Cost

Full Cost Recovery

Published on 8th August 2019

Full Cost Recovery

The unskilled art of the charity sector

1st May 2019

Author: Anjie Ola (Principal Consultant)

Definition

Cost recovery is simply recovering the cost of a given expense. In our case as Non-government organisations (NGOs) or INGOs, this is recovering the full cost of implementing a project. Since we typically don’t make a profit, the least we can do is recover the full cost (total cost) of delivering a project on behalf of the donor or sponsor. Sounds simple enough doesn’t it? Well, keep reading.

Cost recovery – the moral conundrum

In my experience, there is an internal battle in the minds of implementers that makes them feel it is immoral to recover their full costs. There is, I think, a particular breed of people who prefer to be short changed, under estimate their worth and generally live from hand to mouth. There are costs associated with turning up in Nigeria, say Abuja, setting up an office (albeit temporary), making weekly bank transfers from the U.K say to a Nigerian bank, having very skilled humans monitoring activities and supervising projects in Nigeria and the UK in order to deliver a project on behalf of a donor based in the global North. We typically tend to only bill the cost of people and offices forgetting everything else in the example above.

The more subsidised a project is, the less and even near enough impossible it is for the donor to get a true picture of how much it cost to deliver the output which by the way impacts future funding because we are now in a cycle of snow balling a negative balance and misusing unrestricted funds.

The less we clearly articulate our costs, the more difficult it is to have clean data for post implementation analysis and reporting.

The less structured our teams are in the field and in HQ, the more difficult it is to budget in the right positions, at the right level and at the appropriate level of effort (LOE)

The more we work in silos (finance team not knowing what an employee’s fully loaded cost is per month or which countries a project manager actually supports), the less we are able to budget accurately let alone recover the right costs.

Cost recovery – what donors expect

Most donors expect a fair share of costs (direct and indirect) incurred to deliver their project. They also expect you to be able to evidence its eligibility and justify your rationale.

There is an expectation that you understand how to bargain and indeed are knowledgeable enough to educate them on thematic areas and geographical locations where their own expertise is lacking.

As BOND put it in their September 2018 paper on DFID grants: A new model for cost transparency

, DFID are actually looking for a cost transparency model that has and is:

Cost recovery – what I need to do to get better

To improve your cost recovery skills, you must simply know and recover all your costs. I’ve listed some of the tools below:

Timesheets – These are a simple, yet useful way of tracking your time and objectively apportioning costs to the activities that consume your time. They also act as a great resource for impact analysis with small businesses.

Full cost – You should write down and track the full cost of each activity. For example, it is no good using a person’s net salary when budgeting, neither is it accurate to only reflect the cost of a conference without consideration for the transportation, accommodation and subsistence cost in staying alive and comfortable for its duration when budgeting.

Record Keeping – In order to bill someone else for costs that they did not incur directly, you must be meticulous with records and be in the habit of asking for receipts or other forms of evidence even in rural places. Some clients of ours carry their own receipt books to the market when necessary in order to have a record of billable costs.

Which of the above are you committed to doing? Let us know here how it goes and how this is impacting on your ability to budget correctly and recover your costs.