Table 2 Glossary of cost and cost-effectiveness terms

Annuitization

Method of allocating the cost of an investment (i.e. a capital cost) over the time period when it is used. When discounting is ignored, annuitization is calculated as the cost of investment divided by the number of years of life of investment.

Capital Cost

It is an investment in an asset such as buildings, land, vehicles or equipment that is used over more than one year. The investment is generally a single purchase that may precede the project, so that its cost is not always included in the project budget. The asset has an opportunity cost and its annual cost call be allocated over time.

Cost analysis

Estimate of the cost per unit of output, where outputs are the activities or services, such as health care providers trained or patients treated.

Cost-effectiveness analysis (CEA)

Analysis of the cost per unit of outcome. The outcome serves as the denominator and must be the same for interventions and programs that are compared. CEA of health and medicine, are generally conducted with health outcomes.

Cost effectiveness ratio

The ratio of cost to outcomes. When two programs are not explicitly compared, the ratio represents the cost-effectiveness of the program of interest relative to doing nothing.

Disability Adjusted Life Years (DALY)

A measure of the burden of disease of a population in terms of years lost due to ill-health or death. Years of life are weighted from zero to one where zero represents full health and one represents death. Health is characterized by disease categories, and the weights associated with diseases are determined by expert opinion.

Dominance

An intervention or program with a lower cost and better outcomes than the alternative.

Incremental Cost Effectiveness Ratio (ICER)

The ratio of the difference in cost between two programs and the difference in their effectiveness. The ratio represents the additional cost associated with each additional unit of outcome.

Opportunity Cost

The value of the most beneficial alternative feasible use of resources for an activity. For goods and services that are purchased in a competitive market, the opportunity cost is simply the price. Goods and services that are not purchased such as volunteer time should be valued at the cost of purchasing them. Similarly, for goods or services that are subsidized or taxed, they should also be valued at cost to purchase them without the subsidy or tax.

Perspective

The point of view from which costs are calculated. Six potential perspectives for a cost analysis of training are: 1) Program perspective might simply be the program budget, 2) Donor perspective would include the budgets of all programs that contribute to an output or outcome, 3) Provider perspective represents the costs of the health care system, including ministry of health, hospitals and clinics, 4) Trainee perspective might be earnings from private practice foregone while attending training, as well as tuition, 5) Patient perspective includes the out-of-pocket expenditures for health care and the time devoted to care for themselves or family members. 6) Societal perspective represents all costs regardless of who bears them including: programs, donors, providers, trainees, and providers.

Quality Adjusted Life Year (QALY)

A measure of health of a sample in terms of quality of life years of life lost due to ill-health or death. Years of life are weighted from zero to one where zero represents death or an equivalent state, and one represents full. Health is characterized by health states such as the ability to walk a mile and the weights associated with health states are reported by patients or the community through various research methods.

Remuneration

The total amount of resources a consultant or employee receives including salary and fringe benefits.

Sensitivity analysis

Calculation of alternative cost-effectiveness results when there is uncertainty about one or more parameters that measure costs or effects. Sensitivity analysis is generally incorporated in CEA that are deterministic, meaning the result is a point estimate. It helps to identify the extent to which uncertainty about a parameter would substantially affect the estimate.