r - part - usaid

4 . 5 . Direct, Indirect, and Sunk Capital Costs
The Brandon analysis lsid considerable stress upon the
difference between direct costs, indirect costs, and sunk
capital costs. Direct costs are those costs which are directly
attributable to the ianediate requirements cf constructing a
given well * XndirecT costs are primarily the office averhead
and management, stores and workshops costs including
maintenance, and capital recovery costs, Sunk costs are capital
ccrsts already incurred. This distinction was significant: when
costing the f~ture operation oY the Groundwater project, but it
is felt to be less so %hen costing the on-going operations of
WDA
From an accounting standpoint, part of WDA's overall
adainistrzlive costs skould be charged ta the cost of
constructing wells- KDA administration cansists af the
Mogadishu, headquarters and the regional offices. However, this
can only be done if & the operations of WDA, not only
drilling, but reservoir builciing, urban water systems, and the
operation and mainte~ance of existing facilities, are also
costed in detail and divided betweeri direct costs and overhead.
At present, tbir is not possible. Furthermore, much of the
overhead is financed fro3 the Recurrent Budget, whereas the
direct operating cos:s are fizancet! as projects from the
Cevelupment Budget, This means that WDA9s werhead costs are
"guaranteed*@, and project budgeting need only account for any
aaditional overhead costs. L'ntil a nore comprehensive budgetary
procedures syszez is In piace, the present casting model, which
excludes avesbead c~sts, is most usef~f to WPA,
Within t3e context of WDA implementing a nuxber of donor
funded pmjects, each bxingkng in new equipment, the overall
concepz of scnk costs has questionable value. After completi~n
cf the Gr~undwater Project, five year old Xngersoll-Ra~d TH60
rigs will be operaring beside cable-tool rigs which are, in same
cases, twenty-five years old, No system of depreciation can be
completely realistic because the choice of rig to be used at a
particzlar location will depend as much on logistics and
cvailabiLity as on drilling technology and lithology. The zest
of a rig can be **sunkN bezazse it is old, or because it has been
paid for by a donor,
w uniform costing system has Sean chosen which attempts to
recover the evertual rapiacezent cost necessary to maintain
KDAgs inventory cf drilling ecr;lp~ent. Tae same philosophy has
been applied to ail vehicles and equipnent. Thus, in any year,
various sums will be allowed in HDAis many individual budgets
fa^, sw:, replacenezt of light vehicles. By aggregating these,
WDA shsu9d be abre to purchase a number of light vehicles each
year to naintaia its invenzcry. A full description of the