A Project Costs More Than Its Visible Budget: How Do You Calculate the Full Cost?
A charity may prepare a project budget covering delivery staff, materials, transport and activities, only to discover during implementation that the project also requires financial, IT and monitoring support that has not been costed. These resources may already exist within the charity, but they consume time and money and support other commitments.
If these costs are omitted, a project may appear fully funded while the charity absorbs part of its cost without planning for it. Similarly, a fundraising target may cover direct assistance but leave essential delivery costs without a clear source of funding.
Calculating the full cost helps a charity prepare a realistic budget, identify the funding required and understand what it will need to contribute from its own resources. The process begins with defining the project’s scope, identifying its resource requirements, classifying costs and apportioning shared resources on a basis that can be explained and reviewed.
Start with the Project’s Scope and Costing Period
Before adding up the figures, define what will be delivered, for whom and over what period. A six-month training programme will have different resource requirements from a year-long programme, even if both serve the same number of participants.
The scope includes activities, preparation, management, monitoring, project closure and reporting. If activities finish in December but the final report and settlement of outstanding commitments continue into January, the resources required for that work should be included in the estimate.
Next, identify the resources needed at each stage: staff numbers and working hours, materials and quantities, transport, premises, IT services, and monitoring and evaluation. Estimate costs using quantities and unit prices or the duration of use, recording the source and date of each estimate.
A budget can already include the full cost. The problem arises when it accounts for only some of the expenditure required. Guidance from the UK’s National Council for Voluntary Organisations (NCVO) explains that full cost budgeting includes both direct costs and the support costs required for the project.
Classify Each Cost According to Its Relationship with the Project
Once the resources have been identified, ask whether each cost can be clearly attributed to this project or supports several areas of work.
Direct costs cover resources that can be attributed to the project, such as training materials, participant transport or a trainer’s fees. They may also include a documented portion of an employee’s time when that person works across several projects, provided the time spent on this project can be identified.
Shared costs support several projects or functions within the charity and require appropriate apportionment. Examples include general finance services, a shared IT subscription or premises used by several programmes. This distinction follows NCVO guidance on allocating direct costs and apportioning support costs.
A function’s name does not determine its classification. Monitoring and evaluation may be a direct cost when the work relates specifically to the project, or a shared service when it supports several programmes. The same applies to accounting, IT and management.
Existing staff or systems are not cost-free simply because they are already in place. However, including their share in the project’s cost does not necessarily mean an additional cash payment of the same amount is required. The charity may already have committed to that expenditure as part of its general operations.
Choose an Appropriate Basis for Apportioning Shared Costs
For each shared cost, establish the total for the relevant period, then select a basis that reasonably reflects the project’s use of the resource.
Staff time may be suitable for services driven by employee effort, floor space for premises, and user numbers or usage levels for an IT subscription, depending on the service. NCVO recommends choosing a fair and reasonable apportionment method and keeping a record of the calculations.
The simplified calculation is:
Project share = Cost of the shared resource for the period × Proportion attributable to the project.
The proportion needs an explanation. If 30% of a finance service’s time is allocated to the project, this should be supported by time records or a documented workload estimate. The allocation should also account for other projects and general organisational work. An employee’s entire cost should not be allocated to projects if some of their time is spent on other duties.
Using a fixed percentage is not inherently wrong; it may be based on an appropriate analysis. However, distinguish it from the percentage a funder is willing to cover. The estimated cost and the amount eligible for funding may differ.
Check for double counting throughout the process. Do not include an employee’s time as a direct cost and then include the same time again within a shared service. Nor should two funders be asked to cover the same portion of an expense.
