1. WV IPG Finance Staff Orientation WV IPG Finance Staff Orientation Cost Allocation and Revised Budget Policies WORLD VISION INTERNATIONAL JUNE, 2013

2. Agenda  Key Clarifications and Changes in Cost Allocation  Related Changes in the NO Budget Template  Coming Tools and Resources  Q & A

3. Basis for changes to policy and key messages

4. Support costs were not seen as a normal part of doing busin ess All projects need support; few stand alone. Think about doing a grant project without finance reporting, payroll, accounts payable, information technology, security, management oversight, quality assurance, compliance, monitoring, administration, etc.

5. Support costs were seen primarily as overhead All projects in WV are supported by both Technical and Program Support Costs, and some by Sponsorship Support Costs and NRD The allocation method used by WV allows both direct costing of these support costs and allocation to projects by share of the total, through a poo l

6. Previous communication about the composition of “CAM rate” has led to judgments about NO overhead & efficiency thus, put us at a disadvantage by implying NO “overhead” was higher than it is. One critical common mistake

7. Perception that Support Costs were not properly allocated Audited Generally Accepted Accounting Method Based on Actual Expenditures Double counting avoided

8. Donors have limits Most donors are able to pay Support Costs Some have statutory or policy-based limits to costs Others have been confused about our costs and simply see WV as “expensive”

9. Support costs were not properly forecasted in grant proposals CAM Rates Used Costs not considered as part of a Go/No-Go decision Importance for Finance and Grant/RDU Teams have not always collaborated to accurately forecast; allocated costs varied wildly in proposals

10. Support costs have been a barrier to seeking grants Some support offices unable to “match” support costs past donor limits Too many grant opportunities have been missed as a result

11. Delinking Budget & Cost Allocation

12. 1) Costing the Organisational Structure N ational Director decides, Regional Leader approves Transparent and total view into NO & ZO Standard Template Standard cost categories : Programme Support/ Technical Support/ Sponsorship Support/ NRD Programme Support Rate for internal discussion not for proposals; no more ‘CAM Rate’ Responsive to changes in funding Expectation = NO budgets to remain flat until FY16, with few exception.

13. 2) Funding the Organisational Structure Plan, budget and direct charg e where possible (invoice, SLA, LDR etc.) Limit allocation (Programme Support Costs and General Technical Support costs e.g. operations & ministry quality) Apply allocation methodology thoughtfully Recognise that Cost Allocation simply distributes costs

14. How have the policies been revised?

15. Budget Policy Timeline Organizational Structure

16. Timeline May 15 FRSC release Budget Template (per budget guidelines) Delays due to some changes Templates released on May 15, except those for Fragile States (released on May 16) Note that NOs do not need to wait for the template to start working on their budget June 20 SO’s update MYPBAS with FY14-16 forecast This is important to allow NO’s to reflect the most updated SO amount in the NO Budget template July 15 NO’s submit NO Budget Template to RO for review ( with draft annual business plan) July 16 FRSC provides NO analytical information to the RO Aug 8 Deadline for RO to approve and post in WVCentral NO Budget Template, after thorough review Aug 12 Summary NO budget template available to SO’s in wvcentral Aug 21 Review of NO budget template at GFFT call

17. Organizational Structure Staff working full-time on a programme/project implementation. (DPC) Staff /functions directly engage with specific aspects of programme/project implementation but are not part of the programme/project management structure. (TSC) Staff/functions providing support & oversight to programme/projects. (PSC) NO Staff/ Function Categories Determining the specific staff/functions categories in a NO organizational structure contributes to a better understanding of costs that are directly linked to project objectives versus costs that provide support and oversight to accomplish the project objectives. 17

18. Budgeting Policy for NO/ZO  Budget support execution of the NO strategy at all levels.  The organisational structure approved by the Regional Leader (RL)  conduct its activities pursuant to the detailed NO budget  Budget is a transparent and complete view of the cost of support functions  Reflects actual need, good stewardship and compliance with benchmarks or standards.  Increases prohibited without the written approval of the RL is granted.

