There are two types of costs necessary to conduct sponsored projects: Direct and Indirect costs (also known as Facilities and Administrative (F&A) costs). Direct costs are costs for items that can be readily identified with a specific project or activity. Indirect costs are incurred for common or joint objectives. Direct costs are relatively easy to understand, whereas understanding indirect costs can be confusing.

To illustrate the difference between direct and indirect costs, think about building a sandwich. It can be a roast beef sandwich, a ham sandwich, or a vegetable sandwich- whatever kind of sandwich speaks to you. What matters most is that for your sponsored project, you’ll be building a sandwich.

Direct costs

First, let’s think about the direct costs associated with your sandwich project. By definition, a sandwich (noun) is a food consisting of filling between two pieces of bread. Each item you add to your sandwich has a cost associated with it. For example,

2 slices of bread – $0.26

1 slice of cheese – $0.29

1 slice of tomato – $0.25

3 pickle slices – $0.09

Etc.

The cost of every item added to your sandwich can be readily identified with your sandwich project. We can also specifically identify the cost associated with putting the sandwich together. Let’s say you are an investigator whose institutional base salary is $80K and it takes 5% of your effort to put together a sandwich. By that calculation, it costs $4,000 (5% x $80K) in salary to build the sandwich.

There are all sorts of other direct costs associated with a given project. In the example above, we identified materials (bread, cheese, tomatoes, and pickles) and personnel costs. There may be additional costs, such as fringe benefits (also a part of personnel costs), travel and/or transportation, and equipment needed to complete your project. The important thing to understand is that these associated costs are easy to connect to your project.

Indirect costs

Other things built into your sandwich project are not so easy to identify. For instance, let’s say you are putting together your sandwich in your laboratory. It would be nearly impossible to figure out how much of the cost associated with the lab space should be assigned to every sandwich.

When you order the ingredients for your sandwich, you might store the ingredients in a lab refrigerator. How much of the cost associated with the lab refrigerator and the electricity needed to run the refrigerator is associated with each sandwich? What about the people in shipping and receiving who checked in the items you ordered and delivered them to your lab? How much of their time and effort went into the ultimate sandwich creation? Just imagine if you had to account for all of these associated indirect costs!

Fortunately, you don’t have to. The University negotiates a rate with a Federal cognizant agency for recovering indirect costs associated with its sponsored programs’ operations. Negotiations are based on a complex formula that takes into account the University’s facilities (e.g., buildings, equipment, and utilities such as heat/AC, water, and lighting) and administrative costs (general administration such as human resources and accounting, department and college administration, and sponsored project administration).

At CSU, different project types (research, instruction, and other sponsored activities) have different F&A rates associated with the cost of conducting them. Once F&A costs are recovered based on the negotiated rate, the funds are distributed within the University to pay for the operations, maintenance, and administration needed to engage in sponsored activities.

While indirect costs may be difficult to identify and to understand, they are the real costs associated with engaging in sponsored programs.

To learn more about indirect (aka, F&A) costs and F&A cost recovery, check out these resources:

Cost of Research (Council On Governmental Relations Infographic) https://www.cogr.edu/sites/default/files/Costs%20of%20Research%20Infographic%20170523_0.pdf

F&A Funding: The Bedrock of Biomedical Research (4:47 minute YouTube video)                        https://www.youtube.com/watch?v=QhDsWVbPMB0

F&A Intro Video (14:53 minute Univerity of Idaho video)                                        https://www.uidaho.edu/research/faculty/resources/f-and-a-rates/f-and-a-intro-video

The Chicken Sandwich and F&A (3:13 minute National Council of University Research Administrators’ YouTube video by Chea Smith, Rutgers University, and inspiration for this blog)                                                               https://www.youtube.com/watch?v=wOVIiajSxZk