Using cost management techniques in a real operating environment is relevant if all planning principles are addressed rationally. In other words, in the case of poor analysis or incorrect calculations, there is a high probability of making an error in estimating expenses, which, in turn, incurs unforeseen losses. The prospect of a competent distribution of financial resources is critical for companies of various types since, regardless of the specifics of the business, an adequate budget assessment is an essential attribute of organizational management. The concept of indirect material costs, which Blocher et al. (2019) define as that directly influencing the amount of money spent on manufacturing, is a crucial factor to take into account when planning a budget in any company. As an example of a community where this concept is relevant, Catholic Charities USA, or CCUSA, will be reviewed. This community is involved in numerous volunteer tasks and assistance to various social groups, and analyzing indirect material costs in relation to the work of CCUSA can help determine how important this technique is to its activities and whether the community needs it to allocate resources safely.
CCUSA is a network of non-profit groups, which includes charitable foundations and oversees a wide range of social issues, such as helping immigrants, interacting with the poor, and other relevant issues. On the official website of the organization, current programs of activity are mentioned, among which are addressing problems with housing, healthcare, disasters, social policies, and many other tasks (“The mission of Catholic Charities,” n.d.). Although CCUSA is a non-profit community, which means that funds for its development come from donations and charitable actions, like any other company, it needs an adequate budget allocation. Over more than a century of history, CCUSA has evolved from a small community to a vast network that, among other things, spends funds in accordance with the declared directions of socially-oriented activities. This is objective to assume that, although the company does not produce specific products for profit, it needs effective logistics, tax, and other systems, which determines the value of applying a cost management strategy. Therefore, the concept of indirect material costs is relevant to this community and should be viewed as a technique to control the budget rationally.
CCUSA’s Need for the Concept
Indirect material costs are relevant to CCUSA due to the non-commercial nature of community activities. The group of organizations receives funds from sponsors and directs them to specific needs. At the same time, the company cannot but take into account the costs that are inevitable in the implementation of its work. For instance, Zadroga (2019) mentions the initiatives of Catholic associations to help poor families and notes that housing maintenance requires additional expenses, including the costs of interaction with cadastral, tax, and other official services. If CCUSA does not take into account these items of expenditure, it will not be able to adequately control the budget because this is impossible to transfer money directly to those in need without proper reporting. As McConville and Cordery (2018) state, charities’ financial statements are thoroughly and rigorously checked, and the community in question should plan adequately for the associated costs to secure its operations. Thus, when helping people, CCUSA needs to take into account the additional costs related to financial and legal conventions.
Relevant Cases of Utilizing the Concept
To describe how the concept of indirect material costs fits into the activities of CCUSA, one can consider such area of community work as helping to eliminate the consequences of disasters. According to Rifkin et al. (2020), “after Hurricanes Katrina and Rita, for instance, Catholic Charities agencies heavily relied on volunteering and prosocial gifts to help victims” (p. 204). Such activity deserves recognition, but given a large amount of work, establishing a sustainable interaction between care centers requires analyzing indirect costs. Eller et al. (2018) describe the 2009 Alaska flood and note that CCUSA gave a local bank a $10,000 grant. Nonetheless, delivering food supplies, organizing shelters for citizens, and other activities are associated with expenses that, although they relate to the work of the community, are not included in its direct activities. Attracting medical staff to help people with physical and psychological trauma requires financial costs. Purchasing equipment to build temporary shelters for homeless people is another item of expenditure. As a result, eliminating the consequences of disasters requires enormous costs associated not only with direct assistance to vulnerable citizens but also with establishing the entire chain of assistance.
Another example of indirect costs that are unavoidable in community work is the activity to promote the needs of migrants. Hollenbach (2020) describes the events during the Trump administration and notes a significant decline in federal funding for refugee organizations. Catholic groups, in turn, took on the responsibility of helping people facing difficult life situations, and CCUSA was no exception. Both then and today, work in this direction requires from the community not only material costs, for instance, purchasing food, but also associated costs, including interaction with migrant agencies and legal services. Zadroga (2019) mentions unemployment as one of the frequent issues that migrants in the US face, and CCUSA often acts as an intermediary between a person and a potential employer by providing the former with the necessary financial assistance to obtain a work permit. All these activities are designed to help people coming from other countries for one reason or another, but all of them would not be possible without indirect costs as means to help address the full range of the vulnerable population’s problems.
