Date: 2024-09-27 Page is: DBtxt003.php L0900-COofCA-2009-070000
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Burgess Manuscript
CONCEPTUAL OVERVIEW of COMMUNITY ANALYTICS Manuscript Draft from 2009 |
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Chapter 7
Value Change Activities |
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Technology is enabling potential for super-rapid change!
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There are many dimensions of performance that have to be addressed:
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Behavior of Cost and Value
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Activities are the origin of value adding ... or value destruction. Data about activities may be needed to
explain why some aspect of the community balance sheet has changed ... but it might be quite obvious
without much need for detailed data.
Activity reporting is similar to the reporting of the corporate Profit and Loss Account or Operating Statement. An Activity Report may show some of the characteristics of economic activities in the community that have had an impact on socio-economic changes. An Activity Report helps to explain the changes that have taken place in the balance sheet of the community. Thus, for example, an increase in stock levels of grain might be explained by an unusually good harvest ... and explain why there was a good harvest. CA also uses time series of key items to gain an understanding of what is happening in the community. Market prices are a leading indicator of market conditions and other broader issues in the community. High food prices and low livestock prices is a reliable indicator of emerging famine conditions. Clarity about product and cost Much of the confusion in economic analysis and policy formulation would be avoided if there was a clear distinction about what is a product and what is a cost. Gross National Product (GNP) Gross national product should be the output of the economy ... what the economy produces ... the product. Over time, more and more of the product is expressed as the cost of the product at the transaction level and over time the measure has become more and more inflated so as to become meaningless. Rather, it is much worse ... it has resulted in the wrong signals being sent about the prosperity of the nation! |
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Producers, Consumers and Prosumers
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Henry Ford
Henry Ford is meant to have realized that a prosperous working class would eventually be the consumers of the automobiles that his company was manufacturing ... those that were producing were the same as those that were consuming. I associate Henry Ford's insight as being something of the origin of the idea of a prosumer. Keynes was clear about the way economic activity behaved in a society ... but his understanding seems to be little understood by most modern economic analysts and policy makers. Integration of CA reports In corporate accountancy there is an integration between the balance sheet, the operating statement and the cash flow. The data in the accounts is the same ... and each of these reports shows a part of the whole. The data in each are coherent. The changes in the balance sheet are explained by the performance reported in the operating statement. The cash flow statement reconciles with the operating statement and the balance sheet. These ideas translate well to the CA system. They may be used to deduce information that is not easily obtained. While it is relatively easy to collect balance sheet data, it is much more difficult to get all, or nearly all of the data to report reliably about activities. Using the inherent integration of balance sheet and operating statement, it is possible to use the changes between two balance sheets to deduce the result of economic activities without actually having all the details of the activities. Comparative data ... trends over time One datapoint is unlikely to be very useful ... but two datapoints have much more value. If the measure of the same item but the time is different, there is the beginning of a time series and change over time is now known. Comparison between places If the measure is about the same item but in different places, then it is possible to start to draw conclusions about what is happening in different places. |
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Measuring Performance
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“What gets measured gets done”
CA measures progress ... measures performance ... they are related but not the same. The following graphic shows in a simplified way how cost is related to implementation and to results. The goal is for the community value at the end of the period to be more than at the beginning of the period. Resources are consumed to fund implementation activities that produce an impact and value creation. Costs: How much did it cost? Knowing how much something costs is pretty basic. It is appalling how little data about cost is reported, and how little information about cost is understood and appreciated by people with responsible jobs. Because there is so little understand of cost ... cost gets used to justify bad practice of all sorts. Understanding cost and cost behavior is central to the CA system of metrics. How much got done? Knowing how much got done is also pretty basic. Without knowing how much got done, there can be no oversight, control or accountability ... no inventory control ... no operational analysis ... in other words, without knowing how much got done, the whole process of management falls apart. Cost efficiency ... how much should it have cost? Cost efficiency is the simple idea of comparing the actual cost with what the cost should have been. This is a powerful way of getting control of operational performance. How much should it have cost to do what was done? What it should have cost is a technical question. The cost that it should be can be calculated based on what needs to be done and the prevailing costs. The cost in one place can be compared to costs in other places. The cost now can be compared to costs in a prior situation. Cost effectiveness ... how much value for the cost? Cost effectiveness is the more complex idea of relating cost to the value of the accomplishment. The idea is simple in theory, but becomes more difficult as the problems being addressed are more complex. CA uses techniques to get an overall idea of cost effectiveness, and then goes into more detail to assess the way different initiatives contribute to progress. This may require multi-variate analysis of the datasets where there are multiple interventions being used. The core of CA metrics is the goal of having fund allocations flowing into intervention activities that are the most cost effective and deliver the most of social value. The Tr-Ac-Net/IMMC cooperation using the CA framework for performance metrics provides the basis for this to become the norm. |
