NUS Case study
Charities have always struggled to fund the costs of overheads like leadership, infrastructure, strategy management and governance. The reason is...
is aiming to
make a virtue
of its overheads
Case Study Matthew
Hobbs — Mencap
The need to
Charities have always struggled to fund the costs of overheads like leadership, infrastructure, strategy management and governance. The reason is straightforward — donors naturally want their full donations to go to their
However, if they paused for thought, many might think twice before donating to a charity with no management or financial controls, governance, leadership or visible record of success.
There are costs associated with such overheads — and these should certainly be managed as efficiently and effectively as possible. But definitely not absent. So, rather than play down these costs, charities should instead make them clear to donors — and even make a virtue
Full-cost recovery is an approach to allocating these overheads to specific projects. It enables charities to explain the resulting full costs of projects to donors.
In the UK today, around 1.4-million people have a learning disability. This means they have reduced intellectual ability and difficulties with everyday activities that will affect them for their whole lives. But with the right support, most of these people can live independently.
Mencap is the UK’s largest charity for people with a learning disability. The Personal Support Services division is the charity’s largest programme, accounting for 84% of the organisation’s £191 million turnover. It employs 7,000 staff members, supporting 5,000 people across 600 sites.
“We want as many people as possible to benefit from the support we can offer them to live the independent lives of their choice. We want to care more.”
Inspired by doing social good
Matthew Hobbs, BA Hons, ACMA, CGMA, is the Finance Business Partner for the South region of the Personal Support Services division, responsible for managing an income of around £50 million across some 200 sites.
Matt joined Mencap following a varied career including five years at Fujitsu Services, two years in the NHS and ten years at AgustaWestland Helicopters and United Technologies Corporation as Project Accountant and Financial Controller.
Matt says: “I have always looked for roles that I can learn in and AgustaWestland gave me many opportunities. However, moving into the charity sector with Mencap just felt right at the time, and exposes me to new and different challenges. I find having an opportunity to work in an organisation that has social good as the essence of everything it does very motivational, inspiring me to do my bit and contribute to its good causes.”
The importance of accounting
He finds the challenge fascinating. “Good cost accounting is absolutely critical in charities because they don’t exist to make a profit,” he adds. ”Rather, they aim to increase their reach and make a positive impact on people’s lives.
“They cannot sustain themselves if they’re not generating enough income to cover their costs. It’s a very fine balance, which is why it’s important to have a good understanding of
full-cost accounting principles and to use this understanding in establishing and implementing cost-competitive strategies.”
The power of
Like all charities, Mencap has a culture of minimising overheads to minimise waste. Under the full-cost accounting principles, it needs to recover any additional cost in the price of future business. The challenge is often, therefore, to decide where best to invest money to gain the greatest direct benefit.
The operational management and finance management teams are the key stakeholders in addressing these challenges. To do so, they need to constantly assess the financial viability of services in an uncertain environment and make strategic decisions.
While legislative change can be difficult to predict, all other challenges can be managed under full-cost accounting through the availability of accurate data and good information.
Drawing on the power of data
Mencap has continued to invest in developing the CRM (Customer Relationship Management) database it introduced a number of years ago to
hold all data on existing contracts and past and future tenders.
The charity recently won a place on Morgan Stanley’s pro bono strategy challenge. As part of this, it has been working with the bank to develop a growth strategy. This has included creating tools to monitor external data and engineering an approach to grow the organisation.
The development of the CRM has accelerated full-cost recovery as it helps answer the key question: “What is our guaranteed level of income over the next five years?”
According to Matt, “With this information, we have been able to assess the point where we can be confident that our fixed overheads are covered for a set number of years. This allows us to consider marginal pricing for certain contracts, as we can be more certain that fixed overheads are covered by existing contracts.
“Taking advantage of this information and utilising marginal pricing effectively allows us to target areas of growth and act more strategically. Working with Morgan Stanley has helped us create a positive and focused Personal Support Services strategy and culture.”
Driving new efficiencies
Together, these initiatives have delivered annual contract efficiencies of £0.3 million in the Personal Support Services South division. They have also grown the annual contract portfolio by £1.5 million.
As Matt says, “Accurate data is vital. As a charity, we operate on very slender margins and it’s therefore essential to have confidence in the cost data when making decisions and ensuring full-cost recovery.
“We have learnt that if we’re going to enable as many people as possible to benefit from the support we can offer them to live the independent lives of their choice, we need to fully utilise the data that is available to us to drive decision-making.”
It is clear from progress made to date that reliable full-cost project data will help Mencap sustain its excellent quality of service — but with significantly more beneficiaries.
Full Cost Recovery for Charities booklet to learn more.