Indirect Cost Calculation Guide
Helping funding and for-purpose organisations consider and calculate their indirect costs better.
Introduction
The guide supports for-purpose and funding organisations to consider direct, shared and indirect costs.
While the direct costs of a project, program or initiative are generally straightforward to articulate, the indirect costs can be harder and no less important to ensure long-term financial viability and viability of an organisation.
For funders, the aim of measuring indirect costs is to confirm that funding is paying the full cost of running a project, program or initiative.
As for-purpose organisations, it is important to understand the implications of new projects, programs and initiatives on the underlying foundations of an organisation, i.e. back-office, or operations or sometimes even framed as overhead costs.
Below, we’ve offered three key definitions that will support you in using the rest of the guide.
Definitions
The definitions below are from the Paying What It Takes report by Social Ventures Australia (CVA) and Centre for Social Impact (CSI) on funding indirect costs to create long-term impact. We’ve outlined just three definitions in relation to the Indirect Cost Calculator guide.
Direct costs
Direct costs are those costs that are specific to a project, such as salaries for project staff and materials required for the project. The key test is that these costs would not be incurred if the project being funded did not exist. For example, staff time that can be unambiguously identified as having been spent on the project, or ravel costs for the project.
Shared costs
Shared costs are those costs that benefit multiple programs or projects. These costs can be assigned or allocated across programs or projects in a reasonably consistent and accurate way. They are just as integral to the delivery of the project as the direct costs. Examples of such costs include occupancy and facilities, utilities, telephone and internet access (note that these costs are generally non-personnel costs).
Indirect costs
Indirect costs are costs for activities or services that support the organisation as a whole rather than any particular program or project, including administrative and fundraising costs. These are not costs associated with the delivery of program services; nonetheless, they are essential costs of maintaining and managing the organisation through which program services are delivered. Examples of such costs include bank fees, fundraising, human resources, board meetings, finance and accounting support.
> See all definitions related to PWIT.
Categories of Indirect Costs
Indirect costs are not consistently budgeted across the sector. They are sometimes shared costs, or considered direct depending on the context. Below are some (not all) examples of indirect costs to a project / program / initiative, but direct costs to an organisation:
Administrative salaries:
Management and administrative staff salaries e.g. leadership, human resources, accounting, marketing and communications staff, business management roles.
Employee benefits (health insurance, retirement contributions).
Office, operating & utilities costs:
Rent or mortgage payments.
Utilities e.g. electricity, water, cooling, heating.
Waste disposal and recycling services.
Permits and licences.
Membership dues and subscriptions.
Contingency funds for unexpected expenses.
Office supplies and equipment.
Furniture and fixtures.
Travel between locations.
Information communication technology:
Internet and phone services.
Software licences and subscriptions.
Website hosting and maintenance.
IT support and maintenance.
Financial and risk management:
Accounting and bookkeeping services.
Financial audit fees.
Banking fees and charges.
Insurance (liability, property, worker's compensation, cyber).
Human resources:
Recruitment and hiring costs.
Staff training and development.
Employee recognition programs.
Professional services:
Legal, tax, accounting, and other advice.
Consulting services e.g. monitoring, evaluation and learning, etc.
Professional development memberships.
Facilities maintenance:
Cleaning and janitorial services.
Building repairs and maintenance.
Security services.
Marketing & communications:
Advertising and promotional materials.
Public relations.
Fundraising expenses.
Transportation and travel (non-project):
Local transportation (mileage, parking).
Travel expenses (airfare, accommodation, meals).
Depreciation & amortisation:
Depreciation of fixed assets (e.g., buildings, equipment).
Amortisation of intangible assets (e.g., patents, licences).
7 Questions for Funders to ask themselves
Have I/we factored cultural safety and respect aspects when considering indirect costs? E.g. connecting with Country, connecting and building relations with elders or leaders in place, working through cultural protocols with place and people, etc.
Have I/we considered any location based indirect cost implications for the project, program or initiative and the organisation as a whole? E.g. regional, rural and remote considerations.
Have I/we considered if there are aspects of information technology and communication needs that need to be considered as indirect costs? E.g. New website, cyber security support, upgrades to internet, phones, etc.
Have I/we factored indirect costs related to organisational administrative support like leadership, human resources, accounting, marketing and communication, accounting, auditing supports?
Have I/we considered direct, shared or indirect costs related to training and development?
Have I/we factored any indirect costs related to facilities maintenance? E.g. cleaning, building upgrades, security services or supports, etc.
Have I/we factored in indirect costs related to utilities and operating costs? E.g. electricity, gas, water, and waste disposal or collection or management.
Note: If you are a government funding organisation, these are reflective questions that could help you better support people who you are funding. Please refer to your entity or organisation’s policies and processes relating to indirect cost funding.
6 Questions for Funders to ask For-purpose Organisations
Have I/we asked the for-purpose organisation(s) about costs related to foregrounding cultural safety and respect?
Have I/we discussed the indirect cost considerations when working with specific groups of people or communities with the for-purpose organisation(s)? E.g. culturally and linguistically diverse, children or young people, LGBTIQA+ people and communities, or people living with disabilities, etc.
Have I/we asked the for-purpose organisation(s) about their organisation’s indirect administrative supports that support or scaffold the project, program or initiative?
Have I/we discussed with the for-purpose organisation(s) about the indirect cost considerations related to utilities, information and communication technology and other professional services?
Have I/we discussed the indirect costs related to training and development that’ll need to be thought out and/or considered with the for-purpose organisation(s)?
Have I/we discussed the importance of tracking and reporting impact, specific to a funding project(s), program(s), or initiative(s) with for-purpose organisation(s) by having developmental inquiry and learning (or monitoring, evaluation and learning) frameworks and support?