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Money Cost Elements
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Financial elements of cost
There are several elements that make up the cost of anything. It is convenient to use the following categories:
The purpose of data in the CA environment is to have data to understand ... and to use this understanding to improve decision making and the quality of life! People cost People cost depends on (1) how many people and what skills and job types; (2) the wage rates for each group; (3) the benefit costs associated with each group. The costing is complicated by matters such as training and the use of consultants and service contractors instead of direct paid staff. People costs vary enormously depending on the mix of local and international staff. Local staff are usually paid much less than international staff. There might be a cost offset to the extent that international staff can do some work more efficiently than local staff due to their knowledge, training and experience. Material cost Material costs are a function of a bill of material and the purchase price of the materials. A scrap factor should be included. Most production processes require more raw material inputs than there is output because of process losses (in machining, in casting, etc.). Equipment cost Equipment costs do not behave in a simple way, and care must be taken in costing equipment use appropriately. Some of the characteristics that must be taken into consideration include (1) the life of the equipment in elapsed time; (2) the life of the equipment based on usage; (3) the utilization of the equipment in any given period; (4) the costs associated with running the equipment such as fuel and maintenance; (5) the cost of periodic major maintenance, etc. In some cases, as for example, in using an aircraft for vector control, there are people and material costs that have variability depending on equipment utilization. All fixed assets have use costs that should be brought into account for costing. Operating overhead cost Operating overhead costs are costs associated with the supervision and management of operations. They are made up of elements of cost (1), (2) and (3) above, and allocated to specific units of activity. Cost of capital employed Cost of capital employed is the cost of using fixed and working capital. It is calculated by reference to the investment made in equipment, buildings vehicles, etc (fixed assets) and the investment needed for material inventory, work in progress and finished goods, receivables and cash (working capital) that are used for specific activities. The calculation uses a cost of capital rate that varies depending on the ownership structure of the operation and the goals of this ownership. The cost to “rent” capital may vary from 2% to in excess of 200% per annum. This has become one of the most expensive aspects of modern capital market capitalism. General overhead cost The general overhead cost is similar to operating overhead. It is made up of the same elements and allocated to operating activities o a basis that reasonably reflects the structure of the organizations and activities. Cost is a key metric ... while it is usually the subject of intense analysis within an organization, it is difficult for the public to get access to cost information. In the corporate for profit business, reducing cost is a way to increase profit ...other things remaining the same. Little is put into the public domain about costs ... but cost is a critical part of performance metrics both for determining money profit and also socio-economic performance. Depreciation Depreciation is a part of the cost framework. It is a concept that is derived from the economic life of an asset ... and in this context, nothing to do with tax law and allowable write-offs. The aim of depreciation is simply to relate the cost of using an asset to the activities the asset is used for. If an asset has a three year life, and is used most of the time, each of the year periods should be charged one third of the capital cost. This would give a reasonable result. On the other had an piece of equipment may have a life that depends on how much it is used (for example, an aircraft) ... say it will be useful for 50,000 hours of use. In this case the hourly cost can be computed and the asset charged to the activity for each hour it is used, and offset against the depreciation provision for the asset. Cost of profit One of the biggest elements of cost in modern business is the cost of capital ... which is essentially the idea that profit becomes an essential part of the cost of product or service. In a system where the computation of (corporate) value is a function of the level of profit and the growth of profit ... then the profit behaves more like a cost than merely being the derivative of corporate performance. |
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Value Cost Elements
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Value chain
Standard values Time series Beyond economic indicators |
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People costs
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| People costs |
| People costs |
Collecting costs about people cost is also very useful. The basics are the same, though sometimes, indeed frequently, pay rates are not common knowledge:
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| Consultants | Consultants are often employed instead of salaried staff. People costs should be adjusted to reflect this where needed. | |
| Salary scales | In many situations the salary scales that apply to different groups of staff are very different. This makes cost analysis difficult ... but it also is an important issue that needs to be considered in planning, developing a strategy for sustainability and the analysis of performance. | |
| International pay scales are very much higher than local pay scales. This may be justified by the idea that international staff are better trained and have more experience ... but this justification may not always be valid. | ||
| Labor costs are a critical component of cost. | Expatriate staff costs may be 100 or 1,000 times the cost of local labor ... to some extent justified by the knowledge and experience of the expatriate, but the design of programs should include this important economic parameter. | |
| In the IMMC approach, there is a component of capacity building and training. This makes it possible for the organization to be optimized for cost effectiveness and local staff to be training so that they are not only low wage, but also productive and able to do the work that needs to be done. | ||
| The Tr-Ac-Net metric for the labor component of cost includes a profile of labor cost by wage rate. | ||
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There is a caveat about low wages ... the goal is not low costs, the goal is high cost effectiveness.
