Budget Allocation and Resource Planning

Compiled by:
Leonellha Barreto Dillon (seecon international gmbh)

Executive Summary

If you or your organisation is preparing a proposal to apply for funds to carry out a project, there are a number of sections you will have to complete. However, what you do or do not include in the budget section of your application could be the difference between success and failure. In the following lines, you will find the principles of developing a budget, including the type of costs and how to calculate them. Furthermore, you will find tips on how to prepare a successful, honest and well-balanced budget, in line with the activities set in your project proposal.

A budget is defined as patterns of expenditure and revenue over the life of the project (SEAGA 2001). In general, it is a prediction of the possible costs that will be incurred by carrying out the activities planned in a project.
Realistic planning of finances is key to the implementation of a project or programme. A professional and transparent approach to budget planning will help convince investors, development banks and national or international donors to make financial resources available (PHILIP et al. 2008).

 WSP 2004

Considering all different tasks when allocating the budget can be a challenge… Source: WSP (2004)

Generally, the budget has mainly two functions. First, it estimates, as realistically as possible, the cost of completing the objectives identified in the project proposal. The sponsoring agencies will use the budget details to determine whether the proposal is economically feasible and realistic. Secondly, the budget provides a means to monitor the project's financial activities over the life of the project. In this way, it is possible to determine how closely the actual progress toward achieving the objectives is being made relative to the proposed budget (UNIVERSITY OF VIRGINIA 2010).

Many sponsors, especially government agencies and international organisations, provide either a form or a format for the budget. It is therefore imperative to follow the donor’s instructions explicitly. In fact, the first thing you should do is read the application guidelines carefully so you are sure of what you need to include — or exclude — in your budget.

In case there is not a specific guideline for the development of your budget, the following section will help you to prepare a realistic and well-balanced budget.

How to Start?

Before drawing up the budget, it is necessary to get an overview of the type of inputs needed to achieve the objectives of the project. Typical categories may be, for example (adapted from PHILIP et al. 2008):

 

● people (such as researchers, consultants, other partners’ staff-time)

● travel costs (such as bus tickets, meal allowance)

● vehicles (such as rental, petrol, driver’s time)

● equipment (such as machinery, measuring instruments and other tools)

● consumables and supplies (such as material, pumps, bricks or containers)

● Subcontracts (services and construction work)

 

Listing all the categories in columns in a spreadsheet application, such as excel, will help you to organise your costs. As the budget should be in line with the activities set in the work plan, you should work through the narrative of the proposal identifying all the costs that must be incurred in order to carry out each single activity planned. In order to identify systematically the different expenditures, make sure you list all the activities in the rows of the same (excel) table, where you previously defined of the costs categories.

 

Further Budget Development

Once you have identified the type of expenditures your project will have, the next step is to classify them according to standard budget categories. Budget’s items are generally divided into two classifications: direct costs and indirect costs.

According to the European Commission (EC 2009) “direct costs are all those eligible costs which can be attributed directly to the project and are identified by the beneficiary as such, in accordance with its accounting principles and its usual internal rules”. Direct costs can be:

 

  • Personnel costs: They should reflect the total remuneration, including salaries plus social security charges (holiday pay, pension contribution, health insurance, etc). Usually, the personnel costs are calculated in terms of ‘man days’ or ‘man months’ of junior, medium and senior grade persons. You will have to identify the productive hours per employee per year to compute the hourly rate, and these should exclude annual leave, public holidays, weekends and sick leaves.
  • Travel and subsistence allowances: First determine what travel expenses the granting agency will allow, and then itemise the cost of each trip, e.g., round-trip airfare, lodging and meals, taxis, visa, etc (UNIVERSITY OF IDAHO 2010). You can plan the reimbursement of the costs to your employees based on actual costs or a lump sum or per diem payment. This last can be calculated through a simple addition of the possible costs that one employee might have spending one day (with and without night) outside his/her residential area.
  • Vehicles: Usually, this cost will be included in the travel and subsistence item. You will need to consider the costs of renting or maintaining a car for the purposes of the project. If you plan to drive your own car, you may claim a certain amount per mile.
  • Durable equipment: Any item which will retain its usefulness beyond the grant period is considered capital equipment. Funding agencies have different views on the purchase and maintenance of equipment, so be sure you know the policy of the agency before including such costs in your budget (UNIVERSITY OF IDAHO 2010).
  • Consumables and supplies: Include enough supply money for all activities in the project. Typical consumables are stationery, duplicating supplies, typing/computing supplies, and software.

