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Project budgeting and full cost recovery

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Direct costs and support costs

When you are working out the cost of a project, you need to look at what support and resources it needs from the rest of the organisation (support costs), not just the obvious costs of the project itself (direct costs).  

Direct costs relate directly to the project, for example: staff project salaries. Support costs/overheads/indirect costs manage and support the whole organisation; examples are: rent, fundraising, insurance, management time.

Adding these two cost types together gives you the full cost of the project, and full cost recovery is when funders pay for the relevant proportion of support costs (i.e. you recover the full cost from them).  This is what you are aiming for, but it isn’t always easy.

If you can’t get the full cost of a project from funders, you have to make a decision about whether it is an activity that you still want to do. There can be very good reasons for taking on projects that aren’t fully funded, but you need to do it with your eyes open.

Allocation of support costs

There are a number of ways that you can divide costs between projects – you need to choose one that is logical and clear (and if relevant allowed by funder). Don’t overcomplicate the process if the numbers are small.

The most common allocation methods are:

  • headcount (eg for management time, computer costs)
  • floor space (eg for rent, heating)
  • expenditure (eg for fundraising)

The principles are straightforward, but you need to be ordered and methodical with your calculations.

Further Guidance

Page last edited Jul 19, 2018

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