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