Cost effectiveness is calculated by dividing cost by health impact. This webpage provides guidance on how to calculate cost. Learn how to calculate health impact using the metric of DALYs averted.

Read the briefing paper on cost effectiveness.

cost-effectiveness

Metric: Cost (to the program) per Disability Adjusted Life Years (DALYs) averted.

Why measure cost?

Calculating the actual cost of running a health service program can help managers track how many resources are invested in operations over time, and with what results.

This is a departure from the commonly used method of estimating cost effectiveness by calculating the ratio of donor contributions to program outputs. As programs decrease reliance on donor funds, this method of calculation is becoming less meaningful.

Why measure cost using a standardized metric?

Consistent use of the same metric will permit comparison across years, and across programs. This type of analysis can lead to better programmatic decision making.

How can cost be measured?

The chart below offers guidance on how to calculate cost. The MWG designed this approach after testing it in three social franchising programs, and considering the variability across accounting systems.

Cost* Programs that should factor in this cost How to calculate this cost
Cost of support received from a global headquarters office. Programs that receive technical support from a global headquarters office. This is calculated as 100 x (total cost to operate the global headquarters office)/total cost of the global organization).
Cost of support received from the agency administering the program. Programs that receive technical support from a parent agency. This is the total operational cost of the parent agency, multiplied by the approximate percentage of parent agency staff time allocated to support the program.
Cost of discounts or subsidies on commodities that are sold to the program. Programs that sell commodities to programs below purchase price. A subsidy is calculated as the cost to purchase the good minus the price of commodities sold directly to the program.
Cost of operating a program. All programs. These are the costs that are directly attributable to the program, such as training, field visit costs, etc.

*All values should be calculated from the same time period.

Systematically collected cost effectiveness data has valuable uses

  • Understand if service- delivery is becoming more efficient over time
  • Identify which service-delivery models yield the greatest value for money
  • More broadly, these data are useful for setting global benchmarks