Public Health Finance I Lili Elkins-Thompson Cost Estimations: Process and Basis • Ultimate Process ▫ Determine what the agency intends to do ▫ Determine what resources it needs ▫ Estimate the price of those resources ▫ Multiply the price by the number of inputs to get a total cost • Basis of Estimations ▫ Much based on Historical Costs ▫ Utilize known increases in cost and other known information ▫ May use estimated increases in sales/service delivery Personnel Costs • Includes wages and other agreed upon benefits • Normally the largest single component in government agency budget • Estimation of Salaries ▫ = the number of workers in each pay category multiplied by the payment per worker in that category ▫ A standard procedure uses personnel data on individuals in each pay category, adjusted for anticipated movements to the next pay step in the budget year • Basis for Requests for New Personnel ▫ Greater expected workload ▫ A desire to improve the quality of service or on new programs ▫ Aim is to staff agency to appropriately enable it to deliver planned services and achieve its objectives Types of Personnel to be considered • Administrative and fiscal staff • Supervisory Staff • Direct Service Staff • Clerical Staff • Other Staff
• Consultants and Professional/Contract Services
Derivation of Pay Rates • Law or tradition • Civil service classification structures • Pay grades for each position that provide salary ranges • Salary ranges or an average hiring salary • Estimations for commissions and bonuses • From collective bargaining agreements Non Wage and Salary Personnel Costs • Must include Fringe Benefits as part of personnel costs • May be calculated by formula (i.e. estimate 25% of wages) ▫ These may be established by law or labor contract ▫ They may be established by historical practice • Cost usually driven by ▫ Number of employees (insurance premiums) ▫ Dollars paid to employees (i.e. Pension or 401K payment) Non Personnel Costs (OTPS) • Five Estimation Techniques ▫ Volume x Unit Price (automobiles, PC’s) ▫ Workload x Average Cost (300 people x $20) ▫ Workforce Ratios (office supplies @ $30/person) ▫ Ratios to Another Object (3 alternators/15 trucks) ▫ Historical Costs/Adjustments to prior year costs (4% increase)
• All five estimation techniques may be used in budgeting
for one organizational budget Cost Relationships - Behavior • Fixed Costs ▫ Remain constant regardless of the variation in the volume of activity • Semi-Fixed Costs (also known as step costs) ▫ Fixed for a given level of activity but increases to a higher plateau as activity increases • Variable Costs ▫ Fluctuates according to the variation in the volume of activity • Semi-Variable Costs ▫ Has both fixed and variable characteristics (the predominant element is variable but it has some elements of fixed costs at either the higher or lower range of activity.) OTPS Categories • Consumable Materials and Supplies • Facilities • Insurance • Client Assistance • Travel and Transportation • Equipment Purchase or Rental • Printing • Communications • Training/Conferences • Membership Dues • Subscriptions • Miscellaneous Goods and Services What to Do After Baselines are Created • Surpluses ▫ What to invest in? ▫ Is the surplus recurring? ▫ How do you address one time surpluses?
• Deficit ▫ What do you cut? ▫ How do you address this with your staff? Budget Execution • Monthly Budget Updates
• Need for Managers to Know:
▫ Accountability ▫ What is controllable? ▫ How much flexibility do managers have?