Benefits In most situations the benefits accruing to staff are significant and should therefore be taken into consideration when computing costs | ||
| Expatriate benefits | ||
| Government staff benefits | ||
| Outsourcing | ||
| Staffing tables |
| Equipment costs |
| Cost to purchase | The initial cost to purchase is usually a substantial outlay, but because the life of the equipment is long ... several years ... the period cost is relatively low. The cash cost is high and immediate ... the operating cost may, however, be quite low. | |
| Depreciation | Depreciation is the way accountants allocate cost to the current period from equipment that has a long life. If the equipment will last five years, the annual depreciation is the total cost divided by five. This is referred to as straight line depreciation because the annual charge is the same over the five years of the equipment's life. | |
| Provision for depreciation | The annual or periodic depreciation charge is credited to an account usually called a provision for depreciation ... and specifically associated with the equipment item. As the equipment gets older the provision for depreciation becomes larger. When the equipment reaches the end of its life ... that is accounting life ... the cost to purchase and the accumulated provision for depreciation are the same. | |
| Net book value | The net book value is the cost of purchase less the provision for depreciation. At the end of the accounting life the net book value of an equipment item is zero. Usually this is adjusted to be $1 so that there continues to be a flag in the accounts about this equipment. | |
| Fully depreciated equipment | Fully depreciated equipment does not require ongoing depreciation charges, and is to this extent lower cost than newer equipment not yet depreciation. On the other hand technical considerations may mean that maintenance is higher cost and there may also be operating qualities issues to be taken into account. | |
| Operating costs | Most equipment has considerable operating costs ... operator costs (labor) ... fuel and lubricants ... maintenance ... operating supplies ... etc. | |
| Machine hour costing | Sometimes it is convenient to calculate a machine hour rate for costing. This might be calculated incorporating all the operating costs, or may be simply the cost of the equipment depreciation for the period divided by the anticipated hours of use anticipated for the period. Variability of cost Because each cost has a different behavior, it is usually preferable to limit the costs that are aggregated for calculation. | |
| There is a trade-off between precision and convenience. | ||
| Materials, supplies | Materials and supplies are frequently the key cost, and therefore important to understand and control. | |
| Supply chain | The cost of materials depends very much on where the cost is measured in the logistics, supply or distribution chain. The cost “ex factory” may be very different from the cost delivered to an end user. Logistics ... ocean shipping, port dues, insurance, duties, warehousing, trucking, etc. are usually substantial costs even when done as efficiently as possible. Costs such as pilferage can also add substantially to the total cost. | |
| Use of materials and supplies | Efficiency in the use of materials and supplies can made a big difference to the total cost of materials. This may be technical in nature as for example in the case of ULV spraying where droplet size can make a substantial difference in the amount of chemical used as well as how well the chemical works to kill mosquitoes. | |
| Life of active materials | The life of active materials is another consideration. A long lasting insecticide treated bednet may have a life of several years ... so the annual cost is lower than the total cost outlay in the year of distribution and first use. | |
| The life of IRS treatment is several months ... maybe a year ... depending on the type of dwelling construction, the spray equipment and the chemical being used. Annual periodic cost is also impacted by the duration of the malaria season ... what might be OK for a short malaria season does not suffice for a longer season. | ||
| In malaria control the active materials and supplies are both a big cost and a key to success. The behavior of cost and the way these active materials impact |
| Cost behavior |
| Cost behavior | ||
| The analysis of cost should be based on units of measure that are the most relevant. Where the goal is the reduction of malaria, the unit of measure for cost analysis should be a good proxy for this goal, or a logical step towards this goal. In the case of ULV spraying, cost per acre is a useful metric because it relates to performance in an understandable technical way ... while cost per capita is an indicator of cost and possible cost effectiveness of impact on the population. | ||
| CA uses indexes as a way to simplify the recording of change ... but mainly at the detail level. Progress requires change, and change can be reported using an index as a measure. CA identifies key indicators of progress in a community, but does not generally combine these indicators to form an aggregate index with the exception of the CA progress indicator. This indicator is a measure of the change in profile of the community over a period of time. | ||
| Costs vary depending on the circumstances. Good program design minimizes costs and maximized cost effectiveness. This is a central focus of the IMMC strategy. | ||
| Cost effectiveness is most easily optimized when there is good information about costs, without this information planning is merely a guessing game. | ||
| In the IMMC cost effectiveness model, the strategy has a focus on achieving low cost so that there can be permanent sustainability. Accordingly there is a need to understand how costs behave under varying conditions. | ||
| The analysis of costs should be based on the units of measure that are the most relevant. Where the goal is the reduction in the burden of malaria. The unit of measure should be a good proxy for this goal, or a logical step towards that goal. | ||
| In the case of ULV spraying, cost per acre treated is a useful metric because it relates to performance in a useful technical way ... while cost per capita is an indicator of cost and cost effectiveness impact on the population. |
