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Cost Allocation Analysis
As defined by the Code of Federal Regulations (CFR) Section 200.56: “Indirect costs mean those costs incurred for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved.”
If you have some experience with accounting, you may have a good understanding of the direct costs incurred by each of your programs. These are the items included on the face of financial statements -- specifically the statement of activity, the non-profit equivalent of the profit and loss.
Traditional accounting breaks down indirect (or overhead) costs by functions (e.g. administration, marketing, operations), rather than by programs. It fails to capture the relationship between these costs and the organization’s activities, and consequently, its mission.
For transparency, or to make a simpler presentation of the financial standing, two categories are required.
This can be the source of scrutiny for NPOs. The result is a cloudy economic picture where nonprofit management is uncertain of the financial health of their program areas and beneficiaries unclear where public funds are being used in the best way.
The allocation of all organizational costs, direct and indirect, across relevant programs or sites is at the heart of true-cost analysis.
Appropriate allocation of many types of costs can include elements of significant judgement. Your beneficiaries, the board of directors and the organization's future prospects depend on your implementation of long standing processes to ensure assurance procedures are executed.
Organization and Management Development Help
Nonprofit leaders, managers, staff, volunteers and service providers can complete this entire 12-module, online program for free at any time from anywhere in the world. All materials are available online. Free, learning modules include:
- Resources for Your Nonprofit
- Starting and Understanding Your Nonprofit
- Understanding the Role of Chief Executive
- Developing Your Management and Leadership Skills
- Building and Supporting Your Board
- Developing Your Strategic Plan
- Developing and Marketing Your Programs
- Managing Your Nonprofit's Finances and Taxes
- Developing Your Fundraising Plan
- Supervising Your Employees and Volunteers
- Evaluating Your Programs and Services
- Conducting Overall Final Fitness Test of Your Nonprofit
Facilitator Led program: $495 per attendee each session