Benefits of Full Cost recovery
ACEVO lists the benefits of full cost recovery
Benefits of Full Cost Recovery
All organisations have overhead costs, associated with:
- Management and leadership
- Infrastructure and accommodation
- Finance, governance and controls, and
- Strategic development.
These overhead costs must be met in order for the organisation to survive, grow and develop. They are therefore essential to all its outputs. Under Full Cost Recovery, organisations analyse their overhead costs and allocate them across the outputs, projects and services they deliver. Under this system the cost of each output includes an appropriate element of funding for overhead costs.
By implementing Full Cost Recovery, third sector organisations develop a full understanding of the true cost of their work. Such an understanding is an essential for effective financial management and strategic planning across any organisation.
Understanding the true cost of your work will enable you to have a more informed dialogue with funders in
- Grant-seeking,
- Competitive tendering, and
- Fundraising.
Full cost recovery will help organisations avoid the problems involved in:
- Generating shortfalls in funding through the use of arbitrary percentages for management costs
- Cost conversion: attempting to repackage overhead costs as projects, and
- Cost donation: attempting to find scarce "core funding" to cover your overhead costs.
Full Cost Recovery is standard practice across the commercial sector, and is rapidly becoming standard practice in the third sector.
