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National Council for Voluntary Organisations
Sustainable Funding Project
PM 2
Costing in consortia and sub-contracts Chair: Fiona Sheil, Public Services Officer, NCVO
National Council for Voluntary Organisations
Sustainable Funding Project
Dave Packwood Business Development Unit, Barnardo’s
National Council for Voluntary Organisations
Sustainable Funding Project
John O’BrienChief Executive, Community Accounting Plus
www.caplus.org.ukwww.caplus.org.uk
Costing in consortia and sub-Costing in consortia and sub-contractscontracts
LondonLondon2828thth November, 2012 November, 2012
John O’BrienJohn O’Brien
Community Accounting PlusCommunity Accounting Plus
www.caplus.org.ukwww.caplus.org.uk
Costs or priceCosts or price
In the old ‘voluntary sector’ we work out In the old ‘voluntary sector’ we work out the costs and ask people to cover them.the costs and ask people to cover them.
In the ‘commercial sector’ we set a price In the ‘commercial sector’ we set a price and drive down costs to make profits.and drive down costs to make profits.
In the new voluntary sector commissioning In the new voluntary sector commissioning world of consortia, we need to set a price world of consortia, we need to set a price that covers our costs…. most of the time.that covers our costs…. most of the time.
Setting the priceSetting the price
“‘My other piece of advice, Copperfield,’ said Mr. Micawber, ‘you know. Annual income twenty pounds, annual expenditure nineteen pounds, nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.”David Copperfield (1850)
www.caplus.org.ukwww.caplus.org.uk
www.caplus.org.ukwww.caplus.org.uk
Setting the priceSetting the price
The price decision is complex – it can be The price decision is complex – it can be quite painful if you get it wrong, ask Mr quite painful if you get it wrong, ask Mr MicawberMicawber
3 types of pasta3 types of pasta
Price confusion – size of the bag, gas bills, Price confusion – size of the bag, gas bills, special offers, 10% free.special offers, 10% free.
Setting the price – even more Setting the price – even more complex in a consortiumcomplex in a consortium
How open should you be with your How open should you be with your partners?partners?
Are your real costs relevant to othersAre your real costs relevant to others
Who decides who is invited to the party?Who decides who is invited to the party?
Often there is no neat link to the price per Often there is no neat link to the price per unit – it’s not like selling pastaunit – it’s not like selling pasta
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www.caplus.org.ukwww.caplus.org.uk
Is your price sustainable?Is your price sustainable?
Know your direct costs and your Know your direct costs and your overheads (support, shared, core, indirect)overheads (support, shared, core, indirect)
Think about fixed and variable costsThink about fixed and variable costs
Don’t forget non-cash items – redecoration Don’t forget non-cash items – redecoration every 5 yearsevery 5 years
Beware marginal costing and pricingBeware marginal costing and pricing
Be prepared for expansion and contraction Be prepared for expansion and contraction of servicesof services
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Today
Project A B C Total
Costs
direct 10 10 10 30
shared 4 4 4 12
14 14 14 42
Grants 14 14 14 42
Net result 0 0 0 0
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A new projectProject A B C D Total
Costs
direct 10 10 10 10 40
shared 4 4 4 12
14 14 14 10 52
Grants 14 14 14 10 52
Net result 0 0 0 0 0
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Project B comes to an endProject A B C D Total
Costs
direct 10 0 10 10 30
shared 4 0 4 4 12
14 0 14 14 42
Grants 14 0 14 10 38
Net result 0 0 0 (4) (4)
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What should you have charged D?What should you have charged D?
D has only paid for ‘marginal’ costD has only paid for ‘marginal’ costTotal support costs were £12 before project D. Total support costs were £12 before project D. They didn’t go up.They didn’t go up.The ‘average’ cost of project D could, and The ‘average’ cost of project D could, and should, have included an amount for support should, have included an amount for support costs.costs.At £4, with project D, the group wins. When B At £4, with project D, the group wins. When B closes, the group survives.closes, the group survives.At £3, with project D, the group wins, but when B At £3, with project D, the group wins, but when B closes, the group still dies.closes, the group still dies.
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Some theory perhaps…Some theory perhaps…
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And finallyAnd finally
If in doubt, call it £45 an hourIf in doubt, call it £45 an hour