Chapter 7: Budgets
Here is the deal: If your budget doesn’t add up, you're not getting the grant. Even with the best idea, a perfectly laid out plan, and the top team assembled, your proposal will fail if you cannot demonstrate its financial feasibility. This underscores the fact that a well-structured grant budget is more than the mere fulfillment of a formal requirement; it is a pivotal tool that can decisively influence the outcome of your grant application.
A robust grant budget serves multiple essential functions. First, it acts as a testament to your organization's dedication to sound financial management, assuring funders that their investment will be judiciously utilized. Such demonstration of financial responsibility is not merely about tracking dollars and cents but about reinforcing the trust that funders place in your initiative.
Further, a well-prepared budget establishes the feasibility and sustainability of your project. It allows you to thoroughly evaluate your project's financial health, pinpoint potential shortfalls, and convincingly demonstrate its long-term viability to your funders. This financial planning helps in laying a foundation that supports not just the current project but also paves the way for future endeavors.
Finally, a transparent and well-prepared budget builds trust with funders. It showcases your commitment to accountability and transparency, setting the stage for enduring collaborations. In grant writing, a clear and concise budget is not just about numbers—it's about building relationships based on trust and shared goals. Through this chapter, we will delve into how to craft such a budget, one that aligns perfectly with both the strategic objectives of your project and the expectations of your funders.
Understanding Grant Requirements
The first step in writing a budget for a grant is to thoroughly understand the funding body’s specific requirements. This stage is essential, as each grantor will have different financial guidelines, restrictions, and expectations that can significantly influence how you structure your budget. Start by obtaining and studying the grant application guidelines in detail. These documents usually outline what costs are allowable, which are not, and any limits on certain types of expenses, such as indirect costs, travel, or equipment. Knowing these details upfront can save you from costly missteps in budget preparation.
Each funding body has its own set of rules regarding financial matters. For example, the Russell Sage Foundation only allows indirect costs of up to 15%, rather than the standard negotiated rates many organizations have, and the Commonwealth Fund won’t fund projects that support more than 50% effort of university faculty members. It is essential to identify and understand these limitations to make certain that your budget aligns with the funder’s rules and thus stands a better chance of being approved.
In order to truly understand what the funder is looking for you will want to do the following:
Review the Grant Guidelines Carefully
Begin by closely examining the grant application guidelines. Typically, these documents detail the expenses that are permitted, those that are not, and any restrictions on specific categories of costs, including indirect costs, travel, or equipment. It's important to make notes of any special categories or unusual stipulations that deviate from the norm, as these can impact your budgeting strategy. Additionally, some funders provide a budget worksheet that you can use, which can greatly simplify the process of aligning your budget with their specific requirements. Being familiar with these specifics from the start can prevent expensive errors in the preparation of your budget.
Identify Specific Financial Rules and Limitations
Each funding body has its own requirements and they can vary widely. It is essential to identify and understand these rules to make sure that your budget aligns with the funder’s wishes.
Understand Cost Matching or Sharing Requirements
Many grants require the recipient to match a portion of the funding or to provide a detailed plan of how funds from other sources will complement the grant. This could involve financial contributions from your organization or third-party funding. Neglecting this area, if it is required, is generally enough to disqualify your application.
Clarify Reporting and Auditing Expectations
Knowing what financial reporting will be required during and after the grant period can impact your budget planning. For example, if the funding body requires detailed, periodic auditing of expenses, you may need to budget for audit costs or appropriate personnel.
Seek Clarification When Needed
If any aspect of the funding body’s financial guidelines seems ambiguous, do not hesitate to seek clarification. Contacting the grantor directly to ask questions can uncover critical insights and prevent misunderstandings that could potentially derail your grant proposal.
By thoroughly understanding and carefully adhering to the funding body’s requirements, you can craft a budget that not only meets the formal criteria but also effectively supports your project’s goals. This initial step guarantees that your proposal is built on a solid foundation, enhancing your chances of securing the grant.
While allowable expenses can vary significantly between different grantors and types of grants, there are some “usual suspects” in terms of what you might expect to see. Here are some common examples to give you a general idea:
Typical Allowable Expenses
- Personnel Costs: Salaries and wages for staff who will be directly involved in the project, including fringe benefits such as health insurance and retirement contributions.
