Benefits of Full Cost Recovery

Promoting Full Cost Recovery has major advantages for funders of third sector organisations

Accuracy: Full Cost Recovery gives funders a true reflection of the cost of the projects and services they support;

Transparency: Full Cost Recovery provides the only clear and defensible cost allocation method, promoting trust between funders and the organisations they fund;

Efficiency: Full Cost Recovery reduces the time spent repackaging and analysing costs by funders and funded organisations;

Appropriateness: Full Cost Recovery ensures that funders pay for all and only the overheads that support their project, rather than subsidising other projects;

Sustainability: only under Full Cost Recovery can funded organisations survive in the long term; so that their projects and services continue.

"Failure to recover full costs can mean that TSOs have to divert funding intended for service provision into paying overheads, or subsidise service provision from other sources such as donor income. Ultimately, failure to cover overheads may lead to organisations shrinking or collapsing."
National Audit Office 2005, Working with the Third Sector