Examples of (indirect) cost budgeting
We present three illustrative scenarios below, drawn from programs that may or may not currently operate in Australia. These examples aim to assist both for-purpose organisations and funders in understanding various approaches to budgeting for direct, shared, and indirect costs according to their specific needs and contexts.
Scenario Overview
Costing Scenario 1:
The indirect costs in this scenario were negotiated at 20% with the funder. This percentage reflects a negotiation outcome, demonstrating that indirect cost calculations can vary widely depending on multiple factors.
Costing Scenario 2:
Here, indirect costs are calculated at 33%, based on the methodologies outlined in the ‘Paying What It Takes report’. This approach is particularly useful for smaller organisations seeking to understand their operational costs. The percentage reflects considerations of organisational size, context, and operational model.
Costing Scenario 3:
This scenario applies variable rates for indirect costs across seven programs and services. It shows the complex budgeting required by an Aboriginal and Torres Strait Islander community-controlled organisation in regional, rural, and remote Queensland, aiming to address holistic and long-term needs.
These scenarios are not reflective of all instances of indirect costing but serve as practical reference points for starting discussions about indirect costs. They invite both funders and for-purpose organisations to engage in explicit and transparent conversations about the nuances of budgeting for sustainability and impact (See the Transparency & Open Dialogue Guideline).
Costing Scenario 1
Increasing employment opportunities for migrants and refugees in regional South Australia through a social enterprise trial.
The program:
SCare’s “Preloved” program will design a social enterprise that provides people from migrant and refugee backgrounds in regional, rural and remote SA with employment support and a space for repurposing discarded or used household and corporate items. This could also include items that are no longer needed with industries like events, hospitality and tourism.
“Preloved” aims to increase the capacity and capabilities to work for refugees and migrants and decrease long-term unemployment and welfare dependency. To do this, “Preloved” would like to create a social enterprise that provides a space for migrants and refugees to:
apply their strengths, skills and potential in a workplace environment focusing on upcycling and repurpose used household and corporate items;
undertake training to develop and improve employability;
attain a non-accredited prevocational skills, or build capacity to operate a small business;
supported and engaged through individualised case management support and mentoring provided by SCare;
utilise community and volunteer support to progress into employment or further education; and
access support to engage with further accredited training, volunteer work experience placements and employment opportunities.
The project will target people from migrant and refugee backgrounds who are receiving income support, and who have been in the country for 12 months or over. It is our experience that this cohort is at higher risk of long-term welfare dependency.
The “Preloved” program will be delivered through rolling intakes with an aim to support at least 40 participants. Each participant will stay in the program for 10 – 14 weeks. The first intake will target a minimum of 10 participants over 3 months with subsequent intakes targeting a minimum of 40 participants, but could be more. Flexibility will be required to work with each participant based on their circumstances, support levels and potential.
SCare is seeking funding for 1 year to test their social enterprise model and the assumptions behind it.
Costing Scenario 2
Scaling employment opportunities for young people in regional and rural NSW by expanding the “Do and Learn” employment program.
The program:
“Do and Learn” is an innovative, intensive 12-week program that enables young people with the skills, work experience and work ethic they need to be successful employees in the renewable energy infrastructure industry.
The social enterprise JACE has developed this program model to combine practical experience, outdoor training, and motivational techniques informed by evidence based psychology and strategies to shape the way young people view work, develop their skills and become independent.
At present, the model is tailored for civil engineer projects, but JACE believes that there is potential in “Do and Learn” to expand into regional, rural and remote communities in Australia by supporting the growing need in adjacent trades (e.g. fitting out solar panels, setting up wind farms, etc.) and expand the model into other industries.
Over the last 2 years over 200 students at risk of long-term unemployment have experienced the “Do and Learn” program and of those that graduated, 65% have secured work with an additional 7% returning to education.
JACE is looking to expand the program to two regional and rural locations in NSW — Dubbo and Walgett over two years. Based on this scenario, we have provided an indicative budget that shows you how an organisation like JACE has budgeted costs.
Costing Scenario 3
Supporting an Aboriginal and Torres Strait Islander Community Controlled Organisation over 10 years.
The program:
Juta Place is a Western Queensland based Aboriginal and Torres Strait Islander community controlled organisation is seeking long term funding to provide a range (7 in total) of holistic family, domestic and sexual violence prevention and response programs / services.
They have been applying for funding from different local, state and federal government agencies for over 12 years. As part of their next 10 years strategy, they have chosen to collaborate with funding partners who are interested in funding their work as a whole, rather than as individual programs or services.
Through their internal analysis, they concluded that scattering their operational efforts across 7 programs and services are not efficient and they aren’t able to adapt to the evolving needs of the communities they serve across the vast geographical areas of Western Queensland.
To support their next 10 year strategy, they are seeking to partner with new funders who have a focus on culturally safe and respectful family, domestic and sexual violence programs and services design and delivery in regional, rural and remote Australia, specifically in Western Queensland.
Related tools to support your indirect cost considerations
For-Purpose Organisation:
Transparency & Open Dialogue Guide
Funder:
Transparency & Open Dialogue Guide
Government Funder:
Unique to each state and territory government in Australia, including the Commonwealth.
While we haven’t been able to shape up specific tools that speak to processes and policies within a government entity, we invite any government staff member to draw inspiration from tools like:
Transparency & Open Dialogue Guide
Resources & Inspiration
[Report] Social Ventures Australia, 2022:
[Funder Policy] MacArthur Foundation, 2019:
[Report] Cass Centre for Charity Effectiveness:
[Guide and Template] Indirect Cost Rate Tools, 2022:
[Guide, Toolkit, Templates and Samples] Bridgespan, 2009: