Unit Cost and Cost Benefit
Analysis: Tips and Guidance
Index
Why is it important to measure the unit cost and cost benefits of
Early Intervention Mental Health Services?
slides 3-5
Research Evidence
slides 6-7
Unit Cost Analysis and Cost Benefit Analysis, Definitions
slides 8-9
Unit Costs how are they helpful?
slide 10
Calculating fully allocated costs
slides 11-16
Case Example: Place2Be
slides 17 -20
Non-cashable savings example
slides 20-22
Unit Cost Benefit Analysis
slides 22-33
Case Example: Place2Be
slides 33-37
Why is it important to measure the unit cost and cost
benefits of Early Intervention Mental Health Services?
The Business Case
There is consistent and strong evidence that
emotional resilience built in childhood confers
lifelong benefits in terms of better mental health and
well-being and greater ability to cope with life’s
stresses and strains.
The evidence also suggests that investing in
children’s mental health and well-being now will pay
off in the future, in improved life chances and
achievements, better educational attainment, greater
productivity, better health, greater community
involvement, and less use of health services, social
care and welfare benefits.
Overall, the data tells us, if more emotional and
behavioural disorders among our children and
young people could be treated and prevented in
childhood, the numbers of people who struggle with
mental ill health and diminished opportunities
throughout their adult life could be considerably
reduced. This, in turn, would generate huge savings
in human, social and financial costs.
Research Evidence
•
Mental health problems often start in childhood. Half of young adults with mental health problems first
developed symptoms by age 15 years, and 75% had symptoms in their late teens (Kim Cohen et al, 2003;
Kessler et al, 2005).
•
Early adult depression is commonly preceded by childhood anxiety; adult anxiety is preceded by both
depression and anxiety (Kim Cohen et al, 2003).
•
There is a strong case that school-based Social and Emotional learning programmes are cost-saving for
the public sector. The key drivers of net savings are the crime and NHS-related impacts of the
intervention. Education services are likely to recoup the cost of the intervention in five years. (Beecham et
al, 2011)
•
If services had intervened early for just one in ten of the young people sentenced to prison each year,
public services could save over £100 million annually. (Audit Commission. 2004.)
•
One in ten children aged 5-16 years – three per class in every school in the UK – has a clinically
diagnosable mental health problem such as depression, anxiety or psychosis (Green et al, 2005).
•
Conduct disorder is the most common mental disorder in childhood. By the time they are 28 years old,
individuals with persistent antisocial behaviour at age ten have cost society ten times as much as those
without the condition. (Scott, Spender, Doolan, Jacobs and Aspland. 2001)
•
Mental health and emotional problems in childhood are associated with mental health and conduct
disorders in adult life. For example, 80% of children showing behavioural problems at the age of five go
on to develop more serious forms of anti-social behaviour (Meltzer et al, 2000).
•
Over 90% of young offenders have had a mental health problem as a child (Lader, Singleton & Meltzer,
2000).
•
Mental health problems in childhood can seriously impact on a person’s life chances. Good mental health
is associated with good educational outcomes, better employment prospects, and greater capacity to
maintain emotionally satisfying interpersonal relationships. Mental ill health in childhood is also
associated with poorer physical health in adulthood (Foresight Mental Capital and Wellbeing Project,
2008)
Unit Cost Analysis and Cost Benefit Analysis,
Definitions
What is Unit Cost?
Definition: “Expenditure incurred in producing one unit
of goods or service often expressed as average
cost.”
What is Cost Benefit?
Definition: “An analysis in order to see whether the
benefits outweigh the costs. In human terms based
on long term savings.”
CALCULATING FULLY ALLOCATED COSTS
Process to calculate unit costs
INPUT DATA
CALCULATION OF FULLY
ALLOCATED COSTS
CALCULATION OF TIME
WEIGHTINGS
SERVICES COSTS
CALCULATION OF UNITS
CALCULATION OF UNIT
COSTS
Costs are direct or indirect
The model:
• identifies the “direct costs”
• identifies the “indirect costs” & classifies them by cost centre; and
• allocates any “indirect costs” to the services using “cost drivers”
DIRECT COSTS = Costs which relate directly to the services delivered
INDIRECT COSTS = Costs which do not relate directly to the services
delivered, as they are generated by some “intermediary activity”
Costs are allocated across services
DIRECT COSTS EXAMPLES
Parent
Service
Youth
Service
Chief
Exec.