Finally, as one of the current examples, CCUSA’s involvement in addressing the consequences of the COVID-19 pandemic can be characterized as an activity that inevitably involves indirect costs. As VanderWeele (2020) argues, most Catholic organizations that have been suspended due to restrictions on social contacts act as advocates and interact with policymakers to offer informed decisions. The development of projects to help people who are faced with acute difficulties due to the lack of full access to various services requires additional investments, for example, attracting medical teams for targeted visits. As Steinfield and Holt (2019) state, poor health directly correlates with anxiety, and in the absence of a direct connection with religious institutions, many people experience colossal stress. This, in turn, is another reason for the community to expand its services and attract support channels to interact with religious citizens. Therefore, in an effort to support vulnerable people, CCUSA needs indirect costs, such as setting up a remote communications infrastructure, to continue providing the necessary support, which is part of the community’s mission.
Ways to Minimize Indirect Costs
For CCUSA, one of the ways to minimize indirect costs is to establish a transparent and sustainable mode of interaction with state control boards. According to Blocher et al. (2019), quality testing is a significant expense, and numerous reporting liabilities require significant efforts from the community to provide all the necessary justification for their interventions and investments. Allowing more freedom of operation, for instance, by being able to interact with tax and other government agencies in the form of less frequent audits, can help reduce unwanted costs. Another potential solution is to narrow the range of volunteer activities. Keller and Alsdorf (2012) underline the importance of changes that are in the service of God and address important Christian covenants. However, such an initiative means a lack of community assistance to vulnerable categories of the population who may be left without support. By avoiding spending, CCUSA may lose sight of the concerns of many citizens who rely on this religious group for help. Thus, reducing indirect costs is directly related to the assistance of third parties, which are state control boards.
The concept of indirect material costs is relevant to CCUSA since the community is involved in a wide range of volunteer activities, and interaction with various social and legislative agencies requires utilizing significant resources. Allocating finances from the budget of this group of organizations should not only be safe but also legally justified because the degree of reporting is high. Helping refugees, participating in the aftermath of disasters, addressing the healthcare needs of vulnerable citizens during the COVID-19 pandemic, and some other examples of CCUSA activities prove the relevance of assessing indirect costs. One of the potentially effective ways to reduce these expenses for the community is to create a process for interacting with government regulators in which audits and other procedural controls occur less frequently, thereby reducing the burden on the organization.
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Eller, W. S., Gerber, B. J., & Robinson, S. E. (2018). Nonprofit organizations and community disaster recovery: Assessing the value and impact of intersector collaboration. Natural Hazards Review, 19(1), 05017007.
Hollenbach, D. (2020). Welcoming refugees and migrants: Catholic narratives and the challenge of inclusion. The ANNALS of the American Academy of Political and Social Science, 690(1), 153-167.
Keller, T., & Alsdorf, K. L. (2012). Every good endeavor: Connecting your work to God’s work. Penguin.
McConville, D., & Cordery, C. (2018). Charity performance reporting, regulatory approaches and standard-setting. Journal of Accounting and Public Policy, 37(4), 300-314.
The mission of Catholic Charities. (n.d.). Catholic Charities USA.
Rifkin, J. R., Du, K. M., & Berger, J. (2020). Penny for your preferences: Leveraging self-expression to encourage small prosocial gifts. Journal of Marketing, 85(3), 204-219.
Steinfield, L., & Holt, D. (2019). Toward a theory on the reproduction of social innovations in subsistence marketplaces. Journal of Product Innovation Management, 36(6), 764-799.
VanderWeele, T. J. (2020). Love of neighbor during a pandemic: Navigating the competing goods of religious gatherings and physical health. Journal of Religion and Health, 59(5), 2196-2202.
Zadroga, A. (2019). Family and economy in the perspective of Catholic social teaching. Studia Universitatis Babes-Bolyai-Theologia Orthodoxa, 64(2), 95-104. Web.