F C R Pres

Slide 1: Full Cost Recovery: An Introduction Sabrina Lee Funding Advisor, Voscur 12th July 2007 A Council for Voluntary Service

Slide 2: Aims of the presentation • To increase an understanding of the principles and approaches of Full Cost Recovery (FCR) • To discuss the development of a consistent model of FCR which is appropriate for both the VCS and Bristol City Council • To examine training needs on how to develop guidelines and implement a model on FCR for the VCS board and Community Development workers among others. A Council for Voluntary Service

Slide 3: What is Full Cost Recovery? • Knowing the full cost of each activity an organisation runs • Costing projects on an accurate, reasonable and sustainable basis • Securing funding for or ‘recovering’ all your costs including the direct costs of running the project and a reasonable portion of your overheads • Funding the full costs of delivery A Council for Voluntary Service

Slide 4: Government commitment to FCR • In 2002 government committed to Full Cost Recovery: – Compact Code of Practice on Funding – HM Treasury 2002 report • Office of third sector report 2007 suggests there are some difficulties translating FCR into practice • Difficulty in creating a consistent model to be used by all departments • Need to improve clarity and realism in government departments and guidance matched by an understanding and practical implementation by the VCS sector. A Council for Voluntary Service

Slide 5: Why are organisations still not recovering all their costs • Many funders already adopted the principles of full cost recovery e.g. Big Lottery Fund and Future builders • However many funders remain reluctant to fund overhead costs • Organisations often see their overhead costs as separate from the direct costs of implementing their services A Council for Voluntary Service

Slide 6: • Arbitrary percentages added to budgets, which are often inaccurate, and usually below the real overhead cost of delivering the project. • Many organisations take on work at below the full cost and will therefore have to subsidise the project or find additional appropriate funds to cover the work. • This is unsustainable way of managing the cost of work and puts the organisation at risk. A Council for Voluntary Service

Slide 7: Benefits of understanding full cost of services • Improved management of costs - budgeting • Promoting sustainability • Deciding on how and whether to bid • Improved ability to negotiate with funders A Council for Voluntary Service

Slide 8: How are the full costs of delivering a project calculated? There are a number of templates for calculating full costs of a project including direct costs and relevant proportion of overheads A Council for Voluntary Service

Slide 9: Costs included in Full Cost Recovery Direct Costs: Costs that are needed to produce the output of a particular activity (salaries of those working directly on the project, their travel and subsistence, materials) and other cost which can easily be identified as part of the project. A Council for Voluntary Service

Slide 10: Costs included in Full Cost Recovery Overhead Costs: Costs needed to support and administer projects, activities and the organisation more generally (e.g. the Directors salary, utilities, insurance, trustee and audit costs). These costs are also referred to as core, central, support or management and administration costs. A Council for Voluntary Service

Slide 11: Overheads can generally be broken down into four categories:  Premises and Office costs  Central Function Costs  Governance and strategic development costs  General fundraising costs A Council for Voluntary Service

Slide 12: Premises and Office costs Include: Renting and maintaining buildings, utilities, computers, desks and furniture. Costs are usually shared among all staff working in an organisation regardless of whether they are working on projects, administration etc. Rental space being used solely by a project could be charged as direct costs, but a fair proportion of rent and utilities used by management/admin and finance staff should be included. A Council for Voluntary Service

Slide 13: Central Function Cost Relate to central staff costs of your organisation and include: • Leadership and overall direction of the organisation (Director, CEO etc) • Finance (accounting, budgeting, invoicing, purchasing etc) • Human resources (administering payroll, recruitment etc) • Information Technology (purchasing and maintaining computers, email and website • Facilities/ office management (purchasing and maintaining premises, office materials and equipment (photocopier, faxes etc) • Other admin tasks: answering phones, managing a library data processing) A Council for Voluntary Service

Slide 14: Governance and strategic development costs • Governance costs include those costs incurred because of an organisations need for planning and regulatory obligations. • Audit fees, legal and professional fees and trustees expenses (e.g. travel costs) • Costs also include strategic development costs including consultancy, research, special trustee meetings to assess the direction of the organisation and trustees training A Council for Voluntary Service

Slide 15: General Fundraising Costs Costs associated with raising unrestricted funds for the organisation, including managing investments. Costs of salaries for people engaged in fundraising, Fundraising events, direct mail appeals, membership drives and marketing and publicity for fundraising purposes A Council for Voluntary Service

Slide 16: Cost Allocation Dividing or splitting the overhead costs on a reasonable basis among different people or projects. Organisations need to determine the ‘Driver’ of each type of cost i.e. the factors, which affect whether it decreases or increases. Three different methods for allocating overhead costs. The three cost drivers are: – Allocating cost by head count – Allocating cost by time – Allocating costs by percentage of income A Council for Voluntary Service

Slide 17: Principles of Cost Allocation Average Vs Marginal Costs • The marginal cost of a project are the costs incurred as soon as the project starts • The average cost would be those costs plus a share of the premises costs, staff involved in management and administration A Council for Voluntary Service

Slide 18: The Chartered Institute of Public Finance and Accounting Total cost of a service should include an appropriate share of support services and other overheads. Share of these other costs should be allocated across users and beneficiaries of services in accordance with the following 7 principles: Complete recharging Reality Correct recipient Predictability Transparency Materiality Flexibility A Council for Voluntary Service

Slide 19: Is this Double funding? Often confused with funding full costs. Double funding would only occur if the organisation were recovering more than 100% of their costs Full Cost Recovery may mean that two funders fund the same project One funder funds the costs of one project worker and second funder funds the costs of second project worker. Both funders fund a share of the overhead costs (i.e. 20% of Directors Salary) A Council for Voluntary Service

Slide 20: Templates Models include: • ACEVO (main model developed for larger orgs), • Big Lottery Fund, • Future Builders, • Community Accounting Plus. There is inconsistency in the models being used by different funders and in the approach of different organisations to budgeting. Many models are confusing and laborious to use for smaller and inexperienced groups. We need a model that is appropriate, user friendly, can be used consistently by funders and organisations. A Council for Voluntary Service

Slide 21: Next steps Develop a two day joint workshop between Community development and other members of VCS board and VCS representatives (Early September) Train, discuss and develop guidelines for implementing and using FCR appropriately in bids and applications Cascade training on FCR to groups who take part on Voscur’s training workshops for groups applying for the Community Development Investment budget (Late September/early October) A Council for Voluntary Service

Slide 22: Further Resources • www.fullcostrecovery.org.uk (ACEVO resources, training and guidance on FCR • www.newphilanthropycapital.org. New Philanthropy series of factsheets and resources on FCR • www.ncvo.org (NCVO resources) A Council for Voluntary Service

Slide 23: THANK YOU A Council for Voluntary Service

Slide 24: A Council for Voluntary Service