Cost recovery refers to the overhead costs that your NGO incurs every day to operate, as well as certain back office salaries. For example, office rental, electricity, heating, IT and internet, telephones, marketing and management. For many years NGOs would ignore these hidden costs and when applying for funding, would only budget for direct project expenditure and not include such things. However, funders need to accept that NGOs have to find ways to pay for operational costs and so build in cost recovery to funding propositions. This is often reflected in a budget as a proportion or percentage towards overheads or on the amount of time staff are allocated to support the project. A finance manager for example may not spend 100% of his/her time on the project and may be supporting several projects simultaneously. In this instance, his salary cost might be recovered by putting in a percentage of his salary in the project budget.
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