Grants do something for you, but they can also do something to you. They fund programs and benefit your clients. But they can also come with conditions and cost burdens that will affect your organization's cost of doing business. These include the added administrative responsibilities of tracking where and how funds are spent, particularly if you receive funds from multiple sources.
So while grants may feel like gifts when you receive them, they are not. A key question every grantseeking organization must ask is this: What will it cost to accept grant funding from one or several sources?
The true cost of grant-funded programs
Some applicants for grants assume that grant money will pay for everything they need to operate a program, but experienced grant managers know better. The true cost of grant-funded programs includes anything and everything necessary to keep the organization itself up and running. When an expense is essential to the running of the organization but the benefit is shared among all of the programs or functions of the organization, it is defined as an indirect cost. Tracking and recovering these costs are among the biggest challenges any grant administrator will face.
Because indirect costs inevitably benefit - or impact - all grant-funded programs, they should never be ignored. Pretending they don't matter, or assuming they will somehow magically be paid for, can jeopardize an organization's fiscal health. Calculating the full cost of a program is a prerequisite to determining its relative importance within the organization as a whole, to preparing accurate budget forecasts and financial statements, to setting fees for program services, and - perhaps most importantly for grant administrators - to requesting reimbursement from grantmakers.
Direct vs. indirect costs
A direct cost is a cost that can be identified with a particular cost objective, grant, contract, program, or activity. Examples of direct costs include program or project staff salaries and fringe benefits, consultant costs, materials, supplies, and travel.
An indirect cost represents the general expenses an organization incurs in doing business. These costs are not readily identified with a specific grant, contract, project, function, or activity, but are necessary for the general operation of the organization and the activities it performs. Such costs benefit all programs or activities across an organization.
Examples of indirect costs include salaries and fringe charged to the administration of the organization, organizational (not program) audit services, accounting services, liability insurance, internet technology (IT) services, and space utilization benefiting several activities.
The keys to managing indirect costs
Every nonprofit corporation or governmental entity is a public enterprise that must add up its debits and credits and account for costs. Although they are not governed by the bottom line in the same way commercial enterprises are, nonprofits in particular must remain solvent through retained earnings.
How then does an organization manage its cost of doing business? By having a sound indirect cost policy and a business management system that is able to estimate, track, and ultimately recover its indirect costs. How to establish such policies and systems is the subject of The Grantsmanship Center's forthcoming publication, "What You Need to Know About Indirect Costs."
Henry Flood is The Grantsmanship Center's Senior Advisor for Grants Management. He has had more than 35 years of experience in grant acquisition and management, consulting, and teaching, and he has secured more than $30 million in grant funding for cities, towns, nonprofit corporations, and Native American tribes. This article is excerpted from the forthcoming publication, "What You Need to Know About Indirect Costs," part of our Grants Management Series. If you'd like to be notified when it's available to purchase, just emailroger@tgci.com using the subject head "Notify Me When Indirect Costs Article Is Available" (no text necessary).
No comments:
Post a Comment