Definition of full cost recovery:

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Definition of full cost recovery

• .the principle that a funder should pay the
  real cost of any work it supports. Where a
  project is funded or a new post paid for, full
  cost recovery requires that the funder should
  also pay a share of the overall cost of the
  running the organisation itself. (ALG London
  Bulletin All in a Good Cause, 26/10/2005)

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What is full cost recovery?
Full cost recovery simply means securing funding
for, or recovering, all your costs, including
the direct costs of projects and all the
organisational overhead costs.
Reproduced with kind permission of NCVO
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Why is full cost recovery important?

• Organisations not recovering all of their costs
  put at risk their
• Sustainability
• Good management
• Public Support
• Innovation
• Independence

Reproduced with kind permission of NCVO
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Detrimental funding practices

• Marginal cost funding
• Arbitrary fixed percentage
• Hiding overhead costs as project costs

Funders - could and should accept the principle
of paying for a projects full costs, including
its indirect overhead costs. Organisations -
could and should cost projects fully and
transparently, by accounting for the inclusion of
relevant overhead costs. Reproduced with kind
permission of NCVO
5
Calculating the full costs

• To calculate the full costs of a project or
  service you need to be able to

• calculate the direct costs of the project or
  service
• calculate the total overhead costs for the whole
  organisation
• allocate a relevant share of overhead costs to
  the project

Reproduced with kind permission of NCVO
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Direct Project Costs

• Salary, NIC, Pension
• Training
• Additional premises (outreach)
• New equipment needed (laptops)
• Periodicals/information resources
• Supervision
• Travel

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Direct Project Costs (continued)

• Marketing and publicity
• Translation/interpretation
• Consultancy
• Recruitment
• Volunteer expenses
• Telephone/email/post

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Overheads/Core Costs

• Premises
• Director
• Finance
• Administration
• Insurance

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Overheads/Core Costs (continued)

• Audit/Legal fees
• Telephone/fax/internet connection
• Subscriptions
• Governance
• Fundraising

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Allocating Costs

• Start by calculating all the costs before
  allocating to individual projects or core
  activities.
• Headcount
• Floor space
• Time allocated
• Expenditures

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Calculating premises

• Allocate according to headcount if all
  projects/services utilise roughly equal space
• Allocate according to space if there is a large
  imbalance between projects (i.e. large
  training/waiting room)

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Calculating core staffing

• Decide how much time is allocated to each of the
  following this project, all other projects,
  governance, development and strategy.
• For non-project time, cost the time allocated and
  divide by headcount to get per person/project
  allocation

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Allocating governance and fundraising

• Calculate the total costs of each activity,
  including staff/consultant costs where
  appropriate.
• Divide costs across projects based either on per
  project rate, or headcount.

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Methods of allocating costs

• Expenditure
• Headcount/Time
• Headcount/floor space
• Headcount/Time/Expenditure
• Headcount
• Headcount

• Project
• Director
• Premises
• Central Services
• Governance
• Development Strategy
• FCR

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Benefits of understanding the full cost of your
projects

• Better informed decision-making
• Knowing the exact level of funding you require
• Knowing the impact of a project on your
  organisations shared resources

Full cost analysis is an essential tool in the
planning process
Reproduced with kind permission of NCVO
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Analysing full costs
Unlike the original picture the full costs of
project A are likely to look more like
this. Different projects draw on an organisation
in different ways.
The full cost of an activity or project
the direct cost of that activity
the appropriate portion of all other costs in
the organisation


Reproduced with kind permission of NCVO