• WHEN IS A COST NOT A COST?

    by  • March 19, 2012 • Blog • 0 Comments

    A blog by international development consultant, Stewart Maugham…

    In May 2011, the AidWatch blog featured a piece by Claudia Williamson  introducing the ‘Best and Worst of Official Aid 2011’. The piece describes how she and William Easterly had collected data for nearly two years, updating earlier work by Easterly and Pfutze, in order to grade aid agencies on five dimensions of best practice, including aid transparency and minimal overhead costs.

    According to this study, “The best bilateral agency is UK’s Department for International Development (DFID).  DFID is one of ten agencies that fully reports aid flows to OECD, and it lists number of staff, administrative costs, salaries and benefits and its ODA budget on its website. DFID also has relatively low administrative costs and salaries and benefits relative to aid disbursements (2.6 and 1.6 per cent  respectively).”

    It sounds fine, and we know that governments, charities and other non-profit organisations are keen to show us how low their administration costs are, so… is there a problem?

    Last week, Claire Provost, writing in the Guardian, drew our attention to the latest report by the UK Parliament’s International Development Committee,  which examined DFID’s Annual Report and Resource Accounts 2010-11 and its Business Plan for 2011-15.

    She writes “While the Department for International Development’s (DFID) budget is set to grow from $7.7bn in 2010-2011 to $10.6bn by 2014-2015, it plans to reduce its operating costs to 2 per cent and cut administrative costs by a third – from $128m to $94m.”

    Now, Members of Parliament are not always renowned for their skill with figures, but some members of the International Development Committee were rightly concerned that much of the reduction in DFID’s central administration cost (compared with other aid agencies) is achieved by outsourcing management of programmes to consultants and large NGOs.  They pointed out that the British government is not really reducing administration costs but just outsourcing them.

    Whether outsourcing is a good or bad thing is not my concern here. There are arguments either way, so long as governments realize that their own skills need to be entirely different when they outsource their business compared with when they manage it in-house.  And I’m certainly not criticizing DFID or AidWatch, because I’m a fan of both.

    But what is important here is to ensure that if commentators like AidWatch use the indicator ‘percentage administration costs’ to rank aid agencies, that they do so on a consistent basis. If much of your administration course is out-sourced, then you are bound to look cheaper than in-house alternatives!  But don’t call it ‘best’, necessarily!

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    International Development Matters Ltd is a group of consultants with expertise in various aspects of global development.

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