Certified Fund Raising Executive (CFRE) Practice Test

Which of the following best describes three hidden costs in a capital project?

1. Staff salaries, marketing expenditures, and venue costs

2. Fundraising, attrition, and inflation

3. Office supplies, utilities, and maintenance

4. Training, insurance, and legal fees

The correct answer is: Fundraising, attrition, and inflation

The correct answer highlights three hidden costs that can significantly impact the budget and overall financial management of a capital project. Fundraising refers to the expenses associated with securing the necessary funds for the project, which are often underappreciated and can include costs such as event organization, marketing for donor engagement, and administrative overhead. Attrition, in this context, involves the loss of key personnel or supporters during the project. This can result in additional costs related to recruiting, training, and possibly compensating for the transition in leadership or staff roles essential for the project’s success. Inflation affects the purchasing power of the project budget over time, potentially increasing costs for materials, labor, and services. As project timelines can be lengthy, the impact of inflation can lead to unanticipated increases in overall expenses, which are often not factored into initial cost projections. Recognizing these hidden costs allows project leaders to create more accurate budgets and develop strategic plans to mitigate these unforeseen expenses, ultimately leading to better management of the capital project.