NGO cost recovery. Bond Conference 10 November

Transcription

1 NGO cost recovery Bond Conference 10 November

2 About Mango Award-winning training for non-finance and finance staff Consultancy and advice on risk, financing strategy, value for money and grant/contract management Recruitment of NGO finance staff Raising standards with thought leadership and collaboration 2

3 Objectives Why is cost recovery important? Good practice in cost recovery A participative masterclass in cost recovery How the Mango/Bond survey will help

4 Why is cost recovery so important now? Institutional Funding Unrestricted donations 2

5 Donors cap rates Good unrestricted funding Mostly restricted funding Donors offer fair and audited recovery

6 MasterClass Step 1 Step 2

7 How good are we at cost recovery? Poor Practice Undeveloped Practice Good Practice Best in Class 1 Optional project-byproject approach to cost recovery. 1 Clear cost categories. 2 Clear costrecovery policies. 1 Confident in negotiating better cost recovery with donors. 2 Well-disseminated tools, guidance and training. 1 Annual targets for cost recovery. 2 Central support for cost recovery. 2 No visibility of subsidies or losses. 3 Access to tools and guidance. 4. Review full cost of each proposal and consider size of subsidy/loss before applying. 3 Culture of time planning and estimation. 4 Managers responsibility for cost recovery is clear and reinforced through recruitment and performance management processes. 3 Control of unrestricted funds given equal priority to institutional funding. 4 Real full project costs and any subsidy /loss is measured and reported. 5 Risk is properly priced. 5 Clear incentives for use of the indirect costs recovered. 6 Benchmarking of indirect costs is viewed as part of accountability.

8 Small group discussion One top tip and one key challenge in understanding your cost base and how much of your programme support and central support costs are not being covered by donors? One top tip and one key challenge in improving recovery of programme support costs and central support costs from donors?

9 The survey: contents Introduction guidance tab and definitions General information on organisation size, staffing, offices Income analysis including ICR % received Cost analysis by type and function (central, programme support, direct) Questionnaire on cost recovery performance

10 Survey: Mind the Gap 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Your NGO Peer NGOs Sector Average Project Costs Your NGO Peer NGOs Sector Average 3 6 Programme Support Costs % Indirect Costs not Funded Central Support Costs % Indirect Costs Funded

11 Survey: Close the Gap Ratings on 5 areas of Recovery Practice: Your Score Sector Score A Strategy and Policy B Systems Tools and Processes C People and Capabilities D Management and Culture E Donor Relationships B. SYSTEMS, TOOLS AND PROCESSES Your Score Sector Score 6. Our costs are clearly categorised including analysis of direct, support and indirect costs We have tools and guidance which assist in budgeting for the total cost of projects and identifying levels of direct and indirect 1 3 cost recovery 8. We have a system to calculate full staff costs including all benefits and staff overheads for charging to projects and externally Approval of each project includes an understanding of cost recovery, the level of surplus or deficit and the financial risks 4 4 involved 10. We have a system for the allocation of shared direct costs to projects and for apportionment of indirect overhead pools to projects and cost centres 2 4

12 Survey Timetable 10 November Launch survey 31 December Deadline for submissions 2 Feb 2015 Phase 1 Report published for participants

13 Next steps Registration for the survey sign up via Participation will entitle you to receiving the report which will include individual feedback and advice on how to improve your practice in cost recovery. Find NGO peers to learn with and, if you agree, we will also match you with possible peers through the survey.

14 A View from the US Eric Walker Senior Advisor, InsideNGO 10 November 2014

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19 We Are En Route From Here To Here where overhead is just a single cost input in support of an effective result. It is not limited, but seen as a necessary component of an effective NGO. At the end of the day, we seek long term, flexible funding for measureable results. 6

20 Where Is The Problem For International NGOs? Donors (examples) Overhead funding Process USAID Full Negotiated Indirect Cost Rate (NICRA) process w/annual audit. CDC US organizations Full Negotiated Indirect Cost Rate (NICRA) process w/annual audit. CDC Foreign organizations None Proposal budget for direct costs w/annual audit. Northern Europeans 10-15% cap Proposal budgets w/negotiation DfID 15% cap understanding, now open to full funding Proposal budget with explanation EU 7% Proposal budget w/annual audit Global Fund 5% Proposal budget w/annual audit Private US foundations 15% cap typical Proposal budget w/negotiation Individual donors 10-15% Show use of funds pie chart on web site 7

21 There Are Two Current Problems In The US: Problem #1: USAID more focused on HIV/AIDS, war recovery Donors Donors today yesterday USG (USAID, CDC, etc.) 95% Mul lateral Private Fdns 1% Individuals 2% 2% Donors tomorrow today USG (USAID, CDC, etc.) 65% DFID 10% EU 20% Mul lateral 1% Private Fdns 2% Individuals 2% 8

22 There Are Two Current Problems In The US: Problem #2: Individual giving down, replaced with new sources Donors yesterday Donors today Individuals 65% Individuals 91% Private Fdns 2% USG (USAID, CDC, etc.) 6% Mul lateral 1% Private Fdns 15% USG (USAID, CDC, etc.) 15% EU 3% DFID 2% 9

23 What Data Are Available to Help Make the Case? What Data are Available to Help Make the Case? Annual&spend& 10

24 TDC = Total direct costs (all direct program spending) MTDC Modified total direct costs (TDC less distorting items such as subagreements, equipment, etc.) 11