19. Cost Allocation Policy Basics 3 steps Principles

20. Cost Allocation Policy Same Driver Three step process for allocation 1.Direct Cost, when feasible, especially incremental costs 2.Allocate to projects using current allocation tool to the limits of the donor 3.Reallocate remainder to other projects without restriction Forecasting for new project done based on estimated actual No CAM Rate Monthly allocation Reduce incremental costs at end of grant

21. The 3-Step Cost Allocation Process 1.Directly charge the NO/ZO costs, where feasible based on evidence justifiable 2.Charge remaining pool of Support Cost (total support costs minus the ones directly charged) using Allocation Tool, up to the limit of the donor 3.Use the Reallocation Tool to re-allocate uncovered support costs to all other projects without donor restrictions

22. Cost Allocation Standards naturepurpose  Cost based on the nature & purpose of the cost best estimate  Budgeting based on the best estimate of likely actual charges, including portfolio changes adequate budget available  Locally-funded projects must have adequate budget available to cover support costs  Fundraising costs of NRD should not  Fundraising costs of NRD offices should not be allocated to projects  NOs without stable funding base FCSF)  NOs without stable funding base can be charged to the Fragile Context Special Fund (FCSF).

23. To summarize…what’snew ? To summarize…what’s new ? New name: CAM to Cost Allocation Policy New tools: Re-Allocation, Forecasting, etc. New separate policy: Budgeting Policy for NO/ZO Identify and charge to grants incremental costs— reduce at end of grant absent new funding “Fair share” only in through step 2 Step 3 is called “leveraging existing funding” Support Offices are no longer required to provide additional match for Support Costs beyond donor limits, can provide match for competitiveness Service Level Agreements (SLAs), especially for S23 – Technical services and sectors & S27 – ZO – technical services. Guidance pending.

24. Does this have any impact on overall NO Costs?

25. Potential NO Cost impacts of new polices  Existing grant budgets remain the same, but allocations to existing projects could be reduced because of flat budgets and more grants  Global Centre attempting to lower costs through flat budgets for three years, could help reduce overhead rates  NO Efficiency ratios monitored and kept at a reasonable level  Support Offices have access to the approved NO Budgets and they are reviewed annually in August

26. What will be different about proposal budgeting in grants?

27. Basic process: Forecasting allocated costs in grant proposals  Existing NO budget will have PSC, TSC and DPC Costs  DPC for proposed project is added to current projects to determine share of DPC  The share of DPC determines the forecast of PSC and TSC for the proposed project  Follow three step process to assess the impact of the proposed project on “other projects”  Make Go/No-Go decision; Present PSC and TSC in proposal as preferred by the donor

28. Sample in handout Donor budget formats are different Allocated cost forecasting tools coming soon Based on existing NO budgets Trial has been successful in several USG applications

29. What new tools are being developed?

30. New Tools Under Development  Reallocation Tool: to distribute PSC and TSC which cannot be charged to grants  Forecasting tool: tools for use in forecasting allocated costs for proposal budgets and for Go/No-Go decisions  Refined Go/No-Go guidance for NO Directors  New allocation spreadsheets for monthly allocations  wvcentral pages with resources and training materials  Coding guidance to ensure that reallocations can be tracked

31. Is the policy unfair to sponsorship programs?

32. 32 Incremental grant revenue will likely reduce the amount of programme support costs allocated to other funding streams…a simple example Note: instead of overhead read ‘Support Costs’

33. Exclusive of Grants % ShareSupport CostsAllocationSC % Sponsorship0.8220,000 176,000 US Gov.0.2220,000 44,000 220,00022% Inclusive of Grants % ShareSupport CostsAllocationDonor Cap New Grant Balance Sponsorship73%220,000 160,000173,00079% US Gov.18%220,000 40,000 18% New Grant9%220,000 20,000 7,00013,00070003% 220,00020% More on Incremental Grant Revenue

34. NDs will anticipate impact in Go/No-Go decisions As part of the Go/No-Go decision, NO and SO staff need to work quickly to complete a preliminary forecast of expected DPC for each proposed project so that anticipated need for “reallocation” will be forecast If the proposed project will have too much negative impact on the implementation of sponsorship programs, ND can make a No- Go decision

35. SOs can request tracking of reallocations to monitor impact Reallocation tool should have proper coding to allow tracking Depending of the size of the grant for which reallocations must be made compared to the size of the portfolio, the impacts will vary significantly

36. Will these new policies increase burden on NOs?

37. There is a degree of additional, necessary work… We acknowledge that this is somewhat complicated and adds to the workload, but such efforts are needed to allow us to increase our grant portfolio and leverage more funding for the CWBOs. More and more donors today are only willing to cover support costs where they know exactly what they are & the benefits to their project. The new protocols bring clarity

38. How Global Finance can support FRSC is already supporting NO by providing NO budget templates A multi-level group (SO, GC, RO, NO) is developing more tools FRSC is also producing analysis on NO budget