Table of ContentsAcronymsExecutive summaryIntroductionPurpose and specific objectives of the studyApproach and MethodologyFindingsRecommendationsConclusionsReferences34689101213142
AcronymsUNNGOF Uganda National NGO Forum.USAID United States Agency for International Development.NGO Non-Governmental Organization.DFID Department for International Development (UK)CSO Civil Society Organisation.3
Executive SummaryThis review, commissioned by UNNGOF, seeks to inform discussions and decision making on allocating overhead costs that is necessary for project delivery. The objective of this study is “to review the current organization and project budgets, assess the labour and administration costs (true costs based on fair estimates) required to deliver the planned objectives and output of the project. According to the Bond and Mango’s ‘’What cost recovery means for NGOs’’ 2016 report, most indigenous (national) NGOs often struggle to meet all the costs of delivering and supporting programmes through restricted grant funding alone. The indirect costs which are sometimes referred to as overheads or administration costs that are allocated to programmes are not adequate for the attainment of the planned objectives and output.Owed to increased competition, diminishing fundraising returns, and external scrutiny, many NGOs are becoming increasingly conscious of the need to fully cover up the administration costs to deliver planned objectives and outputs. To do this, a solid understanding of all costs is needed. Better understanding of costs offers superior transparency and understanding of value for money for donors, as well as the opportunity for NGOs to adequately budget for projects and make the case for donors to pay the full costs of their projects. To ensure that projects are adequately budgeted for, and the planned objectives and outputs are attained, Uganda National NGO Forum (UNNGOF) commissioned this study to review its budgets, workplans, operational policies and other operational documents to determine the level of labor and administration costs that are adequate to deliver a project (true cost) and to provide tools to evaluate, costs and document labor and administration costs.Below are the findings from the review.• The current UNNGOF budget structure has 76% costs allocated to programmes and 24% allocated for administration costs. These administration costs are high, considering that most funders provide between 7%-15%. UNNGOF will face difficulties during funding negotiations. • It was discovered that the programme staff costs were/are budgeted under the administration costs and not the direct programme cost. The implication of this misallocation is that it will not only under cost the direct programme cost, but also inflate the administration cost.• The human resource costs constitute 79% of the total administration costs. Other operational costs (governance, finance, and office administration) accounts for 21% of the total administration costs. This reveals the extent to which staff cost affects the administration cost if they are not properly allocated.4
• The review also revealed that there are costs that should be shared among the different projects and charged to the funders. The absence of a mechanism of apportioning shared costs like rent, office internet, transport etc. places UNNGOF in a situation where it has to subsidize the costs of running some programmes.• The review further discovered that there is absence of clear guidelines and mechanism for allocating shared costs to funded projects. UNNGOF will have no clear justification for allocating a shared cost to projects if they are not backed up by a policy which provides a mechanism for such allocations.This report also makes the following key recommendations:The budget costs structure of 85% (programme direct cost) and 15% (administration costs) is sufficient for UNNGOF to implement its programmes and attain the planned deliverables and output. BDO FMA, Humentum-ACR and other study reports recommend between 13-15% for Administration/overhead costs.• All programme staff costs should be budgeted as programme direct costs because they meet the definition of direct (programme) costs. This will lower the current percentage allocation of administration costs.• A policy is required to support cost sharing and administration costs allocations to the organizational and project budgets.• To enhance value for money for all, open and honest conversations about true costs within organizations is vital. A clear understanding of what constitutes direct and indirect programme cost is important for proper costings and allocations.• To make further gains, UNNGOF must coordinate advocacy efforts to inform and educate donors, partners, members, and other stakeholders on the need for satisfactory programme support (administration) costs.• The study recommends the usage of the tools that have been designed for budgeting, cost sharing and allocation of labor and administration costs, tracking and documenting administrations costs, evaluating, sharing, and pricing of administrative costs.5
Introduction and backgroundThis report provides the findings and recommendation for a more realistic budgeting for project’s labour and administration costs for UNNGOF.The Uganda National NGO Forum (UNNGOF) is an independent and inclusive national platform for NGOs in Uganda that was launched in 1997 to create space for NGOs to reflect, strategize and act on matters of mutual interest. UNNGOF is a membership organization with over 650 members across the country. UNNGOF’s primary constituency and owners are NGOs in their diversity and configurations but is however open to other interest groups within a broadly defined civil society. Membership spans international, national, faith-based, networks and district organizations.Indigenous NGOs face an uphill task to meet all the costs of delivering and supporting programmes through confined grant funding. This has left most of them reeling from let-down of inadequate funds to support programmes implementation needed to achieve and attain their planned objectives and outputs UNNGOF has had challenges with getting satisfactory funding for labor and administration costs to deliver on its projects’ planned objectives and outputs. To address this, a solid understanding of all costs and their allocation is needed. A better understanding of costs offers better transparency and understanding of value for money for donors, as well as the opportunity for NGOs to adequately budget for projects and make the case for donors to pay the full costs of their projects.Few funders undertake the funding of administration costs with a systematic, regulated approach. Funders such as European Commission (EU) cap these costs at 7%, McArthur and the Gates Foundation offers 15%, while the United States Agency for International Development (USAID) and Department for International Development (DFID) negotiate each grant separately.6