Finance
“COST DRIVERS”
Child
Service
INDIRECT COSTS EXAMPLES
HR
IT
Facilities & Premises
Governance &
Office
& Office R&E
Strategic
Fundraising
Management
Costs
Development
COST CENTRES
COST DRIVER = A variable which is used to allocate an
indirect cost to the services delivered (proportionately).
Sometimes, the indirect costs are allocated across other
intermediary cost centres before subsequently being
allocated to the key services.
Example of different cost drivers used to
allocate different indirect costs
Cost Centre
Cost Driver
Description
Facilities & Office Management
Premises & Office Costs
Research & Evaluation
Chief Executive
Finance
Human Resources
IT
Fundraising
Governance & strategic development
Headcount
Headcount
Outputs
Time
Time
Time
Time
Expenditure
Expenditure
% of office staff working on each activity
% of office staff working on each activity
% of Outputs used by other departments
% of time spent on different activities
% of time spent on different activities
% of time spent on different activities
% of time spent on different activities
Allocated pro-rata based on expenditure already allocated to different activities
Allocated pro-rata based on expenditure already allocated to different activities
This is based on the guidance from ACEVO, NPC & KPMG on best practice
for full cost recovery by charities.
For example…
DIRECT COSTS
Child
Service
18%
Parent
Service
8%
INDIRECT COSTS
Youth
Service
9%
Chief
Exec.
Finance
9%
4%
HR
18%
IT
2%
Facilities &
Office
Management
Premises
& Office
Costs
4%
R&E
12%
…the driver for allocating “Facilities & office
management” costs is headcount
Governance &
Strategic
Development
4%
Fundraising
17%
Case Example: Place2Be unit cost findings
2010
• In 2008/09, Place2Be’s children’s service reached
132 schools and 42,370 children.
• The average cost per child per annum for Place2Be’s
children’s service was £105.
• In total, 237,144 hours of children’s service were
provided in the 2008/09 financial year at an average
cost of £19 per hour.
• The cost per child per annum of one-to-one
counselling was £954, with each child receiving on
average 51 hours of service over a year
The Place2Be’s children’s service compared
with CAMHS tier 2-3 services on unit cost and
cost-effectiveness
•
In 2008/09, the cost per hour of CAMHS generic
single and multi disciplinary services (equivalent to
tier 2-3 services) was £33.*
•
A clinical service from CAMHS generic single and
multidisciplinary services cost £1,744 per case per
annum.*
* Child Health and CAMHS Mapping (University Durham, DH, 2009)
•
The comparable cost per hour of Place2Be’s
children’s service is 42% less than the average cost
of CAMHS generic single and multidisciplinary
services [42% = (£33-£19)/£33].
•
The comparable cost per case per annum of The
Place2Be’s one-to-one work is 45% less than that of
CAMHS generic single and multi disciplinary
services in 2008/09 [45% = (£1,744-£954)/£1,744].
You can design your own non-cashable
savings example.
This can be based on how much an intervention or
service might cost if you weren’t providing it. For
instance the cost of additional support or service
children might need if you weren’t there. In a school
setting this might mean Teaching Assistants,
Teachers or even Senior Management.
Non-cashable efficiency savings case study 01:
“Ronnie”
Context
Ronnie is a Year 4 boy. He was placed in the school after being permanently excluded from
another local school for persistent disruptive behaviour and assaulting a teacher. He was
described as ‘unmanageable’.
