Project Pakistan --- Chapter 4

This final chapter focuses on investment. It is organized into two sections, the first deals with issues relating to mobilizing resources and the second to the investment of these resources in Project Pakistan. In essence, the chapter is broadly organized around the simple concept of income and expenditure.

At the very outset, however, we should highlight two important points. First, the numbers used here are very broad 'ballpark' estimates. They are based on our discussions with various partners on the general costs of their current work. In some cases we were provided with fairly detailed calculations, in others with only rough estimates. We have supplemented this information with a review of documents provided by various NGOs in order verify the defensibility of these numbers. Finally, we have used our own knowledge and experience of development activities in Pakistan to establish a level of confidence in the numbers used here.

Second, it should also be noted that this is not as much a 'costing' exercise for the entire project as an effort to give the reader a general idea about the elements of the investment plan. The exact numbers can only be calculated once the details of the plan of action have been filled in by the partner NGOs, decisions regarding the staffing structure have been made, and detailed cost estimates are provided by the various partners. The purpose of this exercise is to provide a first rough cut at the numbers so as to assist the much more detailed analysis of investment and budgetary decisions that will have to be undertaken in the next round of deliberations between HDFNA and its partner NGOs.

Outside of the resources that may be mobilized by the communities themselves, there are two sources of revenue for Project Pakistan. First, is the contribution that HDFNA will make through its fundraising activities in North America and elsewhere. Second, are the leveraged resources that HDF-P might be able to raise from other donors, including international donors in Pakistan? Mobilizing funds from these two sources are discussed below, followed by a discussion on the overall budget size of the project over the next five years. It should be noted that a conservative tact has been taken in this entire discussion.

As the sponsor of Project Pakistan and of HDF-P, HDFNA will make a long-term commitment to investing in the project. At this point HDFNA is ready to make a startup commitment of about $250,000 for the first year and ensure that at least this level of annual contribution is maintained for the first five years. This translates to a minimum assured investment from HDFNA of $1.25 million over the first five years.

The capacity to raise additional funds will obviously depend on a) on the performance of the project in the field and b) on the project's ability to spend those funds meaningfully. It is likely that HDFNA's contribution to the project turns out to be much greater than the minimum amounts suggested here, especially once the project has established itself and HDFNA has tangible results to share with prospective donors. Until now, most of HDFNA's endowment has come from sister Foundations or from large individual donors. While HDFNA should certainly continue its relationship with large donors, it should also expand its donor base to incorporate a larger number of smaller donors. While the individual contributions of each donor may be small, their cumulative contribution can be quite large.

For example, a commitment for $20 a month from 5,000 (out of the half million) non-resident Pakistanis in North America translates into $1.2 million per year, and that of $ 25 per month by 10,000 families—still a conservative goal—converts into $3 million for the year. For a successful flagship project, these targets are not unrealistic.

In order to approach all types of donors, the HDFNA Executive Office will have to launch a comprehensive fundraising program. This will include a systematic program of outreach and communication to inform potential donors about its activities and invite them to contribute. It will also involve investment in member servicing, including making it easy for small donors to get their monthly contributions to HDFNA and providing them with regular information about the project (possibly through a newsletter or a web-site). In addition, HDFNA may also wish to appoint regional volunteers responsible for raising funds in their communities. Finally, as already mentioned, members who wish to organize fund raisers for specific projects should also be encouraged.

Chapter 2 has already discussed in detail why HDF-P is likely to be able to leverage significant additional funds from other donors, particularly international donors and including some large donors such as the World Bank and UNDP. While the prevailing spate of 'donor fatigue' and current developments in South Asia make it hazardous to make any predictions about the future trends in donor behavior, it remains likely that the project will be able to attract a significant amount of leveraged resources from international donors.

Taking the initial five-year period as the template for planning, the following targets and timetable for resource leveraging may be considered:

v HDFNA should expect to underwrite the entire cost of the project for the first two years.

v By the end of the first year, HDF-P and HDFNA should have devised a joint resource mobilization strategy with the goal of raising at least 50 per cent of the project budget for Year 3 from sources other than HDFNA.

v By the beginning of Year 5 of the project, the HDF-P Board of Governors should aim for a leveraging ratio of 1:4—i.e. for every dollar contributed by HDFNA, the project should raise 4 dollars from other sources.

v During Years 4 and 5 HDF-P should begin analyzing investment costs and strategies for moving from the Partnership to Facilitation approach in at least one Tehsil.

