Glossary
What is full cost recovery?
Full cost recovery is the budgeting method that adds a fair share of an organisation's overheads, such as management, premises, finance and IT, to the direct costs of a project, so that a grant pays what the work really costs. The National Lottery Community Fund accepts it; some funders cap it.
Also called: FCR, recovering overheads, overhead recovery.
Full cost recovery is the budgeting method that adds a fair share of an organisation's overheads to the direct costs of a project, so that a grant pays what the work really costs. Direct costs are the staff, materials and activities that exist only because of the project. Overheads, which NCVO's guidance also calls core costs, running costs or operating costs, are the management, premises, finance, IT and governance that every project depends on. The National Lottery Community Fund explains and accepts the approach in its guidance on full cost recovery.
Why it matters when applying. A project budget that lists only direct costs understates the cost of delivery, and the shortfall comes out of unrestricted funds. Over several projects that is how a charity with rising grant income still runs a deficit. Recovering overheads on each grant protects the organisation, and funders that understand the sector expect to see it. NCVO's advice is to "check whether the grant allows you to ask for funding for core costs or overheads (sometimes called full cost recovery)", and where it does not, to look carefully at what can fairly be treated as a direct cost. Full cost recovery for charity grants gives the method and a worked example.
Where it fits. Full cost recovery and core funding solve the same problem from different ends: one recovers overheads project by project, the other funds them directly. A pipeline that mixes project funders who allow full cost recovery with one or two core funders is the most resilient, as how to build a trust fundraising pipeline describes.
Example. A fictional advice charity has overheads of £90,000 and three projects employing six of its eight staff. Apportioning by staff numbers, each project carries a quarter of overheads, £22,500. A project with £60,000 of direct costs is budgeted at £82,500, and the funder is asked for that figure or told what the organisation will contribute.
Frequently asked questions
- How do I calculate full cost recovery?
- List the project's direct costs, then work out the organisation's total overheads for the year and apportion a share to the project using a consistent basis, such as the project's share of staff time, staff numbers or direct costs. Add the two. The National Lottery Community Fund's guidance on full cost recovery sets out the method, and our guide gives a worked example.
- Do all funders allow full cost recovery?
- No. Some accept a fair share of overheads, some cap it at a percentage of direct costs, and some fund direct project costs only. NCVO's budgeting guidance says to check whether the grant allows funding for core costs or overheads before you build the budget, and to look carefully at what counts as a direct cost where it does not.
- What is the difference between full cost recovery and core funding?
- Full cost recovery recovers overheads project by project, as a share added to each project grant. Core funding is a separate grant towards the organisation's running costs as a whole. A charity that recovers its full costs on every project needs less core funding; one that cannot, because its funders cap overheads, needs more.