Calculate the Full Cost Using a Worked Example
In this hypothetical example for learning purposes, a charity is preparing a year-long training programme. It estimates the direct costs as follows:
| Item | Basis of estimate | Cost |
|---|---|---|
| Training and delivery staff | Estimated working days and pay | SAR 200,000 |
| Programme-specific materials and equipment | Quantities and unit prices | SAR 60,000 |
| Participant transport | Estimated journeys and costs | SAR 40,000 |
| Programme-specific monitoring and evaluation | Defined tasks and working days | SAR 20,000 |
| Total direct costs | SAR 320,000 |
The charity then calculates the programme’s share of common resources, excluding any costs already included in the direct costs:
| Shared resource | Annual cost | Apportionment basis in this example | Programme share |
|---|---|---|---|
| General finance services | SAR 100,000 | 30% based on estimated time required | SAR 30,000 |
| Shared IT subscription | SAR 60,000 | 25% based on expected usage | SAR 15,000 |
| Rent for shared premises | SAR 100,000 | 10% of floor space throughout the year | SAR 10,000 |
| Total programme share | SAR 55,000 |
These percentages are hypothetical and illustrate the calculation; they are not recommended rates for all charities.
The result is:
Full programme cost = SAR 320,000 + SAR 55,000 = SAR 375,000.
The charity can now explain how each figure was calculated. If the programme’s duration or resource use changes, the allocations should be reviewed rather than leaving the original estimate unchanged.
Separate the Cost of Securing Funding from Delivery Requirements
A charity may spend time and money researching an opportunity, preparing a proposal and negotiating funding. These costs should be understood when assessing fundraising efforts, but they should not automatically be added to the grant budget.
Delivery reports and financial reports required under the funding agreement may form part of project management. Their costs should be included according to their relationship with the project and the funding conditions. General communication with funders and applications for other projects should be accounted for separately.
If preparing an application takes 80 hours, recording the hours alone is not enough. Their cost can be estimated using an appropriate hourly staff cost, while checking that it has not also been included within shared services.
The costs of unsuccessful applications can inform an assessment of fundraising efficiency across the charity. They should not automatically be charged to the project that secured a grant.
Compare the Cost with Confirmed Funding
Once the programme’s cost has been calculated, identify how each item will be funded and what the funding conditions permit.
In this example, assume a confirmed grant of SAR 340,000 covers the direct costs and SAR 20,000 of finance services. The charity also allocates SAR 20,000 from other resources available for this purpose:
| Item | Programme share | Confirmed grant | Approved charity contribution | Funding gap |
|---|---|---|---|---|
| Direct costs | 320,000 | 320,000 | 0 | 0 |
| Finance services | 30,000 | 20,000 | 0 | 10,000 |
| IT subscription | 15,000 | 0 | 15,000 | 0 |
| Premises rent | 10,000 | 0 | 5,000 | 5,000 |
| Total in SAR | 375,000 | 340,000 | 20,000 | 15,000 |
The funding gap is now clear: SAR 15,000. It can be addressed through additional confirmed funding, a contribution the charity can afford, or an agreed change to the project’s scope.
A charity may choose to deliver a project whose full cost is not covered by the funder for reasons linked to its mission. Its contribution should nevertheless be understood and intentional. NCVO explains that full cost recovery may not always be possible and that using other resources requires a deliberate decision.
The timing of receipts and payments must then be reviewed. Covering the total cost does not guarantee that cash will be available when each commitment falls due.
Turn the Net Funding Requirement into a Clear Campaign Target
For crowdfunding, a charity needs to distinguish between the project’s cost, the amount to be raised and the net funds it will receive.
In a separate hypothetical example, medical equipment and direct services cost SAR 200,000, the project’s share of support resources costs SAR 10,000, and preparing and managing the campaign costs SAR 15,000. The total requirement is therefore SAR 225,000 before the assumed collection fees.
If the charity allocates SAR 25,000 from confirmed resources, the campaign needs to deliver SAR 200,000 net.
To illustrate the effect of fees alone, assume a uniform deduction of 3% from funds collected, with no fixed charges:
Gross fundraising target = SAR 200,000 ÷ 0.97 ≈ SAR 206,186.
This percentage is for illustration. The charity should use the actual fees and charging method when preparing its campaign, and avoid adding them again if they are already included in the cost estimate.
The campaign description should explain what the funding will cover, while respecting the stated purpose and the conditions governing the use of donations.
Calculating the full cost gives a charity a basis it can review: what resources are required, how the project’s share was calculated, what the funding covers and what gap remains. When these answers are documented and reviewed during delivery, the budget better reflects the work involved, reducing the likelihood of discovering unfunded requirements after commitments have already been made.