These targets are both conservative and realistic. For example, HDFNA's sister organization APPNA has been able to achieve a leveraging ratio of 1:12 for its funding of APPNA-Sehat. Once it establishes a successful track record, the HDFP project would be of even greater interest to international donors. The fact that the project is a joint undertaking of known and respected NGOs should enhance its resource mobilization prospects. One of the key tasks of the HDF-P Advisory Board is to devise and implement a resource mobilization strategy. Possible sources of additional funding for the project include the Poverty Fund of the World Bank, the Social Action Plan, UNDP, and several bilateral donors especially including Switzerland, the Netherlands, Norway, and Canada.

The above numbers provide a rough estimate of the overall amounts that may be available for the project in the first five years. HDFNA sources indicate that it can provide roughly $250,000 per year for the project as its minimum assured contribution. This is obviously (hopefully!) a conservative assumption but it gives the minimum likely budget. Using this as a base figure, and a gradual improvement in the leveraging ratio, the following scenario can be drawn:

v Year #1. The entire budget for the project is underwritten by HDFNA, which restricts it to around $250,000. However, since most of the initial capital investments have to be made this in this year, it is recommended to front load HDFNA’s contribution, by providing larger amounts in the first two years and reducing them later. The minimum initial contribution is recommended at $350,000. This can enable the initiation of the project in two regions and the establishment of an HDF-P National office. If necessary, the amount may be released in two installments of $175,000 each spaced by six months.

v Year #2. The project will still be entirely dependent on HDFNA. However, capital costs have all been incurred, and only recurring costs have to be covered. Although only one new region is to be opened during Year 2 the program is likely to be expanded within the existing regions. It is proposed that HDFNA allocate $300,000 for Year 2.

v Year #3. By year 3, the project should be able to raise at least half its budget from other sources. HDFNA should reduce its overall contribution to $200,000 in the expectation that a matching amount would be mobilized from outside resources.

v Year #4. HDFNA contribution should be maintained at $200,000, and twice that amount raised from outside donors, yielding a total project budget of $0.6 million for the year.

v Year #5. HDFNA contribution is maintained at $200,000, leveraged four times from other donor support. This yields a project budget of $1 million by the fifth year.

Note that the overall contribution by HDFNA over five years is exactly the same as originally envisaged ($1.25 million). However, it is loaded more heavily towards the beginning of the project when the capital expenditure has to be made and outside donors unavailable. Overall, these targets imply more than a doubling of the HDFNA contribution from outside sources over the first five years.

One could consider a more optimistic scenario in which HDFNA contributions do not decline but increase steadily after the second year, amounting to $350,000, $350,000, $400,000, $500,000 and $700,000 respectively in years 1 through 5. With the same leveraging ratios as in the first example, this would translate into a gross five-year investment of $6.5 million ($350,000, $350,000, $800,000, $1,500,000 and $3,500,000 for five years).

Obviously, these are only rough estimates and the numbers could vary widely with small changes in the underlying assumptions. If the actual situation lies somewhere between the two cases described here, the project would be reasonably well placed.

The investment of these funds in Project Pakistan can be divided into two main heads of expenditure, namely field operations, and national costs (including the cost of establishing a national presence for the project, and supporting collaboration between partners). The following two sub-sections provide rough estimates for these heads of expenditure. These are synthesized in the third sub-section to produce a rough estimate of the cost of a sample program over the first year of operation.

The costs of field operations may be divided into two parts, the first related to the establishment and operation of a Field Office and the other to the coverage for each unit of 1000 households each. These costs will depend on the staffing and operational structure of the field units. Detailed decisions on this will have to be made jointly by the project partners, based on each partner's experience and expertise and their joint understanding of how to build on the synergies of collaboration.

v For the purpose of this cost estimate we have developed a sample Field Office structure based on the manner in which the various partners currently operate their field projects. The purpose of the illustrative structure is to provide a general idea of the costs of operation as a starting point for the discussion on the project structure.

