At What Cost? Estimating the unit cost of service delivery
Why estimate unit costs?
One of the concepts considered in making funding decisions is whether a service provides ‘value for money’. But in order to identify this we need to know how much is spent on providing the service, per beneficiary, per year. And what should we include in the cost estimate? Should the indirect costs of participation – such as volunteers or participants’ time – be included?
Realising Ambition is a Lottery funded programme that is working over a long time period (5 years) with 25 children and young people’s organisations. The programme is supported with intensive learning input from Dartington Social Research Unit and others to identify ways in which services which prevent children and young people from entering the criminal justice system can be effectively replicated.
In their most recent learning report the team at Realising Ambition have attempted to calculate the direct and indirect costs of different types of interventions in their programme, by calculating the unit cost.
What can the information be used for?
The rationale for this work is so that the organisations concerned are able to ensure they are properly resourced; essential if the services are to remain sustainable and to help funders and commissioners estimate value for money calculations.
Costs vary by type of intervention
Realising Ambition categorise their services roughly into four types: school based, family focused, mentoring and therapeutic. School based services are inexpensive in terms of direct costs (on average £110 per child, per year) mainly as the children are already there, and in school. However once the indirect, support costs such as a proportion of the school’s staffing and overheads are added in, the costs are doubled to over £200 per child, per year.
The most expensive type of intervention are mentoring interventions, at, on average, over £6,000 per child, per year. Although this includes indirect csots such as volunteer time the majority of costs are direct costs. Costs are high for mentoring interventions as they last longer than other approaches: at at least a year in duration.
It is more expensive to deliver an evidence based intervention
The Realising Ambition programme includes interventions that have been through rigorous evidence testing. These interventions are manualised meaning that charities have to stick to specified forms of delivery and evaluation. Comparison of these interventions with those that are less rigorous in nature and therefore allow more flexibility shows that evidence based interventions are more costly in terms of support costs. These could well reflect the costs of licencing fees which are applied to several and provide a high up front cost.
So what have we learned?
Analysis of the split between direct and indirect costs shows that work with children and young people requires careful planning and management: a significant proportion of indirect costs for all the projects in the portfolio were attributable to this area. Describing these costs as support costs seems to understate their importance.
The research into costs will be useful for charities, to ensure careful business planning; for funders and commissioners, to ensure they take into account the full range of costs when considering value for money; and for society as a whole when considering the true value of work with disadvantaged children and young people.
TH March 2017