As of the beginning of 2009, the Academy of Finland as well as Finnish universities and government research institutes have used the so-called full cost model. The full cost model applies to most of the funding granted by the Academy and it affects the way in which funding applications and funding decisions are made, how funding is used, and how the use of funds is reported.
How the full cost model is applied at the application stage:
- Before submitting an application, the applicant shall agree with the site of research on the tangible support that the site of research is to provide for the project. On the form, applicants are requested to give an overall cost estimate and a funding plan for the project. Applications are written so as to ensure that the Academy’s contribution to funding (entered on the online form) comes to no more than 70% of the total costs of a project (FIRI 2010 call: no more than 70%).
- In their applications, applicants give the percentage for indirect employee costs, the overheads percentage, and the coefficient for effective working hours applied by their own organisation at the time of application submission. Calculations in accordance with the full cost model rely on these coefficients. Applicants shall check these coefficients from the administration department at their own organisation. The organisation will supply the coefficient for effective working hours to be used in applications to the Academy, calculated on the basis of the average effective working hours.
- The representative of the site of research who gives a commitment on behalf of the site of research is required to ensure that the percentages for indirect employee costs and overheads, and the coefficient for effective working hours given in the application are approved by the site of research and makes a commitment to them in giving the online commitment by the site of research.
Full cost model: principles and definitions
The full cost model applies to most of the funding granted by the Academy, and it affects the way in which funding applications and funding decisions are made, how funding is used, and how the use of funds is reported. Full costing also applies to invoicing.
The basis for reporting in connection with payment requests for Academy funding is derived from project accounting in which the direct costs of a project are entered (based on business accounting). In addition, calculated overheads and indirect employee costs are allocated to projects. Separate reports on the calculated cost items based on the organisation’s accounting shall be submitted to the Academy Registrar’s Office annually.
The overhead percentage approved in the funding decisions will be in force for the entire duration of the funding period.
- The full cost model refers to a cost calculation method in which all costs of an organisation are allocated in accordance with the matching principle to the cost object (e.g. to a project) irrespective of the funding source. This is based on the direct costs for effective working hours in accordance with the matching principle. The other direct and indirect costs are directly allocated to the cost object by using a coefficient for effective working hours and an overhead percentage. In accordance with the full cost model, each funding body decides on its funding contribution to the total costs in line with its own principles.
- Effective working hours refer to effective (i.e. completed) working hours allocated to a cost object, excluding paid or other leaves.
- Paid leaves cover all salary costs arising from statutory or other absences (e.g. annual holidays, absences due to child birth and care, sick leaves and adult education and trade association activities, labour protection, cooperation and other paid time in accordance with collective agreements and labour laws).
- Direct costs normally include direct salary costs as well as costs for specific equipment and rents for premises, travel costs or other essential (i.e. directly attributable) research costs, such as chemicals or services.
- The coefficient for indirect employee costs is calculated as a percentage of the direct salaries allocated to a cost object. In practice, the coefficient means that the indirect employee costs are allocated as an average sum. In the calculation of the average coefficient, the holiday pay and the holiday bonus are allocated as indirect costs in accordance with the accrual principle on the basis of the holiday earned (i.e. not taken) during the project.
- Overheads are allocated to the final cost objects by using an overhead percentage that is calculated as a percentage of the total sum of the salaries and indirect employee costs for effective working hours. Part of the overheads is distributed between all tasks of the organisation concerned. If the organisation’s cost structures in different task components essentially differ from each other, the overhead percentage must be calculated separately for each task component. According to the matching principle, costs arising from one single result area (e.g. teaching) shall be allocated to this result area only (and not to other result areas).
- Self-financing percentage refers to the organisation’s own funding contribution to the total costs of a co-funded project (i.e. the contributions of all other funding bodies have been deducted from the total costs). Within the conditions for the use of funding, the organisation in question can finance its own share with, for instance, discretionary government transfers for overheads, returns from companies or business activity, donations or other external funds.
- A funding body can for various reasons define certain cost items as ineligible for support. These may include costs that arise outside the eligibility period for support or other costs, taxes or funding costs not related to the activity in question. Instead of investment costs, depreciations are often accepted as eligible for support.
- The report by the STREAM working group (PDF, in Finnish) involves a recommendation on costs included in the overhead percentage as well as a recommendation on costs included in the coefficient for indirect employee costs.