Therefore, inadequate funding for projects administration costs poses a great risk to the NGOs and this includes inefficiency, as funders and NGOs spend time negotiating rates for each and every grant. Organizations are unable to invest in the infrastructures which are essential for sustainability, thus a distortion of the market, where NGOs without large levels of unrestricted funding appear unduly uncompetitive.Insufficient administration costs recovery is global problem. Moreover, even recovery of administration costs is a significant challenge for NGOs in countries where local philanthropy is limited. Local/national NGOs are struggling to recoup their costs. To better understand the costs and ensure that projects are adequately budgeted for, and the planned objectives and outputs are attained, UNNGOF commissioned this study to review the current organization project budgets and other operational document in order to assess the labour and administration costs (true costs based on fair estimates) required to deliver the planned objectives and output of the project. 7
Purpose and specific objectives of the studyThe purpose of this study was to review the current organization and project budgets, assess the labor and administration costs (true costs based on fair estimates) required to deliver the planned objectives and output of the project and to provide a mechanism for documentation and allocation of those costs.The specific objectives of this study were to.a) To review the current organization and project budgets, assess the labour and administration costs (true/accurate costs based on fair estimates) required to deliver the planned objectives and output of the project. b) To provide a mechanism for documentation and allocation of labor and administration costs. c) Assess the labour and overheads/administration/indirect costs required to achieve objectives and planned output.d) Recommend the staff and administration costs required to achieve planned outputs of a project.e) Define the procedure for evaluating labor and administration costs.f) Design a framework for documenting labour and administration costs.8
Approach and methodology.This study was conducted through an in-depth desk review of studies on administration costs recovery and discussions with key informants. It also involved detailed analysis of UNNGOF operational documents and review of past study reports on administration costs recovery.The institutional budget for 2024 was analysed to determine the budget structure in terms of percentage allocations for programme and administration costs. Further analysis was done to understand the items that were costed in the programme and administration costs and to ascertain whether they were rightly allocated.Project workplans were also swotted to understand the levels of activities and have a fair estimate of the programme support costs (administration) that’s adequate for the implementation and completion of the planned activities.The payroll was analysed to determine the percentage composition of direct programme labour and administration labour costs, and to compare the labour costs with the sector. This was to ascertain if the labour costs were adequately charged to the programme and administration costs.Operational policies were also reviewed to better understand the budgeting processes and the processes of costing and allocation of labour and administrative costs. The finance and human resources, procurement and travel policies and procedures documents were also reviewed. A face-to-face meeting was held with the Executive Director, and the Finance and Administration lead to clearly understand the challenges of inadequate administration costs, allocating shared costs to projects, the budgeting processes, and the need for mechanisms of evaluating and allocating labor and administration costs to projects.9
FindingsThe reviews of the 2024 budget, workplans and other operational documents revealed the following.The current UNNGOF budget structure has 76% costs allocated to programmes and 24% allocated for administration costs. This 24% administration cost percentage is on a high side compared to rates of between 13%-15% that BDO FMA, Humentum-ACR and other studies recommend as realistic administration cost estimates. The effect of this allocation is that it gives a false impression that administration cost required is almost one third of the overall project budget. Many funders would consider the administration costs as high, making it almost hard to justify or negotiate considering that most funders are providing between 7% and 15%. Budget item Amount (UGX) PercentageProgramme 9,725,158,143 76%Finance & Admin 2,994,624,127 24%Total 12,719,782,270 100%76%24%10
