Ten Steps to the Perfect Funding Bid: Step 8b

Reducing your Unit Cost:

As the last blog outlined, even if funders don’t ask you to break down your budget to show a unit cost, most appraisers will do a rough calculation on a bit of scrap paper.  So if your total project costs (direct and indirect, including some core costs) come in at £30,000, and you are delivering a service (whatever it is) to 600 people over a year or over the summer, then the unit cost is £50 per person receiving the service, perhaps for a day of therapeutic treatments, or a day out on a care farm.  If you deliver that service to 2,000 people then the unit cost is £7.50, perhaps for a volunteer visit or a shopping service.

There can an unfortunate habit within the voluntary and community sector to assume that the cost is the cost and it cannot be reduced.  In fact it is ALWAYS possible to reduce costs, and there are two ways to do it.  You either reduce the expenditure but deliver the same quantity of service, or you deliver a higher quantity of service while keeping the core and indirect costs the same.  I will explain these two methods below.  I will accept that in many cases it is better to decide NOT to reduce costs (usually for quality control purposes) but I would argue that the process needs to be considered, and then rejected on clear policy grounds, rather than simply rejected without consideration.

1)      Reducing expenditure.  Look at whether a full-time co-ordination post could become part-time on this particular project, or whether rent could be reduced by sharing with another charity.  If you are budgeting to buy or hire your own minibus, see if you could use someone else’s during their downtime (eg school transport can be cheaply available between 9.30 and 2pm).  People
are often surprised to discover it can sometimes be cheaper to use freelancers than employees, and this further reduces payroll and HR costs.  Controversially, you also need to look at whether you can reduce the actual project costs – look around for cheaper
suppliers for catering etc, though it is important to balance quality against costs to avoid reducing to below the standards you wish to maintain.

2)      Increasing outputs.  For example if the project co-ordinator is managing six part-time care workers supporting 18 service-users with disabilities, consider increasing the number of service-users the team supports.  This would probably involve more hours from the front-line team, but should be easily manageable within the co-ordinator’s workload.  So although the total project cost  increases, the unit cost will decrease because the core and indirect costs have not increased.

Here’s an example
Project co-ordinator costs £24,000, and 6 p-t care staff do 10 hours per week each at £10ph which is £30,000 per annum (I always work on 50 weeks a year – it makes the maths easier!).  Total cost £54,000 for 3,000 care hours, so the unit cost is £18.  Now unless this is highly specialised care, if a budget came out at this cost it is far too high, compared to the rest of the home care market.

a)       So under the first system of reducing expenditure, you could reduce the project co-ordinator to half-time, ie £12,000.  This immediately reduces the project cost to £42k and the unit cost per hour to £14.

b)      Under the second option of increasing outputs, you could increase the number of service-users and the hours of your
care workers, to deliver 15 hours per week rather than 10.  This puts your frontline costs up to £45k, so the total project cost is £69k, but your hours have increased to 4,500 so the unit cost reduced to £15.33.

c)      If you were able to implement BOTH strategies, as long as you felt the co-ordinator could successfully supervise the increased workload on the new part-time hours, your costs would be £12k for the co-ordinator and £45k for care staff.   £57k total cost divided by 4,500 hours is £12.66.

This is highly simplistic, and I know you’re all shouting about rent, telephone, insurance, travel, recruitment etc, but this is just an example of the impact that reducing input costs or increasing outputs has on the unit cost.  It shows a way of taking a third off the
starting position of £18ph.

“Not representing sufficient value for money” was the third most common reason for Lottery bids being rejected last year.    https://tamaraessex.wordpress.com/2010/05/25/lottery-reasons-they-reject-bids/   This has powerful implications for your
budgetting, whether you are applying to a charitable trust or foundation for a grant, or whether you are tendering for a major contract.

Full and accurate unit costing is as much a part of the project manager’s role as that of the finance section.  Getting it right, and
understanding how to adjust costs in the light of known competitors’ costs, is now an essential tool in the modern service manager’s arsenal.  So keep that calculator close at hand!

©  Tamara Essex 2011

 

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