Direct and Indirect Costs
Every expense incurred by your organisation will either be:
- A direct cost - a cost that is directly attributable
to a service, event, program or other activity carried out
by the organisation
- An overhead (indirect cost) - a cost that cannot be directly attributed
to a service, event, program or other activity.
Direct Costs
During the budgeting process you will have to look closely
at every event, program and service that you intend to provide
and work out every direct cost
Examples of direct costs include:
- Trophies
- Hire of staff specifically for an event or program
- Travel costs associated with attending or providing a
service, event or program
- Advertising and other promotion costs that specifically
relate to an event or program
- Costs of hiring venues/ facilities for events and programs
- Costs of hiring or purchasing equipment for an event
or program
Overheads - Indirect Costs
There will be many costs incurred by an organisation that
cannot be directly attributed to specific events, programs
and services. It may well be the case that the organisation's
overheads are proportionately greater than direct costs. Therefore
it is extremely important to ensure that the budgeting process
takes account of all overheads.
Examples of overheads include:
- Lease of the office (and office equipment if applicable)
- Administration and secretarial salaries
- Office costs such as telephones, postage, photocoping
and general printing (i.e. association newsletters) for
administrative reasons
- Depreciation of equipment, motor
vehicles and buildings etc.
- Audit costs
- Insurance
- Building maintenance
Providing a reasonably good forecast of the total cost of
overheads will depend on:
- Accurate financial records of previous years
- Understanding the factors that tend to increase overheads
i.e. engaging more employees, moving to bigger premises,
increasing the number of members of the organisation, etc.
In real life the budgeting process is so complex that it
must be divided up into smaller more manageable portions and
allocated to many individuals who might have specific knowledge
of the organisation's programs.
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