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This Provisional PDF corresponds to the article as it appeared upon acceptance. Fully formatted PDF and full text (HTML) versions will be made available soon. How to calculate the annual costs of NGO-implemented programs to support orphans and vulnerable children: A six-step approach Journal of the International AIDS Society 2011, 14:59 doi:10.1186/1758-2652-14-59 Bruce A Larson (blarson@bu.edu) Nancy Wambua (nancy_wambua@yahoo.com) ISSN 1758-2652 Article type Research Submission date 23 May 2011 Acceptance date 19 December 2011 Publication date 19 December 2011 Article URL http://www.jiasociety.org/content/14/1/59 This peer-reviewed article was published immediately upon acceptance. It can be downloaded, printed and distributed freely for any purposes (see copyright notice below). Articles in Journal of the International AIDS Society are listed in PubMed and archived at PubMed Central. 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This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 1 How to calculate the annual costs of NGO-implemented programmes to support orphans and vulnerable children: a six-step approach Bruce A Larson 1,2§ , Nancy Wambua 3 1 Department of International Health, Boston University School of Public Health, Boston, Massachusetts, USA 2 Center for Global Health and Development, Boston University, Boston, Massachusetts, USA 3 Finance Department, Benevolent Institute for Development Initiatives, Machakos, Kenya § Corresponding author: Bruce A Larson, Boston University School of Public Health, 801 Massachusetts Ave, 3rd fl, Boston, Massachusetts 02118 USA. Tel: +1-617-414-1260. Fax: +1-617-414-1261 Email addresses: § BAL: blarson@bu.edu NW: nancy_wambua@yahoo.com 2 Abstract Background Information on the costs of implementing programmes designed to provide support of orphans and vulnerable children (OVC) in sub-Saharan Africa and elsewhere is increasingly being requested by donors for programme evaluation purposes. To date, little information exists to document the costs and structure of costs of OVC programmes as actually implemented “on the ground” by local non-governmental organizations (NGOs). This analysis provides a practical, six-step approach that NGOs can incorporate into routine operations to evaluate their costs of implementing their OVC programmes annually. This approach is applied to the Community-Based Care for Orphans and Vulnerable Children (CBCO) Program implemented by BIDII (a Kenyan NGO) in Eastern Province of Kenya. Methods and results The costing methodology involves the following six steps: accessing and organizing the NGO’s annual financial report into logical sub-categories; reorganizing the sub-categories into input cost categories to create a financial cost profile; estimating the annual equivalent payment for programme equipment; documenting donations to the NGO for programme implementation; including a portion of NGO organizational costs not attributed to specific programmes; and including the results of Steps 3-5 into an expanded cost profile. Detailed results are provided for the CBCO programme. Conclusions This paper shows through a concrete example how NGOs implementing OVC programmes (and other public health programmes) can organize themselves for data collection and 3 documentation prospectively during the implementation of their OVC programmes so that costing analyses become routine practice to inform programme implementation rather than a painful and flawed retrospective activity. Such information is required if the costs and outcomes achieved by OVC programmes will ever be clearly documented and compared across OVC programmes and other types of programmes (prevention, treatment, etc.). 4 Background An estimated 56.1 million children in sub-Saharan Africa had lost one or both parents as of 2009 [1]. Among this total, 14.9 million children lost one or both parents due to AIDS, and large numbers of other children are vulnerable to becoming orphans because one or both parents are HIV infected. In response to the diverse problems and needs of orphans and vulnerable children (OVC) in low-income countries, a range of programmes have evolved over time to attempt to improve their daily lives and future prospects. The US government, through the US President’s Emergency Plan for AIDS Relief (PEPFAR), spent $312 million on OVC activities in 2008 [2]. Between 2006 and 2008, more than $1 billion was spent on OVC programmes, the majority of which targeted OVC being cared for in the community (extended family members, other households) [3]. As part of The Reauthorization Act of 2008, significant sums will continue to be allocated to OVC programmes between 2009 and 2013 [4]. PEPFAR-supported OVC programmes typically involve a set of organizations working together to implement an overall OVC programme. As one example, Christian Aid was the prime recipient for the Community Based Care for Orphans and Vulnerable Children (CBCO) Program implemented during 2005-2010 in Nigeria, Uganda, Kenya and Zambia. Christian Aid then collabourated with a small number of lead non-governmental organizations (NGOs) in each country to implement the overall programmes. In Kenya, the Benevolent Institute for Development Initiatives (BIDII), based in Machakos, Eastern Province, implemented the programme in Eastern Province; the Inter-Diocesan Christian 5 Community Services (IDCCS), based in Kisumu, implemented the programme in Nyanza Province. In the CBCO programme, as is typically the case with OVC programmes funded through PEPFAR, local NGOs operating at a sub-national level deliver programme services to OVC and their households. Local NGOs, such as BIDII, typically implement “their” OVC programme using funds from multiple sources including donor funds, the NGOs’ own resources, volunteers and donations from local communities and perhaps from such sources as other programmes and the government. Thus, the resources used to implement an NGO’s OVC programme (the costs of implementation) are not simply the amounts budgeted within PEPFAR-funded programmes. A review of the literature on the costs, outcomes and cost effectiveness of OVC programmes concluded that little information exists to document the costs and structure of costs of OVC programmes as actually implemented “on the ground” by NGOs [5]. This information is required if evaluations of OVC programmes in terms of costs and outcomes (cost-outcomes analysis, cost-effectiveness analysis) are to be completed and if high-performing types of programmes are to be replicated and expanded elsewhere. The demand for more and better information on the costs of interventions is directly included in the United States Agency for International Development’s (USAID’s) Evaluation Policy statement. Increased demand for costing information is also embedded into the growing demand for implementation science, including cost-effectiveness analysis in relation to HIV/AIDS programming[6]. Because of the multi-dimensionality of OVC programmes, as we have discussed, we prefer to use the term, “cost-outcomes analysis”, instead of “cost- effectiveness analysis” [5, 7]. 