Using full cost recovery to help fund overhead costs
Recovering the full cost of delivering your services can help you cope with some of the financial pressures impacting on your organisation. This NCVO tool describes the benefits of full cost recovery and how to understand your cost base. It also provides examples of cost allocation and full cost recovery, and recovering the correct level of overheads on contracts. This resource also includes a cost recovery template.
The process of sharing out the indirect costs among a number of products or services is called 'overhead absorption' or 'overhead recovery'. It can be a very arbitrary process; for example how much of an office worker’s salary should be allocated to each service or product? It may be easier to simply to divide the total salary cost by the number of projects served, but this may not reflect the true cost of serving a project or product. It is essential that any funding for projects should cover the general overheads apportioned to those projects. Trying to allocate a fair proportion of overheads to each contract or service in this way is often referred to as full cost recovery.