Box 4.1: Running Costs of a New Field Office

(Costs expressed in Pakistani Rupees)

Fixed Capital Costs

Vehicles 2 x 700,000 = 1,400,000

Fax machine 50,000 = 50,000

Computers and Printers 150,000 = 150,000

Furniture and fixtures 30,000 = 30,000

_________

1,630,000

Recurring Administrative Costs

Office space 12 x 10,000 = 120,000

Telephone, utilities,

building maintenance, etc. 12 x 10,000 = 120,000

Vehicle maintenance,

insurance and POL 2 x 12 x 10,000 = 240,000

Travel 12 x 6,000 = 72,000

Printing and stationary = 10,000

Equipment maintenance and

Office sundries 12 x 2,500 = 30,000

_________

592,000

Recurring Salary Costs

1 Regional Coordinator 12 x 30,000 = 360,000

3 Technical Coordinators 3 x 12 x 15,000 = 540,000

1 Program Assistant (Health) 12 x 10,000 = 120,000

2 Social Organizers 2 x 12 x 10,000 = 240,000

1 Office Manager and Accountant 12 x 8,000 = 96,000

2 Drivers 2 x 12 x 4,000 = 96,000

3 Support Staff 3 x 12 x 2,000 = 72,000

_________

1,248,000

This implies an initial capital investment of Rs. 1,630,000 plus annual administrative and salary costs of Rs. 1,840,000 in the first year (which can be expected to rise by 15% each year, not assuming any staff expansions). Assuming a conversion rate of Rs. 50 to $1, this comes out to be $ 69,400 for the first year.

One goal of any staffing structure is to minimize duplication. The outline given below lists the staff at the end of the first year.

v One Regional Coordinator with overall management responsibility for the project's field activities in the Tehsil; reporting to the HDF-P National Office; seeking technical advice and guidance from the Partners Coordination Committee.

v One Technical Coordinator and 2 Social Organizers (rising to 4 in Year 2) for Community Mobilization and Economic Opportunity activities, supported by two Social Activists for each unit of 1000 households.

v One Technical Coordinator and one Program Assistant for Health Awareness activities, supported by one Senior Health Assistant, two Health Assistants and three Trained Birth Attendants for each unit of 1000 households.

v One Technical Coordinator for Education activities supported by three Teachers for every formal school and one for every non-formal school.

v 1 Office Manager and Accountant, 2 Drivers, and 3 Support Personnel.

For smooth management, better coordination and to instill a culture of learning and consultative decision-making, the following regular meetings are recommended:

v A monthly staff meeting (about 3 hours long) of all the staff to review progress, expenses, troubleshooting, etc.

v A bi-weekily meeting of the Regional Coordinator and the three Technical Coordinators should be held for integrated scheduling and planning.

Box 4.2: Additional Operational Costs for Each Unit of 1000 Households; 1 Formal School and 4 Non-Formal Schools

(Costs expressed in Pakistani Rupees)

1 Senior Health Assistant 12 x 5,000 = 60,000

2 Social Activists 2 x 12 x 4000 = 96,000

2 Health Assistants 2 x 12 x 4000 = 96,000

3 Trained Birth Attendants 3 x 12 x 750 = 27,000

7 School Teachers 7 x 12 x 3,000 = 252,000

School overheads (rent, supplies, etc.) = 45,000

Other overheads = 24,000

_________

600,000

It is expected that part of the school overheads may be recovered from tuition charges for students who can afford to pay. Assuming a conversion rate of Rs. 50 to $1, this comes out to be $12,000 per year for each unit of 1000 households with 1 formal and 4 non-formal schools.

In calculating general cost estimates we have assumed a Field Office being set up from scratch. If one of the partner NGOs already has a presence in the area whose staff and/or assets are to be merged into Project Pakistan then the costs will obviously be effected. As mentioned earlier, the terms of such transfers of assets and staff have to be worked out between the partners before the project begins operation. Box 4.1 presents the rough estimate for establishing and operating a new Field Office.

A similar exercise for the rough costs of additional staff and facilities for each unit of 1000 households each is presented in Box 4.2. Since the staff listed in Box 4.1 will also work in these community units, Box 4.2 only calculates the additional costs of field operations. For the purpose of this estimate it is assumed that coverage implies operating one formal and four non-formal schools in each unit.

The establishment of an HDF-P National Office is important both for reasons of coordination and for developing a strong national presence in Pakistan. Since the National Office will also act as the secretariat for the Advisory Board and convenor of various forums of coordination and collaboration, those costs are also included within this head.

As has already been suggested, the Advisory Board might advise against establishing a fully functional National Office right at the beginning. In such a case, one of the NGO partners could be designated as the makeshift secretariat for HDF-P until a full office is established. However, it is expected that a fully functional HDF-P National Office would be operational in Islamabad by the end of the first year. Box 4.3 presents the rough cost estimates of setting up an HDF-P National Office. These estimates have been calculated for a National Office with a Chief Executive assisted by one Program Officer, one Office/Accounts Manager, and support staff.