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General expenses
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| General expenses | Everything that is not already included in people costs, equipment and material costs should flow through general expenses. There are many things that must be included. |
| Rent | ||
| Insurance | ||
| Telecom | ||
| General repairs | ||
| Security | ||
| Travel | ||
| Etc |
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Standard Costs
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Because cost is such an important metric, accountancy has developed techniques to have cost information
in various efficient ways. One of the most useful techniques is the use of standard costs. This technique
makes it possible to have useful cost information with a minimum of detail calculation. In most stable
operations, actual costs and standard costs will be almost the same.
About Standard Costs The application of Community Analytics (CA) is simplified by the use of standard costs. Standard costs are used in most corporate cost accounting systems and are a powerful way to reduce a large amount of data to something that can be readily understood and acted upon. CA takes the concept of standard cost and also applies it to value ... making it possible to understand value impact more clearly than any other approach. The standard cost is what something should cost based on technical considerations and experience. The standard cost can be calculated from the bill of materials, the bill of labor, the operating processes and the costs associated with everything. In a factory setting, this is a very normal thing to do. It is relatively easy to check that a standard cost is right by comparing the standard cost of all the production in (say) a factory department with the actual costs incurred by the department. If the standard costs reasonably reflect the actual costs there will be little difference between the standard and the actual. This idea may be better understood by the following examples: (I) standard costs used in the construction of a pulp and paper mill; and, (II) standard costs for foundry production. This experience relates to the oversight of a large cost plus construction contract for a pulp and paper mill in Texas. The consulting engineers costed the whole project in detail, with a budget cost for everything that was going to be built, and costs for each of the stages of construction ... excavation, foundation formwork ... foundation concrete ... backfill ... structure ... roof ... cladding ... and then going through the purchase, installation and testing of the equipment. Each week the contractor advised what had been done. Each week the contractor advised how much had been spent and how much they were owed. As field accountant, I compared what it should have cost for what had been done with what the contractors had spent. My analysis suggested that the contractor had done about 1% of the work (based on the budget or standard) but had billed for about 2% of what was the total contract cost estimate ... in other words about a 100% cost overrun. The next step was to physically look at the work being done ... and to understand why the costs were out of line. Almost everything was “padded” as far as it could be. Too many people in each work-crew ... unused spare equipment onsite not needed but being billed ... supplies ... like form lumber used once near new being junked ... etc. Thursday, about 3 pm, the senior manager of the consulting engineers reviewed my work ... by 10 pm he had concluded that it was credible and called the contractors for an urgent review next day. Next day the contractors were ask to explain themselves ... and why 1,400 workers were on site? Monday the work continued with just 700 workers. The contract was completed on time and just 2% over budget! When cost data are weak, it is usual for operations to be sloppy and costs excessive. When cost knowledge is absent, addressing cost efficiency will not take place and the easy way to do something will usually be chosen over the better way to do it. Examples abound in international development assistance, such as, for example ... the use of high cost international experts is often chosen over much lower cost local staff. This experience goes back to being VP manufacturing for an air-break switch manufacturing company where we had a foundry to produce the castings we needed. We produced thousands of different castings weighing from around 100 pounds down to about a quarter of a pound! For decades the company had used a simple “per pound” cost to describe the cost of their castings, and as a result over time the engineers had reduced the weight of all our castings thinking they were reducing costs, but in fact doing more to reduce product quality and foundry productivity. When we used standard costing to define the cost of each casting based on the cost behavior of all the processes in the foundry, and the use of each process in producing the casting ... it became clear that the small castings were far more costly to produce ... and weight much less important than, for example, scrap rates, the amount of cleaning required, and what sort of equipment was used in production. We validated the standard costs by comparing the total of production quantity times the standard cost (by part) with the total department costs for the foundry department. There was a variance but not big enough to invalidate the approach. We refined the standards so that the various elements of cost were taken into consideration. We also refined the department costs to have various sections ... especially important being the cleaning room labor costs. We ran the standard actual calculation for a month and found cleaning costs under-estimated into the standards. We then did daily standard actual for labor costs in the cleaning room and were able to find specific castings that were the worst offenders ... due to design that made casting very difficult. The engineers improved the design ... making the casting heavier ... and costs reduced. This became the new practice for design engineering and costing ... a win win for the company. |
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Price
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Price is what a buyer pays for some good or service. It is what the customer pays at the supermarket or
drug store.