6 The concepts and methods for evaluating the costs of programmes and projects, whether investments in irrigation infrastructure, HIV prevention programmes, antiretroviral treatment programmes or OVC programmes, are well documented elsewhere in textbooks and donor- related documents [7-11]. The World Bank’s “OVC Toolkit for sub-Saharan Africa” website also includes very reasonable guidance on costing of OVC programmes, which itself is essentially a replication of standard training materials on costing of projects within the broader field of benefit-cost analysis [12]. A small number of studies have applied these methods to evaluate the costs of OVC programmes [13-17]. However, such methods are not widely integrated into routine practices of OVC programmes, in part because existing toolkits are rather vague on how to obtain the information needed to apply the methods. While textbooks and toolkits are important, it is difficult to convey in such materials the experience, creativity and decisions needed to implement the methods. The goal of this paper is to show through a concrete example how NGOs implementing OVC programmes (and other public health programmes) can organize themselves for data collection and documentation prospectively during the implementation of their OVC programmes. The significance here is that costing analyses can become routine practice to inform programme implementation, rather than a painful and flawed retrospective activity. Rather than attempting to train programme implementation staff on these procedures, financial/accounting staff (perhaps one person) can logically perform costing analyses as a relatively minor addition to their existing activities. Such information is required if the costs and outcomes achieved by OVC programmes will ever be clearly documented and compared across OVC programmes and other types of programmes (prevention, treatment, etc.). 7 To achieve this goal, this paper provides a logical six-step approach that researchers and local NGOs themselves can use to document and describe the annual costs of implementing their programmes. The paper is organized as follows. The six-step approach is explained in the Methods section. The Results section then provides a detailed example using the CBCO programme implemented by BIDII in Eastern Province of Kenya. A few additional final issues are then addressed in the Discussion section. The paper concludes with a set of practical recommendations for integrating this six-step method into routine practice during programme implementation. Methods Table 1 provides a brief summary of the six steps for evaluating the costs of implementing OVC support programmes. A prerequisite for costing of any intervention is a clear definition of the intervention. OVC programmes implemented by NGOs typically provide multiple sets of inputs to OVC and/or their households, such as food and nutrition support, access to health services, psychosocial support, educational support, and support for household economic strengthening. Through these activities, the programmes work to improve the welfare of OVC and their households along several dimensions (improved food security, educational and psychosocial outcomes, household access to credit, improved income and household wealth, etc.) [5]. In general economic terms, OVC programmes operate like multiple input and multiple output firms, just like household-based farming operations that combine multiple inputs (labour, 8 fertilizers, seeds) to produce multiple types of crops (cassava, maize, plantains) on the same piece of land. To begin any costing analysis of an OVC programme, a clear description of the complete OVC programme is required, not just one portion of the programme. This issue will be discussed further during the example provided in the Results section. Step 1. Access and organize financial reports The first step is to access and review the NGO’s annual financial report that documents itemized expenditures for the programme during a year. Itemized expenditures, sometimes called expenses, are payments actually made by the NGO. Such expense reports are routinely produced by organizations for accounting, tax reporting and donor reporting purposes. NGOs will typically have an overall annual financial report that encompasses all its activities. This overall NGO financial report will typically include (or be based on) a number of sub-reports for each external funding source. It is necessary to access the “programme-specific” annual financial report. Such reports are typically developed by the NGO’s accounting or financial staff using a spreadsheet programme, such as Microsoft Excel. In some situations, an NGO might implement its OVC programme with funding from multiple sources (e.g., USAID, the UK’s Department for International Development, donations from a US faith-based organization, local government funds, and/or donations from a local church congregation). Regardless of where the funds come from, the NGO will have an annual financial report, which may include a sub-report for each donor. When a programme is implemented with funding from multiple donors, each with perhaps a different fiscal year for reporting expenses, a costing analysis based on a calendar year regardless of funding source would be a logical approach. Alternatively, the fiscal year that coincides with the NGO’s fiscal year or the largest donor’s fiscal year could be used. 9 A prerequisite to complete Step 1 and to proceed with any costing analysis of NGO programmes is the willingness of the NGO and its staff, especially the financial and/or accounting