Cost Recovery BOND Conference

Transcription

1 Cost Recovery BOND Conference November 2014

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

3 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

4 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?

5 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

6 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

7 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!

8 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!

9 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

10 CARE s manual and policies

11 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.

12 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

13 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.

14 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)

15 Questions?