Box 4.3: Running Costs of the HDF-P National Office

(Costs expressed in Pakistani Rupees)

Fixed Capital Costs

Vehicle 600,000 = 600,000

Fax machine 50,000 = 50,000

Photocopying machine 50,000 = 50,000

Computers and Printers 150,000 = 150,000

Furniture and fixtures 50,000 = 50,000

_________

900,000

Recurring Administrative Costs

Meetings, etc. = 150,000

Office space 12 x 20,000 = 240,000

Telephone, utilities, courier, etc. 12 x 10,000 = 120,000

Vehicle maintenance, insurance and POL 12 x 8,000 = 96,000

Travel 12 x 7,500 = 90,000

Printing and stationary = 40,000

Building maintenance 12 x 1,000 = 12,000

Equipment maintenance 12 x 1,000 = 12,000

Office sundries 12 x 2,500 = 30,000

_________

790,000

Recurring Salary Costs

1 Chief Executive 12 x 100,000 = 1,200,000

1 Program Officer 12 x 25,000 = 300,000

1 Office/Accounts Officer 12 x 20,000 = 240,000

1 Driver 12 x 5000 = 60,000

2 Support Staff 2 x 12 x 2000 = 48,000

_________

1,848,000

This implies an initial capital investment of Rs. 900,000 plus annual administrative and salary costs of Rs. 2,638,000 in the first year (which can be expected to rise by 15% each year, not assuming any staff expansions). Assuming a conversion rate of Rs. 50 to $1, this comes out to be $ 70,760 for the first year.

The second important component of coordination expenditure is the cost of support activities. If partner NGOs are to asked to expend the time and effort of their staff on HDF-P activities they will need to be somehow compensated for it. The exact nature of these services and the mechanism for assigning costs should be one of the agenda items for the first meeting of the partners since it will depend on the specific services that each partner has to offer and its own unit costs for those services. Box 4.4 suggests some notional lump sum numbers that may provide a starting point for this discussion.

Box 4.4: Cost Estimates for Support Activities

(Costs expressed in Pakistani Rupees)

Developing a local

Human Development Index = 300,000

20 Training Sessions

@ Rs. 30,000 per Training = 600,000

Research, monitoring

And Communication = 750,000

Other support services = 750,000

_________

2,400,000

Assuming a conversion rate of Rs. 50 to $1, this comes out to be $ 48,000 per year.

In addition to this, much time and effort will need to be invested by the partners during the period between August and December 1998 in finalizing the shape and structure of HDF-P. A nominal lump sum cost of about $25,000 may be added for this.

The above numbers yield an investment outlay of just over $125,000 as coordination costs for the first year of the project (beginning January 1999) plus about $25,000 for the period between August-December 1998 during which many inputs of time and effort will be required from the partner organizations.

4.2.3 Cost Estimates for an Illustrative Program, August, 1998-December, 1999

Using the rough element costs above, we are now in a position to provide a general investment strategy between now and the end of the first year of the project (assuming that the project is officially launched in January 1999). These estimates are presented in Box 4.5.

Box 4.5: Cost of Illustrative Program,
August, 1998-December 1999

(Costs expressed in U.S. Dollars)

Support to Partner Organizations in Project Design Phase,

Project Design Phase, August-December, 1998 = 25,000

Establishing an HDF-P National Office by July, 1999 = 35,380

Support Costs of Partners, 1999 = 48,000

First Field Office (operational for full year), 1999 = 69,400

6 Units of 1000 Households each in First Tehsil = 72,000

Second Field Office (established by October, 1999) = 41,800

4 Units of 1000 Households each in Second Tehsil = 12,000

_________

303,580

The cost of the HDF-P National Office has been adjusted for half year of operation; costs related to the second Tehsil are adjusted for 3 months of operation.

The above add up to an investment of around $304,000 from HDFNA over the first year of the project. As mentioned, these are rough ballpark numbers, which leave out contingencies and make several assumptions to develop the estimates. Allocating another 40,000-50,000 for omitted items and cost overruns, we are left with an overall investment demand of under $0.35 million.

To summarize, an initial investment of $350,000 from HDFNA should be able to support:

v Inputs from partner NGOs during the project design phase,
August 1998-Decemeber 1999.

v Establishing an HDF-P National Office by July 1999 and
operating it for the remainder of the calendar year.

v Establishing Field Office in second Tehsil and
operating it for the last three months of 1999.

v Operating in 4 units of 1000 households each in the second Tehsil
for the last three months of 1999.