Shared Costs / Pooled Costs

Importance of Shared Costs / Pooled Costs

Shared costs, also called pooled costs, represent expenses that benefit multiple programs, projects, or departments simultaneously. They matter because nonprofits often operate complex portfolios where staff, resources, and infrastructure support more than one initiative. For nonprofits in social innovation and international development, shared costs are particularly significant when working across countries or in consortiums, where equitable cost distribution is essential for both fairness and compliance. Boards and donors see careful handling of shared costs as a sign of financial maturity and organizational accountability.

Definition and Features

Shared costs are defined as expenses that cannot be directly assigned to a single program but can be distributed proportionally across multiple programs or cost centers. Key features include:

• Examples: office rent, utilities, IT systems, communications, multi-program staff salaries, shared vehicles, and administrative support.
• Pooling: costs are gathered into a central account before being distributed.
• Allocation Bases: distributed using methods such as staff time, program size, headcount, or usage levels.
• Audit Requirements: must be applied consistently and documented to satisfy donor and regulatory compliance.

Shared costs differ from general indirect costs because they can often be allocated more precisely to specific programs rather than remaining in a broad overhead category.

How This Works in Practice

In practice, nonprofits establish shared cost centers (or ) in their accounting systems. For example, if a nonprofit rents an office for $60,000 annually and three programs share the space, the rent may be allocated proportionally based on the number of staff from each program. Similarly, IT support costs might be pooled and allocated based on the number of licenses per department. Finance teams ensure allocation methods are documented in a cost allocation plan, applied consistently, and reported transparently to donors. Boards or finance committees may review allocation rules annually to ensure fairness and sustainability.

Implications for Social Innovation

For nonprofits in social innovation and international development, managing shared costs effectively strengthens financial transparency and equity among programs. Transparent allocation reduces information asymmetry by showing stakeholders how joint resources are distributed fairly. This helps donors understand the necessity of funding not just direct program expenses but also the infrastructure that sustains them. When handled poorly, shared costs can create tension between programs, erode trust, and weaken organizational sustainability. By managing pooled costs strategically, nonprofits can foster collaboration, demonstrate accountability, and reinforce the systems that enable innovation and systemic change.