'Overhead costs' or 'core costs’ are the central administrative costs that NGOs have to pay to run the organisation (like office rent or staff training).
NGOs often find it hard to raise funds to pay for their core costs.
Strategies for paying for core costs
There are various strategies , including:
- Prepare an accurate budget for core costs. This will help you keep them to a minimum and show exactly how much funding you need.
- Allocate as much as possible to specific projects. For example, a shared vehicle making journeys for a specific project, or a shared photocopier making copies for a particular project activity. This reduces your core costs, by re-classifying them as project costs.
- Claim any money that donors provide for core costs. Donors may allow you to claim a certain amount for 'administration', 'core costs' or 'management fees', eg 7% of the total budget.
- Identify specific sources of funding for core costs. This is tough but some NGOs manage it!
- Use unrestricted funding to pay for core costs. For instance, some NGOs use fees they charge for services, or donations from the public, to pay for core costs.
Allocating direct costs to projects
In the example illustrated below:
- a shared vehicle travels 500 kilometres in a period
- the vehicle running costs for the same period are Mshs 10,000 (Mangolian Shillings).
The vehicle usage log book shows which journeys were made for Projects A, B and C and general purpose ('Other') journeys.
The costs of the journeys recorded for the projects are allocated as ‘direct costs’ to those projects, which leaves Mshs 4,000 in 'core costs'.
Apportioning indirect costs to projects
It is good practice to apportion (ie share out) your core costs to each project or activity that you run. This helps you work out the total cost of running each specific activity.
Total costs equal direct costs plus a share of core costs.
Core costs may be apportioned to different projects in a number of ways. For example, split by the relative size of:
- Project staff hours
- Project budget
- Estimated use, eg office space (for rent).
Generally, it is best to use a simple method and to be consistent.
For advice on Full cost recovery, see The Big Lottery fund.