Real cost recovery
It is very important to make sure when you are planning a project budget that you include all the costs; if you don't the organisation may end up subsidising the project.
There are two sorts of costs; direct project costs and indirect project costs. When putting together a budget it is easy to forget to account for all the hidden indirect costs that your organisation has that every project should contribute to. Making sure that a project recovers all these costs is important to the health and well being of organisations.
Recovering the real costs is more important than ever since it is harder and harder to find funders to support core organisational costs and they have to come from somewhere. Funders are beginning to recognise this more and more and when putting a grant application together it may well be worth talking to the funder to find out how they would like you to include the indirect costs.
If a project does not have sufficient funds to meet the real costs you may have to think about not doing it rather than the organisation providing an effective subsidy. Even if a funder is not willing to pay for these indirect costs you should include them in the budget, showing the costs on the income side of the budget as a contribution by your organisation to the costs of delivering the project.
Direct Costs
These are those costs that you will only incur as a direct result of carrying out the project. The obvious items are wages, national insurance, the costs of equipment for use solely by the project being funded, publicity and promotions costs, the costs of evaluation, the costs of contracting experts and specialists to carry out specific tasks. These may also include office rental or the purchase of vehicles.
However, some direct costs are often overlooked when considering a project. The cost of training for project staff but also for volunteers. Similarly the cost of recruiting volunteers and staff can be costly and should be included in the budget. If you are working in an area where it is necessary to carry out Criminal Records Checks on volunteers or staff these can also be missed.
When putting together think of all the things that you may need to pay for that you will only pay for because of the project.
Indirect Costs
These are costs that you may incur regardless of whether or not you go ahead with the project. For instance you may employ an administrator who is already full-time but who will carry out tasks for the project such as answering the telephone or sending out letters; all those jobs that someone has to do. The project will use the services of the administrator so the budget should include the costs of their time.
Similarly the project may be overseen by the director of the organisation. She may well meet the project officer for an hour every month to check on progress and perhaps every six months undertake a fuller scale review. This all takes time and while the director may already receive a salary from somewhere else if she spends time supervising this new project there is a cost implication and this should be reflected in the budget.
There are things as well as the hidden costs of people in the group or organisation. The project may make use of a vehicle shared by other projects within the organisation, these costs should be recognised and included in the budget. Similalry having the project may not require renting more office space but the project should make a contribution to the existing rent and accommodation costs.
Then there are other costs that running the project will not necessarily add to but that the project should contribute to such as insurance, audit fees, general promotion of the organisation.
There are too many of these indirect costs to list here as examples, however, the key message is to think about all of them and include them in the budget otherwise you may successfully bid for money and find you have to subsidise the project because you have forgotten some of these indirect costs.
Putting a figure on these can be difficult. However, one way of doing it is to set this figure based on the direct costs. For instance the indirect costs are 20% of the direct costs. Alternatively you could calculate the indirect costs on the basis that the new project will be 25% of the total organisational budget so it should contribute 25% of these indirect costs.
