Module-c community Based Financial Management

Session 
Attachments
 Attachment 1: Worked Example Annual Budget 
 Attachment 2: Annual Budget Worksheet 
 
 
 

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Ministry of Water, Irrigation and Electricity 
 Operation and Maintenance Management Manual 
Training Module - D 
Community Based Financial 
Management 
 
DEMEWOZ CONSULTANCY 
17
3.5 
Session 
– D3: Principle of Cost Recovery and Cost Categories 
MODULE 
– D:
 
COMMUNITY BASED FINANCIAL MANAGEMENT FOR RURAL 
WATER SUPPLY SCHEMES 
Session 
– D3 
Principle of Cost Recovery and Cost Categories 
Step 
– 
1: 
Introduction 
 
 From time immemorial, mankind used to incur cost intentionally or 
unintentionally in his daily life.
 A man has to get what he wants against equivalent cost.
 Costs are incurred not only during the exchange of transaction but also 
invariably incurred in transforming inputs into outputs.
 Hence, one can say that our daily life is subject to various kinds of cost 
exposures. Management accounts define costs as the sacrifice or giving up 
of economic resources to obtain the given output.
 They are sacrifice because they are usually incurred in the day-to-day 
coordinated activities of mankind in the field of production of goods and 
services.
Step 
– 2: Cost 
Recovery 
Concept 
 The cost recovery principle emphasizes the coordinated effort of the water 
system to cover the entire cost of running the water supply scheme from 
sales of water.
 
The cost is said to be fully covered if the ration of total revenue to that of total 
O&M cost is grater that 1. This case may be changed in the case of rural 
water supply, that the ration can be equal to 1. This clearly stated in the 
Ethiopian Water Resources Management Policy.