Glossary
Appropriation - Approval by a legislative body (federal, state, local) of spending for a specific purpose. Appropriations create authorizations for spending an amount in approved budget.
Break Even Analysis - Break even analysis is conducted to determine the level of activity at which a project or business's total expenses are equal to its total revenues. Once break even is achieved, any additional revenue received generates an element of profit. Reference literature - (1) Oziminko RJ, Goetzel RZ, Santoro J, Saenz BJ, Eley C, Gorsky B. Estimating risk reduction required to break even in a health promotion program. American Jouurnal of Health Promrotion. 2004 March-April;18(4): 316-25. (2) Comans T, Bauer S, Haines T. A break-even analysis of a community rehabilitation falls prevention service. Aust N Z Journal of Public Health. 2009 June;33(3): 240-5.
Capital Budget - A capital budget is a plan for the purchase of long lived assets (capital assets) such as buildings, computer systems, automobiles, etc. The capital budget is prepared as part of the financial planning and budgeting process, and must consider sources of funding for financing the acquisition of capital assets, such as debt borrowing, special assessments, profits, etc.
Cash Flow - Cash flow is the amount of cash remaining after revenues have been collected and expenses paid. It differs from financial profitability where certain expenses and revenues do not use or provide cash. For instance, clinical revenue that cannot be collected (i.e., late accounts not yet written off as bad debts) is financial revenue, but not cash flow, and therefore cannot be spent. When a late account is written off it receives financial recognition, placing cash flow and financial revenue back in line. Likewise, the purchase of a capital asset has no financial recognition in terms of revenue and expense, but it does use cash and, therefore, impacts cash flow. When a capital asset is placed in service depreciation begins and, by the end of the useful life of the asset, cash outflows have returned to parity with expenses. Because many transactions are occuring simultaneously that generate financial results that differ from cash flow, it is important to produce a financial report called Statement of Cash Flows, which reconciles cash flow to financial results. For agencies that invest heavily in capital assets at the beginiing of their life cycle, management must be careful to the difference between profit and cash, or they may be unable to meet cash obligations though their agency is financially profitable.
Cost Allocation - Cost allocation is the financial and operational process whereby expenses are matched, or "charged", to the activities which generate them. Cost allocation is generally performed at the end of each month or accounting cycle to ensure each project within an enterprise is charged all of the costs related to its operation. Cost allocation at an appropriate level of detail is essential to development of ratio analysis to determine financial and operational performance of the projects engaged in by an agency.
Cost Analysis – The identification of current and projected costs associated with operating a program/service.
Cost Benefit Analysis - A cost/benefit analysis is a financial study comparing all of the accumulated costs related to undertaking a particular course of action to all of the benefits that accrue from that course of action in order to determine overall profitability. In accumulating all costs, both direct costs and indirect costs should be considered. Likewise, both direct and ancillary revenues generated should be considered. Reference literature - http://www.cdc.gov/owcd/EET/CBA/Fixed/1.html
Cost Driver - A cost driver is a particular element of a process that leads to incurrence of a cost or the increase or decrease in a cost. For instance, the weather is a utility expense cost driver, the number of widgets being produced is a manfacturer cost driver, and the price of gasoline is a transportation company cost driver.
Cost Effectiveness Analysis - Cost Effectiveness Analysis (CEA) attempts to measure benefits realized from incremental dollars spent, and is designed to assist in decision making between proposed alternative solutions. Unlike Cost Benefit Analysis, which produces a financial or dollar based outcome measure, CEA is partly a financial measure and partly a non-financial measure. In public health and health care, CEA is often employed to evaluate competing programs or, in the case of healthcare, treatments. The calculation numerator is the dollar cost difference between two programs/treatments, or between a new program/treatment and the current program/treatment, and the denominator is the difference in related outcomes (effectiveness). The result of the analysis is expressed as the ratio of incremental cost to incremental effectiveness. Reference literature - Grosse SD, Teutsch SM, Haddix AC. Lessons from cost-effectiveness research for United States public health policy. Annual Review Public Health,2007;28:365-91
Cost Utility Analysis - Cost utility analysis (CUA) is a type of cost effectiveness analysis (CEA). Like CEA, it is partly a financial measure and partly a non-financial measure: costs are measured in monetary terms, while benefits are expressed not in dollars, but in terms of health outcomes, often expressed as cost per quality adjusted life year (QALY). A QALY is not an absolute measure, but a measure in relationship to a general population. There is not universal agreement on the appropriate relationship measure due to factors such as the age of the patient and differing definitions of quality of life, and decision making from use of this measure has proven to be controversial. Reference literature - www.rwjf.org/reports/grr/056782.htm
Discounting - Discounting is a financial term that is used to describe the difference between face value and market value (purchase price) of an asset. It takes into account the market rate of interest or return on an asset and the relative risk of a particular financial instrument.
Financial Analysis - Financial analysis is a broad range of actions, processes and procedures undertaken to assess financial and, in some respects, operational performance of a project or undertaking. The analyses outcomes are used by management in decision making.
Fixed Cost - A fixed cost is a cost that is independent of, or does not change with, activity levels. Rent expense related to an office lease, for instance, is generally a fixed costs since it must be paid whether or not a building is fully occupied.
