Unit Cost and Cost Benefit Analysis: Tips and Guidance

1. Unit Cost and Cost Benefit Analysis: Tips and Guidance

2. Index Why is it important to measure the unit cost and cost benefits of slides 3-5 Early Intervention Mental Health Services? 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

3. 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.

4. 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.

5. 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.

6. 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).

7. 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)

8. 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.”

9. 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.”

10. CALCULATING FULLY ALLOCATED COSTS

11. 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

12. 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”

13. Costs are allocated across services DIRECTCOSTS EXAMPLES INDIRECT COSTS EXAMPLES Youth Service Child Service Parent Service Chief Exec. Finance HR IT Facilities & Office Management Premises & Office Costs R&E Governance & Strategic Development Fundraising “COST DRIVERS” 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.

14. Example of different cost drivers used to allocate different indirect costs This is based on the guidance from ACEVO, NPC & KPMG on best practice for full cost recovery by charities.

15. For example… DIRECTCOSTS INDIRECT COSTS Child Service Parent Service Youth Service Chief Exec. Finance HR IT Facilities & Office Management Premises & Office Costs R&E Governance & Strategic Development Fundraising 18% 8% 9% 9% 4% 18% 2% 4% 12% 4% 17% …the driver for allocating “Facilities & office management” costs is headcount

16. 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.

17. 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

18. 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)

19. 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].

20. 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.

21. Non-cashable efficiency savings case study 01: “Ronnie” 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

22. 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)

23. 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.

24. 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:

25. How to allocate cost benefits through reducing Mental Health Disorders in Adults (reference: Cost effective positive outcomes for children and families, Place2Be publication)

26. 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:

28. 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;

30. 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:

32. 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.

33. 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

34. 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.

35. 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.

36. 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.

38. GETTING IN TOUCH Website: www.youngminds.org.uk/bond Email: bond@youngminds.org.uk Telephone: 020 7089 5050