25 90.0% Mean OH Rate by Org Size - MTDC 80.0% 70.0% 60.0% 50.0% 40.0% Min 30.0% 20.0% 10.0% 9.2% 22.0% 22.6% 21.0% 25.1% 20.9% 18.1% 12.7% 20.6% Max Mean 0.0% $0 - $4,999,999 $5,000,000 - $9,999,999 $10,000,000 - $24,999,999 $25,000,000-49,999,999 $50,000,000 - $99,999,999 $100,000,000 - $199,999,999 $200,000,000 - $299,999,999 Above $300,000,000 All 12

26 Key Take Aways: 1. One size does not fit all there is not enough commonality in approach, nature of the work and size across organizations to use a single benchmark %-15% overhead funding is not enough this survey suggests 20-25% is needed just to keep up. 13

27 Cost Recovery BOND Conference November 2014

28 determined our mission is to create long-lasting change 13/11/2014 1

29 High Level Overview Key Sector Issues Financial Pressures Hard Economic Climate Reduction and Competition for funds Upwards pressure on costs LEADS TO Pressure on Unrestricted Solutions Raise Voluntary Income Improve Operational Efficiency Cost Reduction Cost Recovery

30 Why is this important? VS Our Lifeblood Public Perception Dan Palotta TED talk Do we want to be remembered as NGOs for the low overheads we have, or by the impact we had on the World?

31 Words Core Costs Full Cost Recovery Overheads Its all talking about the same thing! We are trying to allocate a fair proportion of overheads to each programme

32 Why is this important for CARE specifically? CARE has only 20% unrestricted. This is less than its peer group. Every project uses unrestricted funds 2% shortfall, so our unrestricted dictates our programme volume. Limited flexible funds. More accountable for our unrestricted funds Close oversight and management

33 Overheads vary over time Using a standard measure as %: Admin Expenditure Total Expenditure After Tsunami and now Pakistan, Haiti and Horn of Africa (and impact this has had on our figures): FY07 FY08 FY09 FY10 FY11 5% overheads 10% overheads 13% overheads 11% overheads 7% overheads FY12 6% overheads Also investing in direct marketing heavily. Very distorting so we base our figures on a three year average!

34 Existing cost practice The most widespread practice is still to add a fixed percentage, such as 7% or 10%, onto direct costs to cover overheads. Arbitrary percentages have no grounding in reality. DFID NPAC is great because it moves the dialogues forward. Overheads Direct Costs We could always stop using the telephone or not take insurance!

35 Description of CARE Any organisation can be described as having activities falling into four categories, with four corresponding categories of costs We should aim to move budgets from indirect costs to direct costs and then we can be sure they are being covered Indirect Costs IT, HR, Finance, CEO Office 13/11 / Front line activity (Direct Costs) CO Support Costs Direct support costs (HQ) Indirect costs Direct Costs CO Support Costs Direct Support Costs (HQ) Indirect Costs

36 CARE s manual and policies

37 MANGO Tool Poor Practice Undeveloped Practice Good Practice CARE is here Best in Class 1 Optional project-byproject approach to cost recovery. 1 Clear cost categories. 2 Clear costrecovery policies. 1 Confident in negotiating better cost recovery with donors. 2 Well-disseminated tools, guidance and training. 1 Annual targets for cost recovery. 2 Central support for cost recovery. 2 No visibility of subsidies or losses. 3 Access to tools and guidance. 4. Review full cost of each proposal and consider size of subsidy/loss before applying. 3 Culture of time planning and estimation. * 4 Managers responsibility for cost recovery is clear and reinforced through recruitment and performance management processes. 3 Control of unrestricted funds given equal priority to institutional funding. 4 Real full project costs and any subsidy /loss is measured and reported. 5 Risk is properly priced. * 5 Clear incentives for use of the indirect costs recovered. * 6 Benchmarking of indirect costs is viewed as part of accountability.

38 CARE s Approach Burning Platform Buy-in to action Review with steering group Basics implemented Teach Improve - Manual - Tools - Workshops - Mandatory cost recovery template signed off On-going discussion

39 A success story We have really focused on cost recovery and moved from a subsidy of over 3% in 2010 to less than 1% in 2013.

40 Our analysis on Bids Policy: For each bid and donor submission it is mandatory to complete the excel template and have this signed off as part of the submission. This will enable CIUK to clearly see if a bid is achieving full cost recovery. OVERHEAD RECOVERY CALCULATIONS PLEASE ENTER FROM PROPOSAL IN GREY CELLS (NOT NECESSARILY FROM TABLE ABOVE) TOTAL DIRECT COST IN PROPOSAL 36, ICR / ADRET INCLUDED IN PROPOSAL (TOTAL) 27, ICR %age 7% LESS SHARED PROGRAMME COST (SPC) TOTAL COST RECOVERY 64, CR %age 8% TOTAL DIRECT COSTS FROM ABOVE TABLE 36, TOTAL DIRECT SUPPORT COSTS FROM ABOVE TABLE 0.00 TOTAL INDIRECT COSTS FROM ABOVE TABLE 4, OTHER COSTS (NOT CLASSIFIED) 0.00 OPTMISM BIAS AT 25% 10, TOTAL EXPECTED COSTS 50, TOTAL SURPLUS PRE-MATCH 13, Costs Income (including optimism) MATCH FUNDING REQUIRED TOTAL SURPLUS 13, Surplus / (Deficit)

41 Questions?