3: Identify sources of information.

Benefits of cost effectiveness analysis

A cost effectiveness analysis can:

• help you make decisions for your programme by providing an economic comparisonof alternative activities,

• identify inefficiency in your programme,• provide information to calculate the cost per fully immunized child; and• identify resources you need for programme objectives.

Back to: Cost effectiveness analysis.

Constraints of costing analyses (1)



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While costing analyses are useful for planning and management, they do have limita-tions:

• Decisions are not based solely on economics. Political, technical, administrativeand logistical considerations often have more influence on the final choice ofstrategies.

• Cost effectiveness analyses look mainly at the cost of providing EPI services. Theydon't include the cost to families of seeking immunization services, such as travel andwaiting time.

• Interventions can often contribute to other positive health outcomes. For example,measles immunization helps reduce acute respiratory infections and diarrheal dis-ease. A costing analysis should take into account these benefits, but it is impossibleto account for all of the health outcomes of a strategy.

• It is difficult to quantify intangible benefits. For example, what is a good measure-ment of "quality of life"?

Back to: Cost effectiveness and cost benefit analysis.

An example of capital vs. operational costs

Back to: Capital and operational costs.

Noting the differences between capital and operational costs allows you to show two dif-ferent sets of information:

• the yearly cost of a programme and• the yearly budget of a programme, or how much cash is needed in a particular year.

Remember: The cost of a programme, which is the programme's economic value, is dif-ferent from the budget, which is the amount of money you need to provide services.

Programme costTo assess the yearly cost (or value) of a programme, operational costs are presentedin total. But capital costs are reflected as a cost per year. To arrive at the cost per year,divide the purchase price of the capital item by the number of years you think the itemwill last. (This time period is also called "useful life.") For example, a car with a purchaseprice of $10,000 that will be used for 5 years has a cost per year of $2,000. This methodof division is called straight line depreciation. It means that the total cost of an item canbe averaged over the number of years it will be used. Turning to our example again, al-though the car was purchased in 1 year, it is being used over 5 years.

The table below illustrates how programme cost and programme budget can be com-pared, using the following example:



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• Between 2003-2007, your programme spends annually:- $1000 on vaccines- $500 on AD syringes- $600 on staff salaries

• In 2003, your programme also buys a vehicle worth $20,000 that is expected to last 5years. This means that the car has a straight line depreciation of $4,000.

Programme Cost

Cost 2003 2004 2005 2006 2007 TOTAL

Operation-al Costs

Vaccines 1,000 1,000 1,000 1,000 1,000 5,000

Syringes 500 500 500 500 500 2,500

Salaries 600 600 600 600 600 3,000

CapitalCost

Vehicle 4,000 4,000 4,000 4,000 4,000 20,000

TOTAL $6,100 $6,100 $6,100 $6,100 $6,100 $30,500

A budget reflects financial costs. It shows the amount of cash needed per year. Usingthe example above, here is your programme's budget:

Programme Budget

Cost 2003 2004 2005 2006 2007 TOTAL

Operation-al Costs

Vaccines 1,000 1,000 1,000 1,000 1,000 5,000

Syringes 500 500 500 500 500 2,500

Salaries 600 600 600 600 600 3,000

CapitalCost

Vehicle 20,000 20,000

TOTAL $22,100 $2,100 $2,100 $2,100 $2,100 $30,500

SummaryAlthough both totals are the same, the tables show different information. The first shows




the average cost per year of the programme, while the second shows how much moneyis needed per year. Both are important for financial planning.

Back to: Capital and operational costs.

Why is the difference between fixed and variable costs important?

The difference between fixed and variable costs is useful when analyzing the results of acosting exercise. Fixed costs, during a year, are incurred no matter how many childrenare immunized while variable costs change based on the programme such as the num-ber of children you expect to immunize.

Remember, when trying to improve the efficiency of your programme through cost sav-ings, it is best to start with variable costs since you are more likely to be able to influencethem. Also note that variable costs are often ones that are not fully financed. Govern-ments and donors find it easier to remove financing for a variable cost, such as supp-porting less outreach, than a fixed cost, such as shutting a health center.

Examples:

• Vaccine Wastage: Vaccine use is a variable cost, changing according to number ofchildren. Wastage, as a part of vaccine use, varies by several factors, including num-ber of children attending a session. If the session size can be increased or multidosevial policy can be implemented, the programme is more efficient and wastage goesdown.

• Health Centers vs. Outreach: Many costs associated with health centers are fixed.The cost of the staff, refrigerator and fuel and the building all remain largely fixed re-gardless of whether 1 or 20 children are immunized in a month. Many of the costs as-sociated with outreach are variable and dependent on the number of outreach ses-sions and number of children immunized.

Back to: Fixed and variable costs.



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References

1. Lydon, P. Costing Guidelines for Routine Immunisation Services, 2002.Unpublished data.




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