OVC Toolkit

This section treats some costing issues of particular relevance for OVC interventions. For more general guidelines to costing of project interventions, please refer to the documents under “Relevant Reading” in the left column of this page.

There are two ways to look at the costs of OVC projects: (i) How much your project has to pay? And (ii) what is the overall cost of the project? The first question refers mainly to your agency’s (and local partner’s) financial costs, and the answer will provide information for your budgeting. The second question deals with the economic costs of the intervention, and thus refers to all contributions, including those you do not have to pay for, coming from institutions and individuals in the society where you work: in short, the imputed value of voluntary labor, donated goods, and the value of rebates compared to paying full price (price distortion).

Remember that a building donated by the municipality could also have been used for instance for teaching, and the time volunteered by a doctor could for instance have been used to help a malnourished child. The economic cost of your project is therefore an expression of the opportunity costs of the values that go into the project, and is thus important to calculate in order to understand the potential sustainability of an intervention that is to be gradually taken over by the country.

The latter is particularly important to consider in the context of OVC projects since such projects typically benefit greatly from the contribution of volunteers, donations of food, clothing, and even buildings, and often receive rebates on services like health care, legal support, school fees and psychosocial care. For more detail on economic costing, please refer to the UNAIDS publication on Costing Guidelines for HIV Prevention Strategies [NB! Heavy!].

As for all World Bank projects, the Government should be responsible for paying for most of the staff and other recurrent operating costs. If your project is a new initiative, you may want to consider covering a declining portion of the recurrent costs as a means of getting the initiative underway quickly and giving the Government some time to find the funding to keep it going. Note that Bank rules used to allow financing of only additional recurrent costs associated with project implementation, while a new Bank procedure on eligibility of expenses (OP 6.00 and BP 6.00) allows for financing of any recurrent cost as long as an appropriate justification is provided.

In deciding on who will finance which line items, keep the following principles in mind:

The Government will have responsibility for financing the recurrent costs of the program after the loan closes, so as a rule neither the Bank nor other funding agencies should cover 100% of these costs. If the Bank finances any recurrent costs, the percentage should decline over the life of the project to no more than 25% by the end last year of the project. Note, however, that the new policy on eligibility of expenditures allows for much more flexibility than in the past, including financing of recurrent expenditures (OP 6.00 and BP 6.00).

It is appropriate for the Bank loan to finance all of the one-time start-up investments costs, but maintenance and replacement of capital objects must be gradually taken over by Government.

In the Africa region, there are standard disbursement percentages (SDP) for each type of expenditure by country (e.g., 80% of public works and equipment, etc.) that should not be exceeded. These can be obtained from the Country Economist. The new policy on Bank financing (OP 6.00 and BP 6.00) allow for flexibility in applying SDP for projects in countries for which the bank has established country financing parameters (see OP 6.00)

Rule of Thumb

Some donors contribute to create unsustainable project costs by systematically choosing to support projects with an impressive infrastructure, and also by showing a preference towards hardware investments. Donors who are trying to “improve” what is already being done locally may in fact easily corrupt well functioning low-cost local projects, and make them unsustainable.

Three types of costs

As you prepare your OVC budget keep in mind the following three types of costs and pros and cons of each.

Investment Costs – Keeping investment costs low may, in some cases, be a way to lower the overall cost per beneficiary, but keep in mind that some cost-cutting at this stage may, in fact, increase the recurrent costs of the project, and thus the long-term financial burden on the government and other partners. For example, the construction of a project facility or the purchase of a vehicle will be a high up-front cost, but will serve to lower the recurrent costs by eliminating lease payments. If the OVC intervention is expected to be a long-term program, then making this kind of up-front investment makes sense. If, on the other hand, it is expected to be a short-term, temporary program, such as transitioning child soldiers back to community life, then leasing of space and vehicles may make more sense than purchase.

Fixed Operating Costs – Some costs, such as the salaries of full-time staff, office rent and utilities must be paid regardless of how many OVC the program serves. These types of costs can benefit from economies of scale. As the number of beneficiaries increases, the cost per child of each of these expenditures declines. For this reason, programs with high fixed costs, such as center-based care or training facilities, may benefit from expanding their reach to serve different OVC sub-groups or children not typically considered OVC. Here again, programs that are expected to be short-term or programs whose beneficiary numbers are expected to vary significantly from one period to the next should attempt to minimize their fixed costs, in favor of variable costs. Practically, this may involve choosing to use consultants instead of hiring staff or contracting out functions such as training, technical assistance and monitoring and evaluation services.

Variable Operating Costs – Strictly defined, variable costs are the incremental costs of delivering one unit of service. Variable costs increase at a steady rate as the number of beneficiaries increase, but have no impact on the cost per capita, which remains unchanged as the numbers of beneficiaries fluctuate. In an OVC project, variable costs might include the purchase of food, medical supplies, and training materials or the value of a conditional transfer per child. In some cases, these costs are semi-variable, as in the case of a project that maintains a child to adult helper ratio of 10 to 1. A new team member must be added each time the ratio goes over 10 to 1. As explained above, for short-term temporary programs or those that will serve an every fluctuating volume of beneficiaries, it is best to maximize variable costs and minimize fixed costs, thus facilitating the rapid scaling up and scaling down of the program in accordance with the size of the beneficiary population.