- Equipment: Costs for equipment necessary to carry out the project. This usually covers items that have a useful life of more than one year and exceed a certain cost threshold specified by the funder.
- Supplies: Expendable materials and supplies directly related to the project.
- Travel: Costs for travel essential to the project, which could include transportation, lodging, and per diem expenses for staff attending conferences, conducting fieldwork, etc.
- Subcontracts: Costs associated with subcontracting part of the project to another entity.
- Consultant Fees: Fees for external experts who provide specialized services for the project.
- Indirect Costs (Overhead): These are expenses that support the overall operations of your organization but are not directly linked to a single project, such as administrative support, utilities, and facility maintenance. The allowance for indirect costs can vary greatly and is often negotiated with the funder.
Typical Non-Allowable Expenses
- Capital Improvements: Major renovations or construction projects may not be covered unless they are essential to the project’s success and specifically allowed by the grant.
- Entertainment Costs: Expenses for social activities, ceremonies, receptions, or other entertainment are generally not funded.
- Alcoholic Beverages: Purchase of alcoholic beverages is almost universally prohibited in grant budgets.
- Fundraising Costs: Expenses related to fundraising events or activities are usually not allowable.
- Bad Debts: Writing off bad debts or covering losses from other projects is not permitted.
- Certain Types of Travel: First-class airfare or luxury accommodations might be restricted under the grant’s travel policies.
- Membership Fees: Costs related to membership in clubs or social organizations are typically disallowed.
Understanding these general categories will help in drafting a budget that aligns with typical funding guidelines, but always refer to the specific guidelines provided by your grantor. They might have unique rules or exceptions that apply to your particular situation or field of work.
Key Components of a Grant Budget
A well-organized grant budget is a critical component of a successful funding application. It not only demonstrates the financial feasibility of your project but also conveys your meticulous planning and organizational capability.
There are two parts to most grant budgets, the spreadsheet and and the budget justification. The spreadsheet is a form, either provided by the granting agency or prepared by the grant writer, that identifies the major budget categories and lays out your plan for the financial award. The justification portion is a narrative that explains WHY you are making the requests, and HOW each of the items aligns with your project’s goals.
Although there will be some variation between funders, some budget categories are considered standard–personnel, equipment and supplies, travel, contractors and sub-awards, and indirect costs.
Personnel Costs
This section includes all expenses related to staffing for the project, and is often the largest portion of the financial request. It details the salaries, wages, and fringe benefits for individuals who will directly contribute to the project's objectives. This can be broken down by position (e.g., project manager, research assistant) including the percentage of time each staff member will dedicate to the project, which helps justify the cost. Figure 7.1 is an example of a very simple budget spreadsheet and you can see that this proposal budgets for two people.
Provide information for all of the roles on the project, regardless of whether or not the individual’s salary will be funded by the award. Committing effort to a project without being funded for it can be considered cost-sharing, which will be covered later in this chapter.
The budget justification for personnel should include:
- The name of the individual or TBA for roles that have not been filled
- Role title on this project
- Amount of effort devoted to the project. Some federal proposals ask for this to be expressed in months, otherwise it should be calculated in terms of percentages
- A very brief description of the role responsibilities in relation to the specific goals of the project
Equipment and Supplies
Here, you list all the equipment and supplies necessary to achieve the project goals. Equipment usually refers to durable items with a useful life longer than one year and a purchase price that exceeds a certain threshold. Supplies are consumable items like office materials, lab supplies, or software that are essential to project activities. Pricing should be current and sourced responsibly to reflect cost efficiency. In the example in Figure 7.1 they have proposed a budget of $1,250 for supplies.
Travel
This section outlines all travel costs associated with the project. It typically includes transportation, accommodation, meals, and other incidental expenses. The travel should be directly linked to project activities, such as data collection, dissemination of results, or essential meetings, and should comply with the grantor's travel policies. The sample proposal in Figure 7.1 includes one trip to a professional conference for the Principle Investigator.
Other Direct Costs
These are additional project-specific costs not covered under the previous headings. Examples include:
- Consultant Services: Fees paid to individuals or entities that provide expert advice or services.
- Subawards/Subcontracts: Costs associated with outsourcing part of the project work to another institution or company.
- Participant Support: Costs for stipends, travel reimbursements, and other support costs for participants in workshops or training activities related to the project.
