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HRP Costing Methodology Options

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This guidance/tip sheet is elaborated as a follow up to the Principal’s decision on improving HRP costing in July 2017. This is a living document that will be updated as more knowledge and experience of costing is gathered. In particular, the cluster-specific guidance part will be updated whenever relevant information is provided by the GCCs.

1. INTRODUCTION

Costing Methodologies are methods that can be used to calculate the financial requirements to fulfil the objectives of an annual or multiyear HRP. An improved costing approach for HRPs should contribute to an overall objective of better responding to the needs of affected populations, through increasing transparency, credibility and cost-effectiveness.

The methodology for costing most HRPs is Project based costing. This costing methodology relies primarily on summing funding requirements for projects submitted by different agencies. Project budgets are either based on standard UN/ NGO cost categories or are based on activities, outputs or outcomes developed by clusters. Sectors/clusters ensure costs are appropriate and are aligned with activities and outcomes.

An alternative methodology - Unit based costing - relies on identifying a unit cost ‘driver’. This could be an activity, an outcome or a standard service being delivered at a certain cost. The unit cost ‘driver’ in the HRP budget is the unit cost which best explains the activity, service or outcome. The overall cost would then be established as unit cost ‘driver’ multiplied by the number of units provided, set against the cost per unit across the HRP response.

A combination of both methodologies - the hybrid method - establishes financial requirements using Unit based costing and follows with detailed project planning at a later stage to provide more detail to the initial calculations or to give visibility to participating organisations.