Chapter 1: Overview

All organizations need to know the costs of doing business. Service organizations offer products for which the costs are difficult to calculate because expenses are often indirect or dependent on the person providing the service. However, the resources that can be used to determine the costs of services are already available in the CMHC/MIS: the journal detail file contains information about expenses and the event file contains the number of events, staff IDs, durations, and service activity codes for all your services.

The CMHC/MIS costing programs let you gather the information from these resources and reassign overhead expenses to services. When all expenses are associated with services, you can determine not only the direct or base cost of each event and the total cost (considering all expenses in your organization), but also the average cost per unit of service for service activity codes.

How Costing Works

To determine the base and total costs for events, a cost factor ID, cost factor header, and cost factors are created. The cost factor ID identifies a cost factor header and cost factors. The cost factor header contains the criteria for the events and expense amounts that go into creating the cost factors.

Cost factors are temporary storage areas for expense amounts which, in order to calculate costs based on services, sometimes need to be reassigned to one or more other cost factors. For example, if the salary expense for a staff member (staff ID 318) who delivered 305 units of crisis therapy under RU 131 is $8,071.50, the expense is contained in the following cost factor:

If another salary expense for a staff member (staff ID 206) who holds an administrative position (i.e. who delivered no services) under RU 131 is $4,813.10, it's contained in the following cost factor:

During the costing process, the expense amounts in some cost factors are distributed to one or more other cost factors. This reassignment or allocation of amounts of expense occurs to remove expense amounts from cost factors with no events and add them to cost factors with events, as in the following reassignment:

Eventually, through a series of transfers, all expense amounts are assigned to cost factors which contain events (e.g. the first cost factor listed above). Then costs per hour, costs per event, and average costs per unit of service can be calculated based on the events in the cost factors that (after allocations) contain all expense amounts. There are nine steps in this process:

1.    Decide the time period for which you want to calculate costs, then be sure all events and journal details are available and accurate for that time period.

The length of the costing period influences results. The shorter the time period, the less credible your results will be because short time periods don't accommodate variations in cycles, holidays, peak seasons, or high expense periods. Select a time frame that minimizes cycle fluctuation.

2.    Create the cost factor ID, the cost factor header, and cost factors using one of two methods:

• Run the Cost Factor Update program to set up the cost factor ID, cost factor header, and cost factors. This program retrieves event information from the event file, and expense information from the journal detail file. Expense amounts are associated with events and staff based on the staff ID and RU in the journal detail and in the event record. If no staff ID is associated with an expense, the amount is added to a cost factor with no staff ID. The same is true when no event is associated with an expense amount: the expense amount is assigned to a cost factor with a staff ID and expenses, but no event.
• If you're going to enter all expense and event information manually, use the Cost Factor Maintenance program to establish the cost factor ID, cost factor header, and all cost factors.

3.    Expenses which aren't in journal details for expense accounts can't be picked up by the Cost Factor Update program. However, if you want them to be counted as costs, include them in a cost factor using the Cost Factor Maintenance program.

4.    Use the Cost Factor Maintenance program to print the Cost Factor File Listing and review its contents. Also, use this listing and the Cost Proof List (discussed below) to document your costing process.

5.    Use the Cost Allocation program to allocate expenses from administrative RUs (RUs under which services aren't rendered) to service RUs (RUs for services). This is the first stage in the process of associating all overhead expenses with a staff ID and one or more events. The expense amounts allocated from an administrative RU are placed in a cost factor with no staff ID under the service RU and later allocated to cost factors with a staff ID and one or more events.

6.    Use the Cost Allocation Audit program to produce the Cost Proof List. Although this report will contain errors if you produce it before completing the next step, use it to check the allocations you've made and to plan your next allocations.

7.    Use the Cost Allocation program to allocate the expenses in service RUs that aren't associated with a staff ID and one or more events to cost factors within the service RU that have a staff ID and one or more events. This is the second stage of associating all expenses to cost factors with both staff ID and events.

8.    Print the Cost Proof List again. The Cost Allocation Audit program, which produces the Cost Proof List, also audits the allocations and a successful audit must be completed before results can be recorded.

9.    Run the Cost Post program to update the base cost and the total cost for events. The Cost Post program also offers you the option of updating the cost rate schedule for service activity codes.

Related Manuals

RUs play an important role in the costing process. To find out how to define RUs, read the SYS manual. The SYS manual also discusses service activity codes, and the cost rate schedule which can be updated by the Cost Post program.

Information from events and journal details is used to create cost factors. Also, base costs and total costs are stored in each event when you run the Cost Post program. For more information about events, read the ER manual. For more information about journal details, read the JD manual.

The ERS and AGS let you create reports including the results of costing. Read the ERS and AGS manuals for more information about using these report writers.

What's in this Manual

The CMHC/MIS costing programs let you determine the cost of providing a service. This manual explains how to set up and use these programs.