Module 5: Financial, Resource and Risk Management

Topic 1.2: Costing principles

Research projects can be challenging, because once the project is funded the researcher must keep to the agreed allocation.  To ensure this happens, each researcher must ensure the estimates were accurately made in the first place. 

Many research projects are inadequately costed. A frequent reason is that detailed analyses of the real resource needs may not have been undertaken. (See ‘Module 1: Research Strategy and Planning’ for an explanation of ‘work breakdown structures’ that can help your properly estimate the time required to execute your research tasks.) Another cause of under-costing occurs when the researcher overlooks a range of costs that should be included in estimates. This next section outlines some of the costing principles that have to be reflected in your budget planning and expenditure to ensure your project is properly supported.

1.2.1 Full costing

Full costing means that all costs associated with the project are accurately identified, estimated, and explicitly noted in the funding bid.  This is critical to successful management of your project.

Sometimes your project will only receive partial funding. This can occur if:

•  You are seeking support from nationally competitive sources, where full funding is rarely awarded because of limited funds.
• The funding source does not cover administrative, technical, and other overheads that need to be funded through the grant; or
• The costs are not covered in the type of funding that is allocated through that funding body.

Partial funding makes it even more critical that all costs are clearly identified and justified. With a clear understanding of all costs, you can make an informed decision about how you might address the shortfall. It may be possible to seek support from your school or faculty, or to explore other funding sources to assist with the balance.  In the first instance, you need to be accurately informed of the real costs that the project will incur. 

Universities expect to cover some standard costs that occur as a result of research work.  For example, staff members on a research project will potentially have a range of benefits, including annual, sickness, long-service, and parental leave.  The project team will anticipate receiving services from a range of sources, including the research office, financial services, legal services, human resources, the library, information services, etc.  All of these services are part of the university infrastructure.  When costing your research project, you will need to ensure you have covered all costs – both those you directly manage yourself and others that are overheads handled by the university. The rate and charges levied by the university will be different in each institution, and they may also vary according to the type of grant or research project. A consultancy project, for example, may be charged a higher levy than a research grant.

The 1996 Guidelines issued by the then Australian Vice Chancellors’ Committee (AVCC) for the costing and charging of university research provide a reference point for this subject. Column 3 of Table 1 illustrates the many costs that may need to be included when you are estimating your research costs.

Table 1: Full Costing of Research Grants

Cost	Definition	Examples
Total direct payroll costs	the salary and salary on-costs of all staff directly involved with the project	salaries of all academic and professional staff (including fractional time) involved in the project; all relevant salary on-costs, including advertising and payroll tax; superannuation, workers compensation, long service leave, leave loading; other leave, training, travel, appointment and relocation costs
Direct project costs	the costs of consumables, travel, equipment, etc, for the work of the contract or project	materials, supplies, and component parts; equipment costs specially required for the project such as freight, installation, minor works, and maintenance; travel and field expenses; reporting expenses including printing, photocopying, and binding costs; project management services; animals; sample survey reports; special library materials
Direct costs for specific services	the total direct payroll costs of support for people for the time that they are dedicated to the project	secretarial and technical support; external professional services
Major capital costs	the costs of large items of equipment and facilities, provided wholly or substantially for the project	special space requirements (usually charged at commercial rates); building works; provision of major capital items
Infrastructure costs	the costs of providing overheads and general support for the work such as the contribution to libraries, general workshop, and administrative support	general technical support; accounting and administration services; building maintenance and running costs; ICT and communications; library and information services; workshops; use of existing equipment; office support and secretarial services; office and laboratory space; amortisation of buildings

(Source: AVCC 1996, p. 13).

1.2.2 Direct and indirect costs

When you estimate the costs of a research project, you need to identify both direct and indirect costs.

Direct costs are clearly linked to your project as expenditures necessary to undertake the core activities. They include:

• The salary costs of all staff directly employed in the project
• Experimental equipment and resources
• Licenses and software that are purchased for use by the research group.

Indirect costs are expenditures that will be levied against the project, but may be less directly identified as part of the project, as they are generally hidden.  For example, the costs of staff are much more than their direct salary or wages. In addition to the salary component, there are other overheads that need to be covered, including the costs of payroll tax, insurance, workers compensation, and the provision of various services that assist staff. Each university calculates these overheads slightly differently and you should be familiar with how they are assessed. When requesting funding for a research staff member, then, it is critical to make sure that sufficient funding is gained to cover both direct and indirect costs.

Further, your university operates a number of support services that have, for efficiency purposes, been centralised to provide essential services to the whole university. Research projects that rely on the library, central services, IT, and other support groups will be required to contribute to the upkeep of these services through an infrastructure levy. These are another example of indirect costs.