The example in Figure 7.1 has $1,700 budgeted under “other” and a separate category for a subcontractor. The specifics of what is included in the “other” category will be found in the budget justification later, however some budget spreadsheets will include more detail.
Indirect Costs
Also known as Facilities and Administrative (F&A) costs, these are not directly attributable to the project but are necessary for its execution. Indirect costs include administrative expenses, utilities, depreciation of buildings and equipment, and maintenance expenses.
The rate at which these costs are calculated is usually either specified in the grant guidelines or through a Negotiated Indirect Cost Agreement (NICRA). The NICRA is a formal agreement between an organization and the federal government that specifies how the organization will calculate their indirect costs. These are negotiated prior to applying for an award. The NICRA rate is the ceiling for what you are able to use for indirect costs. If the award calls for a lower rate, an applicant should use what the grant requirements call for.
If an organization does not have a NICRA and the grant guidelines do not specify the rate at which indirect costs should be applied, there is something called the “de minimis rate”. The de minimus rate is 10% of the budgeted direct costs.This is the rate that the federal government allows for proposals from organizations that do not have a NICRA and is often used by other funding entities as well.
Figure 7.1 Sample Budget Spreadsheet
PERSONNEL | |
Dr. Smart | $207,441 |
Research Assistants | $13,500 |
FRINGE BENEFITS | |
$73,434 | |
TRAVEL | |
APSA Conference | $2,675 |
SUPPLIES | |
$1,250 | |
OTHER | |
$1,700 | |
SUBCONTRACTS | |
Dr. Doolittle | $129,200 |
INDIRECT | $70,800 |
TOTAL | $500,000 |
Total Cost and Justification
The culmination of the budget is a summary of total costs combined with a detailed justification. This justification explains why each item and its cost are necessary to the project’s success, providing context and rationale that can strengthen the funding application.
Figure 7.2 Sample Budget Justification
This is a narrative description of all expenses included in the Budget Form. Funding in the amount of $500,000 is requested for this three-year project. PERSONNEL Principle Investigator: Dr. J. Smart, Professor of Political Science at the University of Northern Iowa, will serve as PI for this project. She will provide oversight of project activities, be responsible for the supervision of all staff and students, and oversee the disbursement of grant funds. Dr. Smart will coordinate the research team and will be responsible for completing and submitting all deliverables to the funding agency. Along with Dr. Doolittle, she will develop all survey instruments, and will be directly involved in all aspects of data collection and analysis. Funds are requested for Dr. Smart for two course releases in year 1, and one course/year in years 2 and 3. Undergraduate Research Assistants (RAs): This project requires two RAs. The RAs will be upper-class undergraduate students at UNI. The RAs will assist in field work and data collection. Each student will work 15 hours per week for 30 weeks, at a rate of $15/hour. FRINGE BENEFITS Fringe benefits are calculated based on current rates. For full-time faculty members, the fringe benefit rate applied for release time during the academic year is 38.60%. TRAVEL A key component of the proposed studies dissemination strategy is the presentation of project findings throughout the study period. Funds are requested to help cover the cost of the PI to attend the American Political Science Association conference in year 1. The costs associated with conference attendance include airfare, lodging, registration, and meals and incidentals, and estimated as follows: Conference registration = $575 Estimated round trip airfare = $600 Meals: $55/day x 5 days $225/night x 5 nights hotel $120 ground transportation from home/office to airport to hotel and back SUPPLIES Software and License The proposed project will utilize qualitative, as well as quantitative data requiring specialized analytical software. Funding for $1,250 is requested for veryfanceesoftware , which will be installed on desktops or laptops that will be used by the PI and RAs. OTHER COSTS Duplication and Printing $1,200 is requested each year to cover costs of printing the survey instruments. This estimate is based on 1,200 pages of survey per month, @ .10 each. Surveys will be collected monthly for 10 months each year. Publication Costs $500 in year 3 year to produce high-quality reports at an estimated cost of $25/copy. Reports will be available to sponsor and collaborators. SUBCONTRACTS A Subcontract will be issued to the University of Somewhere Else, under the direction of Dr. O.P. Doolittle. Throughout the proposed research study, Dr. Doolittle will organize fieldwork, organize storage and retrieval of data for the research team at USE, work with Dr. Smart to organize collection of pre/post measures, supervise data entry, and help with project reports. Total subcontract costs are estimated as follows: Year 1: $50,000 Year 2: $50,000 Year 3: $29,200 INDIRECT COSTS UNI’s federally negotiated Facilities and Administrative costs are 35.4%. A copy of the institution’s indirect cost rate agreement can be found at https://rsp.uni.edu/facilities-and-administrative-fa-or-indirect-costs |
Budget Summary
This concise overview allows the grant reviewer to quickly grasp the financial aspects of the proposal. It includes total direct costs, total indirect costs, and the grand total of all costs associated with the project.