Understanding price ought to be simple ... but is not. The price is usually framed in a way that makes comparison between different products as difficult as possible. This is no accident ... it is designed to confuse the customer and mis-inform as much as possible. Making comparison difficult is a standard practice in marketing. There are also prices all the way along the value or distribution chain from factory gate to final retail sale. This chain sometimes involves changes in ownership, in which case there are prices that are reflected on invoices ... but the distribution chain may be under single ownership in which case there is no interorganization price, merely a transfer price as the items moves along the distribution chain. Price is also associated with the problem of affordability. People who need something may be poor and not have enough money to pay the price that the supplier can demand. This is a key issue in public policy for health, education and a number of other essential services needed by a progressing society such as water and sanitation. Determining price The market mechanism is the classic determinant of price, and, it has to be said, the market is more often better at getting a sensible price than bureaucrats in secluded government offices. But the market is not always right, and can be very wrong when there is an excessive amount of “gaming” in the market. The market works because there is some speculation ... but the market fails when the market is dominated by speculation. Many prices are set, not by the market, nor by government fiat, but by thoughtful analysis in corporate offices. They are set with, in most cases, the goal of making the most profit from the product or service. The models to optimize profit are complex, but usually flawed. Good judgment and luck are important as well. Experience and knowledge of the product and the customer are vital. None of these methods of determining price explicitly take into consideration the role of value. Corporate investment in profitable products and services trumps any investment in value producing products and services ... and at the limit, society fails. |
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Profit and Value Adding
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Profit ... financial profit
Financial reporting is calculated using prices ... that is revenues ... and costs to calculate and report profit. There are rules about how this is done in practice ... but the key principle that should determine the detail of the rule is that the revenue of the period should be matched with the costs associated with this revenue. Caveat One of the (many) ways in which modern American accounting has gone off track has been to have rules that allowed revenues to be taken into the accounts without the long term costs of these revenues. An example is the pension and health benefits of auto-workers who built vehicles that were sold years ago, but without these benefits being treated as a cost and provided for. The law and the rules of FASB and GAAP allowed this practice ... but the principles of good accountancy do not. Wealth When there is social value adding, there is wealth creation. There may be the appearance of wealth when there is a lot of profit ... but this wealth is inconsequential unless there is social value adding that supports the profit. Some people thing wealth accumulation is the ultimate goal of an individual and family ... and while it is a useful driver of an enterprise economy, it is unsustainable if the production of profit is at the expense of the production of social value. The economic crisis of 2008 had its roots in financial profits that were made by a community of deal makers that made money on deals while wrecking the underlying society. Financial wealth was created and concentrated among the deal makers while social value was destroyed throughout communities. Value The measurement of value has a large subjective component ... but it is still possible to have some useful measurement. By using the concept of standard value ... a concept rather similar to standard costs ... it is possible to compare different programs and see how one program performs relative to another. In the case of malaria control programs, the goal is to reduce mortality and morbidity. By having a table of standard values it is possible to report that one approach had more value relative to the costs than another. The perception of value differs from place to place, and also changes over time. The changes are ongoing. Values change over time because of the evolution of society. The CA set of standard values makes it possible to start a process of understanding value perception better, and also to make value adding the goal of economic interventions. Standard cost and standard value Standard cost and standard value are very powerful techniques for managing and getting control of very large and complex operations. Actual cost systems are data intensive, with very many transactions that vary all the time, but only in a consequential way rather infrequently. The aggregate of these transactions is important, and the aggregate should not vary very much unless there is something going on that is of importance. A standard is built by being thoughtful about the item ... whether cost or value. The aim is to determine what the cost or the value should be. In the aggregate the cost or value should be the unit standard times the number of items. In the case of costs, the aggregate of actual costs should be about the same as the aggregate standard cost. If there is a substantial difference, then there needs to be analysis to see what is causing the variance. Value is different ... but when the consumption of value (a standard value calculation) exceeds the product of value ... that is the creation of value (another standard value calculation), then there is the need