Forecasting Budget - Throughout the period encompassed by a budget, management will revise their expectations for the financial outcomes of a project based on new information and/or new circumstances. These revisions for future periods, including actual results for the portion of the budget period that have already elapsed, are referred to as a forecast. A forecast does not take the place of, or change, the original budget but, as the most current estimate available, is an essential tool in management of an enterprise.
Operating Budget - An operating budget is a plan representing management's expectation of costs that will be incurred, and revenues generated, in undertaking a particular project for a specified period of time. The operating budget is prepared as part of the financial planning and budgeting process.
Opportunity Cost - Opportunity cost is the difference between a course of action chosen and the next highest value course of action not chosen. Generally, the alternative courses of action would be mutually exclusive. Opportunity cost analysis is not confined to monetary measures, but can also be used to evaluate choices using other value bases such as quality of life.
Payback Period - The payback period is the period of time that it takes for profit from a venture to repay the costs of starting and operating a venture or purchasing an asset. It can be expressed as a period of time or as a number of transactions or uses. For instance, the payback period for a particular piece of public health laboratory equipment may be a function of how many charges are made to a third party for each use of the machine or, if charges are not linked specifically to usage a particular device, it may be the period of time that would pass before profits cover expenses or the depreciation period is complete.
Public Health Economics - Public Health Economics is the study of the supply and demand of healthcare resources and the impact of healthcare on a population. Reference literature: Santerre SR, Neun SP. Health Economics: Theories, Insights, and Industry Studies. 3rd ed. Mason, Ohio: Thompson South-Western; 2004.
Public Health Finance - Public Health Finance is a field of study that examines the acquisition, utilization, and management of resources for the delivery of public health functions and the impact of those resources on population health and the public health system. Reference literature: Honoré P, Amy B. Public Health Finance: Fundamental Theories, Concepts, and Definitions. J Public Health Manag Pract, 2007; 13(2), 87-89.
Ratio Analysis - Ratio analysis is the study of relationships between various interrelated data elements to make observations, assessments and predictions about an agency's financial activities, operations and practices. The assessments made are used as the basis for decision making and corrective actions. Reference literature - Suarez V, Lesneski C, Dennison D. Making the case for using financial indicators in local public health agencies. American Journal of Public Health. March 2011;101(3): 419-423.
Return On Investment - In business terms, Return on investment (ROI) is the amount of profit generated by a particular asset over a period of time. A simple example would be the dollar interest earnings on a purchased one year certificate of deposit. ROI may also be expressed as a percentage, in which total earnings are divided by the purchased value of the asset either over the life of the asset or on an annualized basis. An ROI calculation may be made to assist management in choosing between alternative courses of action, and in assessing the financial success of a particular course of action. From a public services perspective, ROI can be viewed as value added or accruing from public investments. Reference literature - (1) Hutchinson AB, Farnham PG, Duffy N, Wolitski RJ, Sansom SL, Dooley SW, Cleveland JC, Mermin JH. Return on Public Health Investment: CDC's Expanded HIV testing initaitive. Journal of Acquired Imunine Deficiency Syndrome. 2011 (7). (2) http://www.rti.org/pubs/issuebrief_3.pdf.
Risk Analysis - Risk assessment is the process of evaluating weaknesses and strengths of an organization, including its operational environment and the industry in which it operates. Not all risks are liabilities and, therefore, risks exist which are not captured and reported on as part of the financial process. Agencies should engage in formal risk assessment and evaluation processes in order for management to take necessary actions to mitigate financial and operational risks where possible and appropriate. There are a number of types of risks (malpractice litigation, natural disasters, IT data security, etc.) and various methods exist to evaluate levels of risk.
Sunk Cost - A sunk cost is a cost which has been committed to by a prior decision and will be incurred whether or not other actions are taken. When a cost is defined as sunk, it may be ignored in certain circumstances when determining whether to undertake an activity. For instance, financial analysis may indicate operation of a proposed new Wellness program would be unprofitable when all costs and revenues are considered. However, if the building to be used for the Wellness Program is currently empty, unsuitable for other activities and already committed to by the Health Department under a pre-existing long term lease, it may be appropriate for rent expense to be considered a sunk cost and, therefore, excluded from the analysis. If so, and the Wellness program is profitable when rent expense is excluded, it may be appropriate to operate the Wellness program in an effort to offset some of the sunk cost of lease expense with incremental revenue generated by the operation of the Wellness program.
Total Margin - Total margin is the excess of operating revenues over operating expenses. Margin represents the amount of remaining funds, after operations, available to pay for administrative costs, capital outlays, and provide profits to increase fund balance.
Variable Cost - A variable cost is a cost which is dependent on, or increases or decreases based on, usage or activity levels. Utility expense related to an office building, for instance, is generally a variable cost since the amount of electricity, water and gas used would generally increase as a building's occupancy levels rise, and would decrease as occupancy levels decline.
Variance Analysis - Variance analysis is the process of comparing actual results with expected results and determining, documenting and explaining the reasons for differences. Variance analysis informs management of what has taken place and, where actual results do not meet expectations, points out where corrective action may need to be taken to return the agency to its budgeted financial goals.
