How to Develop a Budget for your Project Proposal?

Developing budgets for your project or for even your organization is one of the most time-consuming tasks.

Often we think that a budget is a simple format attached to a project proposal and you need to fill it according to the activities and strategies proposed in the project. However, when you start opening up a proposal backward, you will realize that the budget is a critical component of the project.

We have decided to develop a project proposal because we have understood and realized that there is a budget to support it. We also feel that the project needs can be fulfilled only if a budget is available for them. In fact, the budget determines the boundaries of the project. A budget is also one of the final determining factors for a project to receive its funding. If the budget is too high, the donor agency may either ask you to reduce it or in some cases, also reject the entire proposal if it is a highly competitive application process.

So understanding and developing a proposal is an important exercise of your proposal development process. In other words, “it is a program explained in monetary terms.” The reason why we need a budget is not just to plan your project expenses but also to convince your donors that you will deliver value to whatever money they give to the project.

This is a very important question because a project proposal is a lengthy document comprising of several different components. There is an introduction part, a background story, an explanation to justify the project, there are of course goals, objectives, and strategies. But what is that single page in the proposal to which every donor would turn and look into before giving a final decision?



What does the Donor Look inside the Proposal Budget?

For every donor, it is important that there is ‘transparency’ in the process of developing and implementing a project. Transparency is about involving stakeholders, sharing ideas, and building the project with every real activity connected to your goal and objectives.

‘Impact’ is necessary because of which most proposals seek enormous information about the expected results. In fact, big donor agencies dedicated several pages of their proposal format documents on ‘results analysis’ to identify and understand that every penny spent will generate some impact at the ground-level. Further, the monitoring and evaluation process defined inside a proposal determines the ability of the agency to assess the impact the project will create in the long-run.

Capacity’ is also another important component of a project proposal. Donor agencies are interested to know how the organization proposing to implement a project is positioned with its skills and capacity. For example, if your organization has proposed to implement a project on ‘human rights empowerment’, the donor agency is going to assess if it has got some previous experience in human rights and at what level. Similarly, any women-empowerment projects require proposing NGO to justify that it has got the right skills to execute such a project. Capacity also includes the number of experts you have in your organization on the subject. In some proposals, they also request information about your staff so that the donors are convinced that the project execution is in the right hands.

Donor agencies while reviewing project proposals are often under the habit of comparing project proposals. In highly competitive bids, this is very much prevalent. How other organizations have framed their project activities and strategies to achieve the desired goals and what type of resources they are using. But the one last thing that influences most donors is what type of ‘budget’ the NGO is proposing inside the proposal. It is not rare that some donors will read your proposals backward to make sure that the proposed budget is well within reasonable expectations. If the budget is too high (or even too small), the donor will not take an interest in reading the rest of the document.

When you are developing a project proposal, you need to check the application guidelines to find out if a budget limit has been mentioned. If it is not mentioned, then it is an essential part of your activity to collect intelligence about it. You can call the donor agency or research past projects to find out what is the budget limit. Once you know what the budget limit, it is a great eye-opener for you to develop the project.

What are the types of budget?

There are two types of budgets: Activity Budget and Line-Item Budget.

Activity budget, as the name suggests, covers the costs required for implementing a project activity. For example, if your project strategy is about building the capacity of civil society leaders in your area, then you usually organize workshops as part of the activity. Organizing workshops has costs involved: There are costs towards hiring resource persons, booking a venue where participants can gather, their transportation cost, food, lodging and materials, and handouts.

When developing such an activity budget, you need to break up each and every expense as given below. Please make sure that you list the unit costs of each expense. Whether you are organizing the workshop for one day or 3 days needs to show that ‘per day’ expenses of the trainer, participants, etc. Then present the total amount of the activity. This helps the donor get full clarity of the project activity and its costs.

A Line-Item budget can be known under different names but they can be quite complicated, unlike an Activity budget. A Line-item budget requires you to present the budget under broad areas. As you can see in the image below, there are categories (in most cases, given by donors in proposal formats) and you are required to break the budget under these categories. Major donors like USAID, European Commission prefer to have their budgets as line items which can be quite complicated.