Cost Adjustment Factor A Proposed Tool for Adjusting Costs for Remoteness

Abstract

There is evidence that providing services in remote communities is more expensive than in non-remote ones. Existing methods for adjusting funding to account for these costs have various limitations. This article documents the development of a new methodology from Indigenous Services Canada for estimating the additional costs due to the impact of remoteness, for program funding and budgetary considerations.* The “Cost Adjustment Factor” is a generic formula that could be used in the absence of program-specific information. To develop the Cost Adjustment Factor, we applied regression analysis to the Index of Remoteness, transportation infrastructure, employment allowances of federal employees, and shipping costs data on a sample of 278 Isolated Posts in Canada. Based on the results of the regression analysis, an illustrative First Nations community with an Index of Remoteness of 0.8 and access by air would have a Cost Adjustment Factor of 125.6%. Sensitivity analyses based on various sample specifications and analytic criteria showed that the Cost Adjustment Factor is statistically robust to specific assumptions that were tested.

Keywords:

• Remoteness,
• Index of Remoteness,
• Cost Adjustment Factor,
• Indigenous communities