Time cost calculation
Individual Teaching Assistant supervision at playtime and lunchtime
Total Teaching Assistant hours per week
Total cost per week
Senior leader time investigating incidents
Senior leader time meeting with parents
Total senior leader hours per week
Total senior leader cost per week
Time cost calculation after referral
Total Teaching Assistant hours per week
Total senior leader hours per week (interventions rare, e.g. 1 hour per
month)
Total cost per week
1.25 hours per day
6.25
£50
•hours per week
•hours per week
•hours per week
£78
NIL
15 minutes per week
£10
Academic performance pre-intervention
Able but not
performing
Academic performance post-intervention
Projected Level 5
Maths & English in
Year 6
Total cost before intervention = £128 per week x 39 weeks = £4,992
Total cost after intervention = £10 x 39 = £390
Total non-cashable efficiency savings = £4,602

Not his real name
Cost Benefit Analysis
• In order to calculated the Cost Benefit of your
service you will need to estimate the immediate cost
of your service against long term savings.
• To do this you will need an idea of the long term
outcomes your service might achieve.
• You will need to estimate how much money could be
saved in the long term by your intervention.
• Finally you will need to divide the long term savings
figure by the immediate treatment cost and calculate
a ratio (e.g 5:1; for every £1 spent £5 will be saved)
• This is more complicated than Unit Cost Analysis
and will always be based on assumptions.
• You must be clear and transparent about what
assumptions have been made.
• You must be conservative with your assumptions for
your analysis to be as realistic as possible.
Working out long term savings
• There are several ways to estimate long term
savings. These are usually based on the burden to
other services over the lifetime of your client.
• These may include Health, Educational,
Employment, Penal costs, and so on….
• For instance:
How to allocate cost benefits through reducing Mental
Health Disorders in Adults
(reference: Cost effective positive outcomes for children and families, Place2Be publication)
Increased earnings
for individuals and
increased
productivity for
employers and
society
23%
Reduced benefits
payment
5%
Relieve burden
on carers for
people with mental
ill-health
1%
Education
service savings
2%
Health and social
service savings
11%
Savings of human
cost for people with
mental ill-health
58%
• There are numerous cost models that identify the
actual cost of untreated difficulties.
• You will need to find evidence of cost that is closest
suited to your intervention.
• For instance:
• Once you have established the costs that might be
incurred by society if your service had not
intervened you can start to value the effect of your
intervention.
• If you are not sure that your intervention is either
completely responsible for successful outcomes or
only partially successful in its outcomes you can
“weight” the effect.
• This will mean that you can calculate the proportion
of savings that are probable and allocated to your
service. For instance;
• If you can estimate the lifetime savings of your
service it is possible to establish a break-even point.
• This is a point where your intervention has saved as
much money as it costs.
• For instance:
Case study Place2Be
• Based on their outcome measures, Place2Be
identified a sample of 225 children who showed
confirmed clinically significant improvement in their
mental health post-intervention.
•
The sample included 125 cases of full improvement,
75 cases of partial improvement and 25 cases of
prevention of mental health problems.
They estimated that, without Place2Be’s intervention;
• 50% of these children’s mental disorders and
problems would have continued throughout
childhood and 50% would have persisted into
adulthood and continued over the individual’s
lifetime.
• Evidence from other studies indicated that the
improvements resulting from the intervention would
continue into adulthood in only 50% of cases.
• They therefore halved the number of children in the
study
• The total cost of The Place2Be’s individual and
group counselling in the 2007/08 academic year was
£2 million
• The analysis drew on studies of the costs of mental
disorder and the savings from preventing childhood
conduct disorder to calculate the potential total cost
savings that could be achieved by Place2Be’s
individual and group counselling.
The total savings over the lifetime of this group of
children could be £15 million.
Applying weighting, this breaks down to:
• £10.2 million for those children achieving full mental
health improvement;
• £4.4 million for those achieving partial improvement,
and
• £0.58 million for those where development of mental
health problems was prevented.
• These cost-savings exceed the costs of providing
the service by £13 million – a net return on
investment of 600%.
• The initial cost of the intervention is repaid after five
years, with net cost savings in the years thereafter.
GETTING IN TOUCH
Website: www.youngminds.org.uk/bond
Email: bond@youngminds.org.uk
Telephone: 020 7089 5050