Signature
C = sum_(i=1)^n [q_i * p_i]
| Inputs | Definition | Unit |
|---|---|---|
q_i | Amount of resource i used, measured in its natural unit such as minutes of staff time, tests or bed days | natural unit of resource i |
p_i | Cost of one natural unit of resource i, in the same unit as q_i | currency per natural unit of resource i |
C | Cost of all resources used by the option within the stated perspective | currency in the stated price year, per patient, episode or programme |
|---|
nNumber of distinct resource types in the costing, equal to the length of the q_i and p_i lists (count)
Function
Resource costing function
Maps the resources used by an option, and the unit cost of each, to a single cost expressed in one currency, one price year and one time basis. Costing identifies the resources that differ between options, measures how much of each is used and values each with a unit cost; costs from other years are moved to the common price year, and capital used over several years is spread as an equivalent annual cost. Future costs are then discounted, as set out on the Discount Rate page.
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Implementations
Excel
Total cost from quantity and unit cost columns
With quantities in Quantities and unit costs in UnitCosts, in ranges of equal shape, Excel returns the total cost.
=SUMPRODUCT(Quantities,UnitCosts)
Assumptions
Resources identified within the stated perspective
Every resource that differs between the options within the chosen perspective is listed, and none is counted twice. For the NICE reference case the perspective on costs is the NHS and personal social services, and resources are valued at prices relevant to them.
Quantities and unit costs on the same basis
Each q_i is measured in the unit that p_i is priced in, and all unit costs refer to the same currency and price year.
Unit costs reflect opportunity cost
Each p_i approximates the value of the resource in its best alternative use. Payers usually value purchased inputs at the prices actually paid, including price reductions known to be available across the NHS, not at list prices or charges.
Worked examples
Micro-costed day-case infusion episode
One episode uses 2 vials at 210, 1 consumables pack at 60, 90 minutes of nurse time at 1.00 a minute, 20 minutes of consultant time at 3.00 a minute and an allocated overhead share of 70, entered as one unit at 70. The cost per episode is 700 pounds, as in the article. The figures are illustrative.
q_i = [2,1,90,20,1]; p_i = [210,60,1.00,3.00,70]; n = 5; C = 700
Variable items only for the same episode
Counting only the items that vary with each extra episode, the drug and the consumables, gives 480 pounds. This is the marginal cost of one more episode when staff and chair capacity are spare, as in the article.
q_i = [2,1]; p_i = [210,60]; n = 2; C = 480
Common errors
Staff time and unit cost in different units
Multiplying 90 minutes of nurse time by an hourly cost of 60 pounds gives 5,400 pounds instead of 90. Quantities and unit costs are converted to the same unit before they are multiplied.
Charges or list prices used as unit costs
A charge, tariff or list price reflects negotiation and cross-subsidy and can sit well above or below the resources used. The NICE manual asks for prices that reflect as closely as possible those paid in the NHS.
Overheads counted twice
Adding a separate overhead line to a unit cost that already includes overheads, such as a national average cost per healthcare resource group, counts the same resources twice.
Sources
Ingredients approach to costing
Tan-Torres Edejer T, Baltussen R, Adam T, Hutubessy R, Acharya A, Evans DB, Murray CJL, editors. Making choices in health: WHO guide to cost-effectiveness analysis. Geneva: World Health Organization; 2003. Section 3.2.1 (distinguishing quantities from the prices used to value them, the ingredients approach, and economic prices reflecting opportunity cost).
NICE requirements on resource use and prices
National Institute for Health and Care Excellence. NICE technology appraisal and highly specialised technologies guidance: the manual (PMG36). Published 31 January 2022, last updated 31 March 2026. Chapter 4 Economic evaluation, sections 4.2.7 and 4.2.9 (NHS and PSS perspective on costs), 4.4.1 (resources valued at prices relevant to the NHS and PSS, identified systematically) and 4.4.4 (prices that reflect those paid in the NHS, including known price reductions).
Costing textbook on resource use and unit costs
Drummond MF, Sculpher MJ, Claxton K, Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes. 4th ed. Oxford: Oxford University Press; 2015. Costing chapter: identification, measurement and valuation of resource use, with total cost as quantities multiplied by unit costs.
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