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Frequently underestimated costs

Frequently underestimated costs

Listed below are some of the costs that experience tells us can be problematic in the context of community projects. This is because they are hard to estimate or easy to overlook. Like every other enterprise that involves using money to create something cashflow can be the biggest barrier to success. If your project is as thoroughly costed as possible you should be able to ensure its completion within the original framework and with all its aims and objectives fulfilled.

Developmental costs

This a very fluid cost and will be dependent on the size and the scope of the project. Remember everything you do to develop the initial idea will potentially be a cost. Initially engaging the community will require some form of communication (stationary, hiring a meeting hall,) and this will incur a cost. These are costs that will potentially occur before any funding has been secured and will be difficult to claim back. They are mentioned here to give an example of what you have to be continually thinking about as you go through the process. Everything has a cost and you must continually judge these against their worth to the project. Although these initial development costs may not be claimable against any subsequent funding they are crucial to understanding some of the ongoing costs as you go through the process. Remember the initial community engagement and communication is something that will be repeated throughout the process as you move from engagement, through consultation to participation. Anything that is thoroughly costed at this initial stage will allow you to more accurately estimate ongoing funded project costs.


Overheads are the main unseen cost within a project. They are hard to quantify because they are not costs specific to the process. They are costs that would occur normally in the running of the group or organisation but are being utilised to help with the project.

A good example is this:

An organisation runs three projects from one building: a lunch club for elderly people, training sessions for single parents and dance classes for members of the community. The organisation would like funding for the training project and has worked out that the project’s direct costs include the trainer’s salary, books, a laptop and a projector. The rent, utilities and stationary are overheads and must be shared fairly between the organisation’s three projects.

As you can see this is a cost that is difficult to define in the original costings but must be accounted for and the budget amended accordingly. If you already have a contingency for these types of costs it is useful to know how overheads are defined and should be recorded in any budget.

Much of this may not apply if yours is a small community project and is more applicable to larger organisations occupying premises whose focus isn't just on one single project. Please remember though everything you use and do that influences the project has a cost.

Another example may be if you need to use a computer for the benefit of the project you may not have been able to justify a new one in the funding application but there will be a cost attached to using someone else's (stationary, electricity, time spent away from other work).

Make sure that all these costs are recorded - is this project related? what is it costing? - many funders are willing to accept overheads as part of a project's costing and will partially fund them where applicable.


This is the drop in value of a fixed asset over a projects lifetime - i.e.:

  • Computer bought and used specifically for the project.
  • A piece of outdoor equipment.
  • Outdoor Classroom.

If an asset is bought specifically for the project and will require replacing log the relative depreciation in value, some funders will make an allowance for this and include it in your costings. There are multiple are multiple applications online that provide a depreciation calculator and it is worth considering as a cost to be reported.

Staff time and resources

Dependent on the size, scope and complexity of the project it can be very easy to underestimate the amount of staff time required to manage a project.

While the inclination is to direct all the funding to the physical project (i.e. to focus most of the resource on the actual cost of tangible works), it can force those charged with costing projects to estimate an unrealistically low number of staff management hours. Again, there is no easy answer to this situation, other than looking very closely at the categorisation of staff time. Regardless of whether this time is paid or unpaid (volunteers) it still all has a potential cost. This are is covered in more detail in community participation.

If we may use the Swan as an analogy, your end project is the beautiful creature you see above the water but remember the amount of unseen effort going on under the water to produce this serene image. Never underestimate the amount of effort a project will require to come to fruition. All this needs to be accounted for and potentially costed to ensure its long term sustainability.

Process costs

Apart from projected and budgeted physical costs, in community-led projects there is likely to be a particularly high proportion of process costs, for example the cost of engaging with the wider community, running awareness raising events, supporting the establishment of a friends group, etc. It is important to properly cost this activity and ensure that it is budgeted as an ongoing cost. The groups established and the lines of communication to the community must be sustainable to ensure the projects long term vision. Much of this is discussed in the community participation section but it is worth noting here some of the ongoing process costs that are regularly underestimated.

  • Group meetings
  • Community communication
  • Specific project related events
  • Monitoring and evaluation
  • Fundraising
  • Further grant applications

This list is not exhaustive but it will hopefully give you some things to consider when looking at the processes involved in running a project and how these must be recorded and costed.

Start up and wind down costs

Particular costs are associated with the beginning and end of a project – both can be overlooked or underestimated. Some of these have been discussed earlier in this section in development costs but it will be worth listing a few things to look out for:

  • Recruitment of staff (Start up)
  • Admin costs (Start up and Wind up)
  • Ongoing community consultation and participation (Start up and Wind up)
  • Decommissioning costs (Wind up)
  • Staff redundancy costs (Wind up)
  • Staff retention costs (Wind up)
  • Review, evaluation and reporting (Wind up)
  • Project "handover" (Wind up)

Start-up costs are on the nearer term horizon and so are more likely to be considered, but even these can be very difficult to judge and account for. It is very easy to think that all the costs are involved in getting the project up and running and sustaining it but some provision should be made for the projects end whether this is because it has a finite lifespan or it is being handed over to another group/ organisation to run.

Cost of borrowing

If at any stage during project delivery cash flow is negative, this will impose a cost. This cost may be overt, e.g. money may be borrowed from a lending institution with interest charges clearly shown and unambiguous. The cost may however be hidden or less apparent, e.g. if an organisation is using its reserves to cash flow a project, there is income foregone (a cost) with less interest earned on investments.


This is an important and significant potential cost that is sometimes overlooked, e.g. VAT. The exposure of a project to unrecoverable tax costs can depend on a number of factors, including the nature of the body delivering the project (some are tax exempt), the nature of the income sources funding the project, the specific nature of project expenditure and the prevailing (local and national) tax regimes. A golden rule is to take professional advice at an early stage to ensure that exposure is minimised and that likely tax liability is properly costed.


Many funding organisations dislike contingency costs within project budgets and indeed many will not consider these for funding. Nevertheless, it is important that in costing a project some ability is built in to deal with additional costs that may arise but which are difficult to anticipate or estimate. This is particularly the case for long-term project budgets; the further something is in the future the more difficult it is to accurately estimate its cost. The importance of contingencies will depend on the nature of the project. Some projects are relatively flexible; a budget over-run in one activity may be easily compensated by cutting back in other activities. Other projects, particularly those involving new structures, are less flexible, making contingencies all the more important.

Insurance costs

If something goes seriously awry, it is unlikely that this could be dealt with through a contingency provision and there may be a call on insurance. In regard to insurance costs, which are sometimes overlooked, one matter to consider is longer term premium requirements. The delivery of a project may involve the need to buy insurance long after the capital works phase is complete, for example in relation to warranties or guarantees.

Audit costs

Most projects of any scale will require at least one financial audit in order to verify, for the benefit of funders or stakeholders, that money has been properly spent. The cost of audits, particularly where there is the need to buy the services of a professional external auditor, can be high, especially where projects are financially complex (many funding sources) relative to their overall budgets. Sometimes different funding bodies will require their own audit, carried out to different standards, at different stages in the project. It is therefore a cost that should not be overlooked.

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