Understanding Total Cost of Ownership for Digital Health

This document provides a comprehensive analysis of the Total Cost of Ownership (TCO) for digital health interventions, specifically focusing on digital supply chain systems in low-resource settings. It addresses the lack of visibility into all costs associated with DHIs, which often leads to underfunding and low impact. This resource is particularly valuable for investors, government officials, and implementers seeking to better estimate, validate, and manage the financial aspects of these initiatives, ensuring their long-term sustainability.

Key Insights

Phase I: Planning and Development

The costs associated with planning and development are incurred as initial, one-time-only, capital expenditures related to human resources, travel, project management, and overhead. The highest cost category in this phase is Software Development, representing 77% of the Phase I costs. Variances are largely attributable to the market maturity of the country, with lower maturity countries relying more heavily on international partners, driving up costs.

Phase II: Deployment

Deployment phase costs are characterized as capital expenditures associated with deploying the solution to a set number of locations. In the model implementation, deployment costs were $1.3M,withthelargestcostcategoryconsistingof$980k or 21% of TCO for new deployment training. Costs vary substantially based on market maturity and the extent of resource sharing between the government and implementing partner organizations.

Phase III: Scaling

Scaling refers to expanding deployment across a wider geographic area or number of facilities than originally scheduled. The model implementation incurred a cost of $500k or 10% of TCO to achieve full scale at 6,000 health facilities. Low digital health market maturity increases scaling costs as countries rely on outside implementing partners for training, implementation services, and development labor.

Phase IV: Operations

Operational expenditures are associated with the ongoing operation of a DHI, including human resource costs, regular maintenance, and replacement costs. In the model implementation, nationwide deployment to 6,000 health facilities was completed over five years, with operational costs in Year 1 being relatively low and then flattening out once full scale was achieved. Recurrent training, monitoring and evaluation, and governance made up the largest portion of the model implementation’s annual operational costs at 8% of TCO each.

Common Hidden Costs

• Project Management: Organizational costs for human resources, travel, and other direct and indirect overhead costs.
• Equipment Replacement: Annual costs to replace defunct infrastructure and equipment (typically 15% to 30% of capital costs).
• Data and Voice: Annual costs for mobile data, voice, and SMS required to operate the DHI.
• Governance: Costs for labor, travel, and overhead required to ensure conformance to government health strategies and policies.
• Software Development: Costs required to adapt a solution to address issues and fit the context of new geographies during scaling after the initial deployment.

Common Cost Variances

• Equipment: Whether required equipment is shared by more than one implementation.
• Infrastructure: Whether required infrastructure is shared by more than one implementation.
• Training: Training delivery model (e.g., classroom-based training, train-the-trainer, on-the-job training).
• Helpdesk Support: Number of partner organizations involved in helpdesk support and whether government resources provide some level of support.
• Maintenance: Number of partner organizations involved in maintenance and the maturity of the solution for LMIC contexts.

Key Statistics & Data

• The Total Cost of Ownership (TCO) over five years for the model implementation is $4.8M (USD).
• Planning and Development costs represent 16% of the TCO.
• Deployment costs represent 27% of the TCO.
• Scaling costs represent 10% of the TCO.
• Operations costs represent 47% of the TCO.
• Software Development costs represent 12% of the TCO
• New deployment training costs represent 21% of the TCO
• Operating costs represent 8% of the TCO
• A classroom based training for 200 users by Ministry and partner resources is 450k or 24% of TCO.

Methodology

The analysis is grounded in secondary research, including foundational sources on defining and estimating the costs of DHIs, as well as in-depth interviews with key stakeholders, including investors, government officials, global and in-country implementing partners, and global LMIS experts. The model implementation is based on cost data and experience from all implementations evaluated and supplemental interviews with global experts in LMIS.

Implications and Conclusions

This document provides a valuable reference for understanding the TCO of DHIs, enabling better planning, investment, and implementation of future initiatives. The identification of common hidden costs and cost variances helps implementers develop more accurate budgets and ensures that costs and required investments are understood more transparently by governments and investors. The key questions provided for stakeholders offer a framework for ensuring long-term sustainability and the ability to coordinate across government and partner stakeholders for a successful DHI.