staff and the programme manager, to support the activity. This is easiest when the NGO itself is undertaking the analysis and the funders and NGO management agree that such information is needed for on-going project management and evaluation purposes. Step 2. Link financial report sub-categories to input cost categories The purpose of Step 2 is to reorganize the information contained in the financial report into logical groups of expenses for key categories of “inputs” used in the implementation of the project. Just like seeds, pesticides, fertilizer, land, household and hired labour are key inputs in agricultural production, NGO-implemented OVC programmes have some underlying “production technology” that transforms inputs into outputs. Typical input categories include office and buildings, vehicles, programme staff, office equipment, office supplies, supplies and items provided directly to OVC and their households. As will be shown in the Results section, Step 2 can be accomplished relatively easily through minor adjustments to financial reports (the Excel file used for expense reporting). Thus, no new software or models are needed to complete the analysis. Knowledge of the programme and the information developed as part of Step 1 will provide the information needed to identify logical input categories for an OVC programme. In our experience, the NGO programme inputs can typically be organized into a relatively small number of key input categories that describe how the project was actually implemented, such as payments for education, NGO staff salaries, transportation, small stipends to volunteers, and agricultural inputs. In most cases, while input categories could be further disaggregated [...]... The CBCO programme supported the organization and operation of SLAs in the programme through SLA facilitators These facilitators attended the regular SLA meetings, provided training on financial management and record keeping (and assisted SLAs as they became familiar with these activities), and provided additional information to the group for incomegenerating activities The facilitators were also the. .. an annual cost equivalent for equipment is also very easy to do with typical spreadsheet programmes that are already used by NGOs for creating their financial reports Again, no new software is likely to be needed NGOs can use any standard annual payment calculator” to calculate the annual equivalent payment to cover a one-time purchase over a certain time period (e.g., from the purchase year to the. .. (more than 14,000 days in Table 5) The fundamental role of mentors (about 24% of total costs) is totally missed when considering only financial costs In sum, total costs in Table 7 are estimated to be about 100% larger than actual expenses included in the programme’s financial report due to the quantity of time that mentors, facilitators and peer educators contributed to the programme Discussion The direct... 3-5, Table 7 presents the final expanded cost profile for the BIDII CBCO programme Three additional cost categories (9 = annual asset services, 10 = headquarters, and 11 = impact zone coordinating committees) 26 were added to the expanded cost profile Table 8 shows the same information reported as shares of total costs within each column of costs Table 9 summarizes average costs per SLA member and per... purchased, and expenses are “lower” in the years after it is purchased but is being used by the programme When evaluating the annual costs of implementing a programme, annualizing equipment purchases, by translating a lump sum payment in one year into a certain number of equal 11 annual payments over multiple years, is an easy way to account for equipment used for programme implementation Estimating an... type of analysis In the example we have used, the purchase occurred in 2006 If the costing analysis was conducted for 2009, the annual payment of $2637.97 based on the 2006 purchase year would have to be inflated to 2009 levels to be included in an analysis for 2009 The annual average consumer price index is logical to use Such information is typically available from the country’s central bank The International... the financial report to note that a portion of a total expense receipt is included on multiple lines in the financial report 3 As the financial report sub-categories are being developed, financial and programme implementation staff can work together to develop the logical input categories that can be included as an extra field in their financial reporting databases Each financial report subcategory... on actual payments of KES86,000 during the year and an estimate of 9360 days of time, mentors received KES9 per day for their efforts ($0.12 per day) Table 6 uses information on the quantity of time contributed to the project by each category of volunteer, estimates of a reasonable local wage for such time, and information on actual payments made by the projects to estimate the opportunity cost of. .. of local wages to hire individuals with skills and capabilities similar 25 to existing volunteers People in the local community are available to work for a lower daily wage, but the programme relies on a level of skilled labour and responsibilities that are not provided by all individuals in the casual labour market All information is provided in Tables 4 and 5 for a reader to conduct additional sensitivity... which the CBCO provided supplies to the SLAs (e.g., inputs for income-generating activities) and other services, including additional information and training to SLA members related to business, agriculture and OVC welfare In many respects, the SLA facilitators acted like agricultural and household extension agents for SLA groups At times, SLA facilitators would arrange for staff from local government agencies . Again, no new software is likely to be needed. NGOs can use any standard annual payment calculator” to calculate the annual equivalent payment to cover a one-time purchase over a certain time. supported the organization and operation of SLAs in the programme through SLA facilitators. These facilitators attended the regular SLA meetings, provided training on financial management and. Provisional PDF corresponds to the article as it appeared upon acceptance. Fully formatted PDF and full text (HTML) versions will be made available soon. How to calculate the annual costs of NGO-implemented