The example shown in Figures 7.1 and 7.2 is a very simple one, made to illustrate the sections included in a typical grant budget.
Including all these sections in your grant budget not only demonstrates thorough planning but also ensures compliance with the funder's requirements. A detailed and well-justified budget significantly enhances the credibility of your proposal, showcasing your project as well-conceived and financially feasible.
Figure 7.3 Budget Development Process
Step-by-Step Process of Budget Development
|
Common Pitfalls to Avoid
When developing a budget for a project, whether it be for a grant application, business project, or any financial planning scenario, there are several common pitfalls that can jeopardize the integrity and success of the proposal. Recognizing and avoiding these pitfalls is crucial for ensuring a robust and credible budget. Here are some of the key mistakes to watch out for:
Underestimating or Padding the Budget
One of the most common mistakes in budget development is inaccurately estimating the funds required. Underestimating costs can lead to a shortfall in funds, which might cripple the project before it achieves its objectives. Conversely, padding the budget – intentionally overestimating expenses to create a financial cushion – can undermine the credibility of the proposal. Funders and financial analysts are skilled at identifying such discrepancies and may view them as a lack of honesty or poor planning, potentially leading to a loss of trust and denial of funding.
Omitting Indirect Costs
Indirect costs are expenses not directly tied to a specific project activity but are necessary for the overall operation, such as administrative services, utilities, and rent. Failing to account for these costs can result in an incomplete budget, misleading the stakeholders about the true cost of the project. This oversight can cause financial strain as the project consumes resources allocated for other purposes. Always double check that indirect costs are clearly identified and justified in the budget.
Failing to Provide a Clear Rationale for Expenses
Each line item on a budget should be accompanied by a justification, explaining why the expense is necessary for the project’s success. A common pitfall is presenting a budget list without explaining the expenditures. This can lead to skepticism from funders or oversight boards, who may suspect budget padding or misallocation of funds. To avoid this, articulate the purpose of each cost and how it contributes to the project’s objectives, enhancing transparency and increasing the likelihood of budget approval.
In Figure 7.4 you can see how the first narrative only partially follows the directions and doesn’t provide much rationale for the listed expenditures. Now, look at the second version. The inclusion of more information about what, precisely, the money will be used for makes for a much better budget justification.
Neglecting to Adhere to Formatting and Submission Guidelines
In addition to content requirements, budget proposals typically come with specific formatting and submission guidelines which may dictate the structure, content, and file format. Overlooking these guidelines can lead to the rejection of the budget proposal on procedural grounds, regardless of its substantive merits. It is important to read and follow these guidelines precisely. Compliance with these rules reflects your attention to detail and respect for the funding process.
Avoiding these common pitfalls in budget development is not just about ensuring the numbers add up correctly but also about demonstrating professionalism and capability in managing financial resources. A well-prepared budget, free from these errors, greatly increases the likelihood of project approval and successful funding.