for inquiry. Arguably, the core of CA is the use of value ... and specifically the use of standard value. Everyone knows that value is important ... but nobody wants to embrace value as a numeric measurable elements, despite the fact of its centrality to quality of life ... everything that is important in society. Value Price is not value. They are different concepts. Value is often expressed in terms similar to a price ... but they have a different origin. Value has to do with perception ... what someone is willing to pay for something in order to be gratified. Because the money numbers associated with value are rarely articulated, and not the subject of conversation and news reports, there is a weak set of value information. It is critical that this is changed. Associating a money number to values is regarded as a difficult ... even impossible ... task. However, this is very important if society is to have metrics that reflect what is the most important in society. Relationship to price If value is lower than price, there is no incentive to buy the item. Something may have a low price, but have enormous value to the person using the product. An aspirin may have a low price ... but getting rid of a headache has big value. Society is in a good place when goods and services have low prices and these goods and services have high value for the community. Value adding ... social value adding Value adding is a broader concept than profit. Value adding is the difference between the ending value and the initial value. It may also be thought of as the value created less the value consumed. Value is rarely the same as price. Many things in life with the most “value” are truly priceless ... good health, friends and family, the birth of a child, happiness, and so on. It is a challenge to associate a number with value ... but CA does this by using a dialog around sets of standard values. Value consumed is more than the financial costs. Value consumed reflects costs but also includes issues like the damage to the environment ... or the exploitation and consumption of natural resources that have taken millions of years to create as in the petroleum industry. Value ... financial and social Capital markets are all about value ... but it is financial value only. A stock has a value based on its financial profit history and profit potential. What the company does for society is not a part of the capital market computation. It is just about profit history and profit potential ... about money flows ... about risk and the safety of money capital. Social value is much more. It is no accident that the phrase “Pursuit of Happiness” is in the founding documents of the USA and not “Chase for Money”. Happiness derives from social values that end up making life worth living. CA embraces both the financial and the social value and puts both in the metrics of the community. Standard Cost / Standard Values About Standard Values Standard values are used in CA in much the same way that standard costs are used ... that is they make it possible to quantify critical information without having a lot of detailed data and complex computations. Standard values are different from costs in that they vary depending on the perspective of an individual, the perspective of the community, and the value systems of different people and communities. Standard values reflect a variety of different value systems influence by culture and tradition rather than being a result of purely technical calculations. The following table is an example of different standard values that might arise because of the different situations in, for example, the United States and a typical poor community in a developing country. |
| Description | US average community | LDC poor community |
| A lost days work | $200 | $2 |
| Death of a child less than 1 year old | $100,000 | $50 |
| Death of a person aged 75 | 0 | 0 |
| Extending life of 75 year old person by one year | $100,000 | 0 |
| Having medication to save life of a child | $100,000 | $50 |
| Unlimited toys for Christmas | $50,000 | $20 |
| Being safe at home | $50,000 | $100 |
| Caring for an aging parent | $50,000 | $1,000 |
| Caring for an orphan | $100 |
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What is Value?
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Value is somewhat subjective.
Cost effectiveness Cost effectiveness is a metric that relates the cost of doing something with the value of the results achieved. The global strategy for malaria is to reduce the burden of the disease ... value is derived from reduction in the burden of malaria. Let us take the following two situations: 1. Bednets are used, cost $10 per net ... and say $100,000 was spent on nets ... and the burden of malaria goes down down 5%. 2. IRS is used and $100,000 is spent on IRS ... and the burden of malaria goes down 20% At first glance it appears IRS would have a cost effectiveness 4 times better than bednets. But bednets last 3 years and IRS must be done annually ... so the comparative cost effectiveness is closer. The comparison model can be very powerful ... but the data need to be specific, precise and timely. At the present time with very limited data about malaria interventions it appears that most of the available funds are wasted. |
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Behavior of Cost and Value
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Behavior of cost
Understanding the behavior of costs is the key to making program performance optimum. Matching the behavior of cost with all the other dimensions of operational performance makes it possible to get better results than might otherwise be expected. While elementary analysis is often based on simple relationships, efficient cost accountancy shows how low costs can be matched with high impact values for best results. |
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