Costing in Economic Evaluations – Key Terms (Video Notes)

A set of vocabulary-style flashcards covering key costing concepts from the lecture notes.

Cost (financial cost)

Monetary expenses paid or required for resources.

Cost (economic cost)

The value of all resources used, including opportunity costs; what is sacrificed to achieve a goal.

Opportunity cost

The foregone value of the next best alternative when a choice is made.

Economic cost

Total value of resources used, including non-financial costs and opportunity costs.

Financial cost

Direct monetary expenses paid for resources (e.g., wages, materials).

Economic cost vs financial cost

Economic cost includes opportunity costs; financial cost is actual money spent.

Economic inputs of production

Labour, Capital, Consumables, and Land.

Labour

Time and effort of people (healthcare workers, staff) involved in production.

Capital

Buildings, equipment, vehicles used in production.

Consumables

Drugs, educational materials, heating, and other per-use items.

Land

Natural resources used in production; more relevant to agriculture.

Marginal cost

Cost of producing one additional unit or the next logical batch.

Incremental cost

Difference in cost between two or more programs or options being compared.

Perspective

The viewpoint chosen for costing (e.g., societal, health-sector).

Societal perspective

All costs to whomsoever they accrue; often ideal for policy decisions.

Health-sector perspective

Costs borne by the government, insurers, and health providers.

Non-health costs

Costs outside healthcare, such as productivity losses and caregiver time.

Human capital approach

Values time at the wage/production value to the employer (including absenteeism and related costs).

Friction costs approach

Considers productive loss only until a replacement is found; not the full wage over long sickness.

Informal carer time

Care provided by family or friends; can be measured to include in costs.

Fixed costs

Costs that do not change with program size (setup, equipment, training).

Variable costs

Costs that vary with program size (drugs, staff time).

Downstream costs

Costs occurring after the intervention, such as future hospitalisations or home care.

Identifying resources

Describe all resources needed for the intervention in its intended form; exclude research costs.

Measuring resources

Quantify resource use (units, frequency) using records, diaries, or other data.

Valuing resources

Assign monetary values to resources; consider opportunity costs; adjust for unpriced items.

Discounting

Converting future costs to present value to reflect time preference and uncertainty.

Present Value (PV)

Value today of a future stream of costs; PV = Future Cost / (1 + r)^n.

Discount rate

Rate used to discount future costs; higher rate lowers present value.

Inflation

Adjust past costs to current prices to ensure comparability (real dollars).

Real vs nominal values

Nominal: current prices; Real: inflation-adjusted to remove price changes over time.

Currency conversions

Converting foreign costs to AUD using exchange rate or Purchasing Power Parity (PPP).

EAC (Equivalent Annual Cost)

Annuitize a capital outlay over the asset's useful life to annualize the cost.

Capital outlays

Investments in assets (buildings, equipment) used over time; may require depreciation.

Overheads

Central services costs allocated to departments or programs based on activity.

Micro costing (bottom-up)

Costs estimated from detailed ingredients/m quantities (e.g., tests, visits).

Macro costing (top-down)

Costs estimated from averages/total costs (e.g., DRG, average per day).

DIRUM

Database of instruments for Resource Use Measurement; standardises resource-use questions.

WHO-CHOICE

Costing data and methods for health interventions, useful in low/middle-income settings.

Transfer payments

Grants or pensions not tied to productive work; excluded from cost/benefit calculations.

Discount tables/discount factors

Pre-calculated present-value factors used to convert future amounts to PV.

Skewed cost data

Cost distributions are often right-skewed; means can be higher than medians; use mean for cost-effectiveness.

Annuitization

Spreading the cost of an asset over its useful life to reflect annual cost.