Figure 7.4
A. Personnel – List each position that pertains to the proposal. The cost calculation should show the employee’s annual salary rate and the percentage of time devoted to the project. 1. Program Director: $50,000/year @ 20% = $10,000. The Program Director currently oversees the program and will spend 20% of her time on the proposed program. 2. Program Coordinator: $35.00/hour x 4 hours/day x 5 days/month x 12 months = $8,400. B. Travel – Explain the reason for travel expenses for students and/or faculty (e.g., student travel to the partner institution, student field trips or site visits, staff travel to conference, etc.) and show the number of people traveling and unit costs. Identify the location of travel. 1. Student Exchange:
C. Equipment - List non-expendable items to be purchased. Explain how the equipment is necessary for the success of the project and, if requested, the procurement method to be used. The organization’s own capitalization policy for equipment can be used unless the funder provides one of its own to follow. One computer package including laptop, printer, scanner, and word processing software will be purchased. The computer will be housed in the administrative office and will be networked into the office network. |
A. Personnel – List each position that pertains to the proposal. The cost calculation should show the employee’s annual salary rate and the percentage of time devoted to the project. 1. Program Director: $50,000/year @ 20% = $10,000. The Program Director currently oversees the program and will spend 20% of her time on the proposed program. The Program Director currently oversees the program and will spend this time hiring, training, and supervising staff, as well as coordinating and managing the grant. The Program Director’s time and efforts spent on the proposed program will be covered by grant funds in year 1. 2. Program Coordinator: $35.00/hour x 4 hours/day x 5 days/month x 12 months = $8,400. The coordinator will be responsible for programmatic needs, reporting and evaluating the program, as well as providing direct services to clients. B. Travel – Explain the reason for travel expenses for students and/or faculty (e.g., student travel to the partner institution, student field trips or site visits, staff travel to conference, etc.) and show the number of people traveling and unit costs. Identify the location of travel. 1. Volunteer travel: Volunteers will travel to Mexico City, Mexico in order to participate in training and to conduct site visits.
C. Equipment - List non-expendable items to be purchased. Explain how the equipment is necessary for the success of the project and, if requested, the procurement method to be used. The organization’s own capitalization policy for equipment can be used unless the funder provides one of its own to follow. One computer package including laptop, printer, scanner, and word processing software will be purchased. The computer will be housed in the administrative office and will be networked into the office network. The office currently only has one computer that cannot be used in the field. The new computer package will be used in the field for maintaining client databases and performing administrative work connected to the project. |
Conclusion
Crafting a well-structured and accurate budget is foundational to the success of any grant proposal. It requires meticulous preparation, adherence to the funder’s guidelines, and a deep understanding of both allowable costs and potential financial restrictions. By starting with a thorough review of the grant guidelines, making detailed notes on any special categories, and utilizing tools such as provided budget worksheets, you can create a budget that not only meets the funder’s criteria but also supports the financial needs of your project. Remember, a clear and rational budget not only demonstrates your project’s feasibility but also reflects your organization's competence and reliability. This diligence in budget preparation can significantly enhance your credibility with funders and increase the likelihood of your project’s approval, ensuring that you secure the necessary funding to achieve your objectives.
Resources
The EPA has developed an online training course to assist their grant applicants in budget development. Although it is specific to the EPA, there are many general principles that can be taken from the modules that they provide. https://www.epa.gov/grants/how-develop-budget
The CDC Foundation prepared a document to prepare applicants to create budgets for federal grants. It includes handy tips for making sure everything is included and good examples of allowable/unallowable items. https://www.cdcfoundation.org/federal-grant-budget-how-to?inline
The Office of Grant Management for the National Endowment for the Humanities published some general guidance on how to calculate indirect costs. https://www.neh.gov/sites/default/files/inline-files/General%20Guidance%20on%20Calculating%20Indirect%20Costs%20%281%29.pdf
References
Brown, L. G., & Brown, M. J. (2001). Demystifying grant seeking. San Francisco, CA: John Wiley & Sons.
Browning, B. A. (2009). Grant writing for dummies (3rd ed.). Hoboken, NJ: Wiley Publishing, Inc.
Commonwealth Fund. (2021, July). Grant budget guidelines. The Commonwealth Fund. Retrieved May 23, 2024, from https://www.commonwealthfund.org/sites/default/files/2021-07/GrantBudgetGuidelines_July2021.pdf
National Endowment for the Humanities. (n.d.). General guidance on calculating indirect costs. NEH. Retrieved May 23, 2024, from https://www.neh.gov/sites/default/files/inline-files/General%20Guidance%20on%20Calculating%20Indirect%20Costs%20%281%29.pdf
National Fish and Wildlife Foundation. (n.d.). Budget narrative guide. National Fish and Wildlife Foundation. Retrieved May 23, 2024, from https://www.nfwf.org/sites/default/files/whatwedo/grants/applicants/Documents/budget-narrative-guide.pdf
Russell Sage Foundation. (n.d.). Apply for project grants: Budget. Russell Sage Foundation. Retrieved May 23, 2024, from https://www.russellsage.org/how-to-apply/apply-project-grants/budget
United States Environmental Protection Agency. (n.d.). How to develop a budget. EPA. Retrieved May 23, 2024, from https://www.epa.gov/grants/how-develop-budget