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CHAPTER ONE INTRODUCTION
Background
1.1 This report on Full Cost Recovery Impact Assessment was commissioned from GEN Consulting by the Scottish Executive on behalf of the Strategic Funding Review Partners.
1.2 Full Cost Recovery ( FCR) simply relates to the principle that, when delivering a service for a public body, the organisation should be able to recover the full costs associated with providing that service. Full costs include:-
- The direct costs of service provision (for example staff costs and property). These often used to be called project costs;
- The direct support costs for the project such as management time;
- Indirect support costs for example payroll, human resources, finance and Information Technology; and
- Governance and Development costs for example training, planning and the costs associated with regulatory changes.
Essentially FCR is about allocating overhead costs to projects. On one level it can be seen as very complicated, as indeed are some of the Full Cost Recovery models. However, it is normal business practice and all businesses must practice full cost recovery if they are to survive. It is about ensuring that an organisation's income covers its outgoings.
1.3 The Strategic Funding Review, currently being undertaken jointly by the Scottish Executive, the Convention of Scottish Local Authorities ( COSLA) and the Scottish Council for Voluntary Organisations ( SCVO), has identified FCR as a key component in achieving sustainability for the voluntary sector. The Strategic Funding Review partners have also accepted, in principle, that funding relationships between public and voluntary sectors should be based upon FCR where appropriate. In order to establish a realistic and manageable process of implementing FCR, this review was conducted to assess the potential impact on the public and voluntary sectors.
Study objectives
1.4 The aim of this study is to assess the impact of adopting FCR principles in terms of the following:-
- Measurement and consideration of the benefits, risks and costs to both the public and voluntary sector, which involves analysis of:-
- The resources that voluntary sector organisations use to supplement public funding in order to deliver contracted public services. In various parts of the Report this is termed "subsidy" or "subsidisation";
- Current adoption of FCR and the scale and likelihood of its future adoption by the voluntary and public sectors;
- The added value that voluntary organisations bring to the delivery of public services;
- The extent to which FCR will lead to long-term sustainability of voluntary sector organisations and promote capacity building; and
- The additional cost to the public sector of awarding contracts, Service Level Agreements ( SLAs) and grants to the voluntary sector using FCR and the subsequent impact that this may have on voluntary organisations;
- Creating a realistic picture of FCR's impact given its non-compulsory nature, and the support that both voluntary organisations and public service providers will require going forward; and
- Outline the actions that need to be taken to implement FCR in a realistic way, particularly against the backdrop of the current and emerging policy environment.
Methodology
1.5 The methodology for the study included:-
- A literature review and key player interviews to assess the key issues impacting upon FCR;
- A survey of 100 voluntary organisations to identify the scale of FCR and attitudes to it;
- Focus groups with voluntary sector organisations in contrasting areas to explore issues in more depth;
- A survey of public sector agencies to identify the scale of FCR and their attitudes to it; and
- Case studies with a series of organisations highlighting the diversity of theory and practice in relation to FCR.
1.6 At various stages in the work programme the Advisory Group, set up by the Executive to oversee the study, was consulted to advise on such things as emerging issues and content and structure of questionnaires. This input proved useful in ensuring that the work both met the objectives of the brief and the expectations of those involved in any implementation.
Report structure
1.7 The format of the report is as follows:-
- Chapter 2 summarises the background to FCR;
- Chapter 3 looks at the responses from the voluntary sector survey;
- Chapter 4 outlines the findings from the voluntary sector focus groups;
- Chapter 5 looks at the responses from the public sector survey;
- Chapter 6 outlines the different approaches to FCR as shown in a number of case studies;
- Chapter 7 looks at the costs of FCR implementation and the possible consequences of this; and
- Chapter 8 considers what needs to be done to move the FCR debate forward.
1.8 In reading the following Chapters a number of things need to be borne in mind. The first is that the voluntary sector is both large and very diverse ( SCVO, 2005). As such knowledge and understanding, and indeed interest, in FCR is likely to vary considerably across the sector. It also seems likely that, amongst those who have an awareness of FCR, the interpretations of what this means are likely to differ. Allied to this, it may be that not all organisations within the sector will necessarily want to push for the full costs of service provision as they may see this as impacting adversely upon their activities and their independence. Of necessity a report such as this talks in generalities so that some of these differences may not always be made explicit.
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