1. FULL COST RECOVERY York Community Accounting Scheme

2. Key quotes In 2002, per govt. & third sector; “funders should recognise that it is legitimate for providers to include the relevant elements of overheads in their cost estimates” In 2002, per govt. & third sector; “funders should recognise that it is legitimate for providers to include the relevant elements of overheads in their cost estimates” HM Treasury in 2003; “no activity can be undertaken without the need for support functions” and recommends acevo’s cost allocation manual. HM Treasury in 2003; “no activity can be undertaken without the need for support functions” and recommends acevo’s cost allocation manual. But also “before criticising funders for a lack of understanding it is important that you have a clear view of your costs and plans for recovering them”. But also “before criticising funders for a lack of understanding it is important that you have a clear view of your costs and plans for recovering them”. CIPFA guidance on best value accounting for local authorities; the total cost of a service should include an appropriate share of support services and other overheads. CIPFA guidance on best value accounting for local authorities; the total cost of a service should include an appropriate share of support services and other overheads.

3. Three Funding models Full project funding; all reasonable associated costs are met – the business model Full project funding; all reasonable associated costs are met – the business model Development funding; infrastructure costs are met for a time to allow growth & development Development funding; infrastructure costs are met for a time to allow growth & development Strategic funding; funder recognises need for organisation to exist in order to meet its own objectives Strategic funding; funder recognises need for organisation to exist in order to meet its own objectives

4. Present situation Arbitrary fixed percentages Arbitrary fixed percentages Risks Risks some overheads may not be recovered, and organisation doesn’t know size of shortfall, and some overheads may not be recovered, and organisation doesn’t know size of shortfall, and organisations may cut back on essential support to stay within limits organisations may cut back on essential support to stay within limits Organisation may accept more (underpaid) work than it can properly manage in attempting to cover “core” costs Organisation may accept more (underpaid) work than it can properly manage in attempting to cover “core” costs taking work below full cost can only be justified on a short term basis taking work below full cost can only be justified on a short term basis

5. Benefits of understanding full costs Improved management of costs Improved management of costs Full funding Full funding Comparing costs with funding Comparing costs with funding Deciding how and whether to bid Deciding how and whether to bid Improved negotiating ability with funders Improved negotiating ability with funders

6. Types of costs Direct costs Direct costs Overheads Overheads Premises and office costs Premises and office costs Central function costs Central function costs Governance and development costs Governance and development costs General fundraising costs General fundraising costs

7. Cost drivers Headcount Headcount Time Time Expenditure Expenditure Floor space Floor space etc etc

8. Step 1 Calculate direct costs Project A Project A Project B Project B Project C Project C Project D Project D

9. Step 2 Calculate total overheads Premises & office costs Premises & office costs Central function costs Central function costs Director Director Support services Support services Governance & strategic development Governance & strategic development General fundraising General fundraising

10. Step 3 Allocate premises costs Allocate costs of the premises and other office costs (e.g. utilities, telephone, computers, stationery, insurance etc) to each central function and to the project, (& other projects) using an appropriate driver

11. Step 4 Allocate central functions allocate the cost of each central function to governance, fundraising, the project to be costed, and the other projects. Use an appropriate driver

12. Step 5 Allocate governance costs allocate a proportion of the total governance and strategic development costs to the project (and the other projects), again using an appropriate driver.

13. Step 6 Allocate general fundraising (if needed) if you expect a shortfall in funding for project A, you may need to use some of your general fundraising to cover the shortfall.

14. Project A full costing the project will now be fully costed to include direct project costs share of premises costs share of director costs share of support services costs share of governance costs share of general fundraising costs (if needed) All allocated on a defensible basis

15. Summary Up to date budget/forecast of all costs Up to date budget/forecast of all costs An understanding of the major types of cost (e.g. direct costs, premises costs) An understanding of the major types of cost (e.g. direct costs, premises costs) Set of relevant cost drivers Set of relevant cost drivers Remember to allocate overheads progressively until they are all allocated to projects.

16. Additional points Consider the payroll example: We have costed out the payroll service as £x per annum, and: Most, or all of these costs are fixed over a wide range of activities (so need to establish how far capacity is, and is likely to be, utilised). Most, or all of these costs are fixed over a wide range of activities (so need to establish how far capacity is, and is likely to be, utilised). There are a lot of small clients There are a lot of small clients Some costs vary with the number of staff, some with the number of clients, some with the number of leavers / starters, etc Some costs vary with the number of staff, some with the number of clients, some with the number of leavers / starters, etc There are significant costs at start – up and at tax year ends There are significant costs at start – up and at tax year ends There are quite a few competitors providing similar, and in some cases, identical services There are quite a few competitors providing similar, and in some cases, identical services Some clients also use other services within the main charity (bookkeeping, community accounting) Some clients also use other services within the main charity (bookkeeping, community accounting) There are a number of different ways of charging for the service. There are a number of different ways of charging for the service. So price setting is not a simple task!.