How can I start developing a project budget?
A project proposal has several components such as project goals, objectives, results, strategies, and activities. With so many sections, how and from where you can start the process of developing a project budget.
An ideal way of starting to develop a project budget is to look at your project activities. Although the project development process requires you to go back and forth from goals, objectives to strategies and activities and back again, but once your activities are ready, then you have achieved a great level of clarity.
No matter how complicated the budget format of a proposal application is, the first step towards developing a project budget is to first note down all your activities and then attaching costs to them. This is the most logical and easiest way to develop a budget for a proposal.
How can I use Project Activities to prepare my project’s budget?
As project activities influence the budgeting of your project, it is important to gain greater clarity about them. If you know the specifications of your project activities, then budgets can be developed more easily and more frequently. We will understand this from the following example.
Let us say that you, as an NGO in Nepal, are proposing a project about building the capacity of civil society leaders in the country. One of the activities you will mention under this project is:
‘Organize workshops for civil society leaders in Nepal’
Now when you start developing a proposal and look at this activity above, you will find yourself a bit confused.
However, what if you have mentioned the same activity as:
‘Organize 3 workshops for 15 civil society leaders in Kathmandu’
Don’t you think now it is easier for you to develop the project budget? In the last example, you are now absolutely sure how many workshops you need to organize and for the number of participants and you also have the idea of its location. You can quickly calculate the costs based on the above specifications.
Even your donor agencies will be highly impressed if you visualize your activities with greater clarity and mention them in your project proposal. If your list of activities is clear and precise, most part of your budget work is done!
What are the other costs that can be mentioned apart from activity costs in a project budget?
Donor agencies emphasize on covering activity costs. In fact, some donors can only fund activities. However, for larger project proposals, there will be overheads and staff costs on top of the activities that are listed out. To implement activities you are required to have human resources, an office, and other operational mechanisms. These costs often fall under the line-item budget.
Human resources can be costs towards salaries for project officers, project assistants, accountant, or even consultants responsible for implementing the activities.
There are operating costs like rent, telephone, travel that are necessary to support the successful execution of your project activities.
Costs towards monitoring and evaluation should also be included in the budget. In most project proposal formats, donors require NGOs to submit a monitoring and evaluation plan. This plan may require extra costs like hiring an external evaluator or carry out extra research work. The costs associated with such a process can be mentioned in the budget.
Some costs for contingency can be added if your NGO is working in a volatile situation where most conditions are out of control such a conflict-affected project area. In any case, you need to justify this amount and it may require some break-up to be done like costs towards communication during an emergency, etc.
How to calculate staff time in a project budget?
In some project proposal formats, you may have come across ‘staff time’ or the number of ‘man-hours’ required in the project. Large donors are very meticulous about these details and require minute calculations for the money they are going to give to organizations. So they expect budgets to be clear to the last detail.
Salaries are a very sensitive part of the project budget – even for the donors. More and more funders are resisting allocating money for salaries and overheads. As they tend to become extremely controversial, it is important for NGOs to be absolutely transparent about this part of the budget. Donors would be happy to cover salaries if properly justified.
If you are calculating the project manager’s salary during the budgeting process, you can first ask yourself the number of hours the manager is expected to work in a day. You should reflect your local conditions and local market salary rate. Do not inflate salary costs unnecessarily as it would irritate donors very easily. To justify the donor that you are paying the salary as per the local market rate, you can refer to some examples like government salaries or other project salaries.
If your manager is expected to work 8 hours a day, then you can calculate the salary on a per hour basis and the total on a monthly basis. You can mention the number of ‘man-hours’ the manager is expected to give in a month’s time and the unit as the per hour rate. Then you can mention the total salary of the manager.
Overhead costs refer to those expenses that are required by the organization to run its operations and they do not cover any direct expenses of project activities. However, they still form a part of many project budgets.
Overheads can include office rent, telephone expenses, accounting fees, salaries to the organizational staff, repairs, supplies, travel, etc. During recent years, overheads have become an extreme issue for donors. The less you talk about it, the better but for smaller organizations without a strong financial background, the overheads are an important issue.
The question is now whether to include overheads or not in your project budget?
You should first refer to the proposal submission guidelines to find out if the donor agency allows you to include overhead or at least administrative expenses in your project. Some donors will only fund activities and will put a condition to grantees that they should not directly propose overheads to them or they should source this type of expense from elsewhere.
If the donor does allow you to include overheads in the project budget, you can feel a bit relieved. However, now almost all types of donors want NGOs to specify a certain percentage of the overall project budget for overheads. In most cases, it should be 10%-15% but not more than that. Even if you mention it more than 10%, then you need to provide enormous justification.
Suppose your project is located in a very tough geographical landscape such as in remote mountains and you require spending a lot of time and resources on traveling, then an overhead expense above 10% is justified. But in most cases, where project conditions are easier, you should not request more than 8% of overheads.
Also, once your project is approved, there may be some scope for revising budgets, you can directly negotiate with the donor for slightly increasing the overhead costs.