Many voluntary and community organisations find it hard to make ends meet, particularly with regards to funding overhead costs.
Costs such as management, accommodation, governance and
development, and support functions like finance and personnel, are
essential to the efficient and effective running of a project. If
the full costs of a project or service are not funded or
'recovered' then the future sustainability of the project, and
indeed the organisation is put at risk.
This section provides an introduction to full cost recovery and
is based on the well respected work of
New Philanthropy Capital ACEVO
and the Big Lottery.
What is full cost
In simple terms it means recovering the total costs of a
project, service or activity, including a relevant part of overhead
Every project, service or activity has costs directly associated
with it, for example staff time, vehicles or equipment (direct
costs). It will also require resources from the rest of the
organisation. For instance, it might include some of a manager or
trustee's time and also impact on support functions such as finance
or personnel (overhead costs).
Organisations must seek to secure funding or income to 'recover'
a proportion (or part) of overhead costs, as well as
the direct costs of a project. Every organisation needs
to recover its full costs, or it cannot pay staff, rent office
space, offer new activities or plan for future development and
delivery of its services.
Why full cost
Full cost recovery is important for funders and those being
funded. For voluntary and community organisations, it is about
developing a sustainable funding approach that covers the true
costs of delivery. For funders, it is about developing greater
transparency about funding decisions and improving relationships
with funded organisations.
The purpose of full cost recovery is to help organisations have
a better understanding of finance and costs. A lack of financial
understanding can prove highly damaging. It can bring about
financial insecurity and jeopardise the organisation's future. By
calculating the full costs of each project or activity,
organisations can make more informed decisions about managing costs
and secure funding or income to recover them.
It is critical that voluntary and community organisations
understand the true costs of managing a project, service or
activity. In the past, overheads have been classed as 'hidden
extras', distinctly separate from the main project costs. This has
led to financial practice that undermines the true value of the
project, with guesstimates being simply added as an afterthought.
The consequences of not recovering full costs are that both the
sustainability and the delivery of project and services are put at
Benefits of full
- Accurate - funders get true reflection of the cost of the
- Transparent - provide clear, defensible cost allocation
- Efficient - reduces time spent juggling figures
- Appropriate - funders pay for all and only the overheads
that support their project
- Sustainable - funded organisations survive; projects
There are many benefits for organisations in understanding full
cost recovery. It enables an organisation to appreciate the exact
amount of funding required and more importantly provides a clear
idea of how a project, activity or service will impact on the
financial sustainability of an organisation. Good financial
practice will without doubt lead to more informed planning and
decision making and create a more secure future.
Full cost recovery can give organsiations a better understanding
in most funding situations:
- When bidding for grants organsiations must seek to recover all
- In contracts the full cost of delivering a service must be
- For trading, pricing for products or services must reflect the
true cost of producing or delivering those goods
- Identifying and plugging gaps in fundraising