The review of budget line items revealed that all programme staff costs which accounts for !0% of the overall institutional budget were budgeted under the administration costs and not the direct programme cost. The implication of this mischarge is that it increased the administration budget by 10% and lowered the costs chargeable to direct programme cost by 10%. Keeping the programme staff costs under the administration budget will also make it difficult to charge the full costs of a project to the funders. It’s important to note that the human resource costs constitute 79% of the total administration costs and other operational costs like governance, utilities, internet, finance, and office administration, which accounts for 21% of the total administration costs. This shows the degree to which staff cost affects the administration cost if they are not appropriately allocated.The review also found out that there is no clear mechanism in place to apportion the administration (programme support) costs to the funded projects. Cost items like rent, utilities, internet, travel are supposed to be identifiable and linked to specific projects. Programme support costs can only be justified on a project if they can easily be identified and linked to the project activities. There are mechanisms that can be employed in the apportioning or recovery of shared costs for each project. Where shared costs are not properly tracked, one will realize overtime that UNNGOF will be paying some of these costs and thereby subsidizing the costs of the projects.The review further found that, there is absence of a policy that stipulates guidelines on the budget structure percentage composition for programme and administration costs. The absence of this policy poses a massive challenge to UNNGOF to thrive during negotiations for project fundings.11
Recommendations.Based on the findings from the review of the operational documents, the study recommends the following.Tools of implements have been designed and ready for launch in carrying out, determine and implement on how UNNGOF can, and will henceforth administer the labor and administration costs required to deliver various projects. The tool is flexible and strategic in a way that makes it possible to contrast labor costs based on the level of effort and project time. The tool also applies to administration costs. Thus, the study ratifies the usage of the tool to support budgeting, cost sharing and allocation of labor and administration costs, tracking and documenting administrations costs, evaluating, sharing, and pricing of administrative costs. These tools provide clear basis for justification of project costs. UNNGOF should adopt a budget cost structure of 85% (programme direct cost) and 15% (administration costs) for it to adequately cover the programme implementation costs and attain the planned objectives and output. When direct programme costs and indirect costs are properly defined, then proper and realistic allocations will be achieved which will also enable the justification of costs during negotiations with funders. Studies on indirect (administration) costs by McArthur Foundation, Humentum-ACR and Development initiatives studies have recommended for a range of 13%-15% administration costs. A regular price survey or price adjustment based on level of inflation is also vital for fair estimates of project costs.UNNGOF should also ensure that all programme staff costs are budgeted as programme direct costs and not under administration costs. The allocation of programme staff costs to direct program costs will enable the organization to have a more realistic and representative budget for programme activities. This will also enable proper tracking of level of effort for employees on projects which is also used as basis for evaluating and charging the labor cost.The study further recommends that UNNGOF should develop a policy for the budget structure as a way of ensuring that every project is fully financed based on it’s true (accurate) cost for effective implementation. The policy should also guide on the mechanism(s) of allocation of shared costs among projects. This will also provide details on how shared administration cost items like rent, internet, travel, communications etc. can be allotted to projects. This is one way in which the organization will ensure that it adequately covers the true cost of the projects.With a need to enhance value for money for all, this study recommends that an open and honest conversations about true costs within organizations should be encouraged. To make further gains, UNNGOF must coordinate advocacy efforts to inform and educate donors, supporters, and other stakeholders on the need for sufficient project costs. This requires that projects must have adequate funds for direct project activities and project support (administration) costs.12
Conclusions.The conversations about true costs of projects have been going on for some time and a several studies have been carried out to aid funders and implementing organizations in the NGO sector to better their understanding of the level of projects administration costs that is required to deliver a project. Recent studies on the need for funders to meet the full costs of implementing projects, estimates a budget allocation of between 13%-15% for project support (administration costs). This is considered adequate for the attainment of project deliverables and output. UNNGOF needs to restructure its budget within this range for administration costs and develop a policy to guide on budgeting for true (accurate) cost of a project and allocation of shared costs.The tracking, fair costing and clear presentation of the project administration cost is required, and this can be achieved by utilization of tools that have been designed for this purpose. This will further benefit UNNGOF in the negotiation process for full project funding. 13
References1. Breaking the Starvation Cycle (How international funders can stop trapping their grantees in the starvation cycle and start building their resilience), Humentum, March 2022.2. Cost recovery: What it means for CSOs. Bond and Mango report February 20163. Donor Approaches to overheads for local and national partners (Discussion paper), Development Initiatives and UNICEF, February 2023. 4. Provision and condition of Core/Overhead/Indirect Costs for local/National Humanitarian Actors, The WolfGroup, December 20175. https://www.usaid.gov/partner-with-us/resources-forpartners/indirect-cost-rate-guide-non-profit-organizations6. https://www.ngma.org/key-takeaways-on-maximizingrecovery-on-your-grants-by-leveraging-indirect-cost 14
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