 

Indirect costs are all those eligible costs which cannot be identified by the beneficiary as being directly attributed to the project, but which can be identified and justified by its accounting system as being incurred in direct relationship with the eligible direct costs attributed to the project (EC 2009). Indirect costs, also called overheads, Facilities & Administrative Costs, typically are costs of operating and maintaining buildings (electricity/gas/water bills), grounds and equipment, depreciation, general and departmental administrative salaries and expenses and library costs. Rules for determining the overhead in a funding programme is usually given by the donor, so be sure to find out what percentage, if any, the funding source will allow for indirect costs, and determine which portion of your budget the percentage applies to (EPA 2010). Sometimes indirect costs are a percentage of the total direct costs, or of the personnel costs, or of the salary and wages item alone.

When you are determining the actual rate of the costs related to your action, be as close to reality as possible. It is important that the budget is compiled in close cooperation with staff from the financial department, so you would obtain realistic numbers.

 

 

Total

Total Requested

Total Match

 Total this Grant

$100,671.12

$78,362.62

$22,308.50

 Personnel

 

 

 

 Salaries and Wages

44,950.00

43,200.00

6,750.00

 Fringe Benefits

12,148.62

10,479.12

1,669.50

 

 

 

 

 Non-Personnel

$38,572.50

$24,683.50

$13889.00

 Consultants and Contract Services

15,664.00

4,800.00

10,864.00

 Equipment

7,710.00

7,085.00

625.00

 Supplies

1,287.00

1,287.00

- 0 -

 Travel

1,761.00

1,761.00

- 0 -

 Other Costs

12200.00

9,800.00

2400.00

A budget format has usually three parts: (I) Personnel costs, and (II) Non-Personnel costs, (III) Indirect Costs. Source: EPA (2010)

 

More Tips for The Development of Your Budget:

 

  • It is important that the budget is realistic, as otherwise a donor will not take it serious. On the other hand, an underestimated budget might lead to a standstill or even a complete termination of activities in the midst of implementation (PHILIP et al. 2008).
  • Before preparing a budget, determine what would be an appropriate amount to request. The guidelines usually tell you the maximum amount allowed. Request the maximum if you can justify it, but never request more money than the programme allows (UNIVERSITY OF IDAHO 2010).
  • The numbers should be specific. Rounding an item to the nearest thousand dollars does not inspire confidence. It also suggests you have not done much work preparing your budget (EPA 2010).
  • Your planning should allow for contingencies. For example, a cost of living increase will happen before the grant begins. In this case, you should base salaries on the increased salaries (EPA 2010).

 

Some donors require that some part of the cost of a project be borne by the applicant institution. When cost sharing is required and no rate is specified, about 5 to 10% is acceptable (EPA 2010). This is usually provided by pledging some portion of personnel salaries and in some cases, indirect costs. Therefore, do not forget to list in-kind support and matching revenue, where appropriate.


 

Applicability

Budgets are prepared along with the development of a project proposal; therefore they are applicable in every project cycle.

Advantages

  • Developing the budget is an excellent test of how clearly and completely the project has been described (UNIVERSITY OF IDAHO 2010)
  • To organise your budget according to the commonly used categories would save you time and efforts when applying to different funding programmes
  • The budget provides a means to monitor the project’s financial activities over the life of the project
  • A budget provides a framework for expenditure to achieve the objectives of the project in an efficient manner
  • Careful resource planning will decrease the number of changes of the budget during the lifetime of the project. Also, careful planning shows honesty

Disadvantages

  • The preparation of budgets costs time and money, and only in specific cases the project idea will fit a call of proposals
  • As a budget is an estimation of the project expenses, it is never accurate, and therefore it can bring problems during the implementation phase
  • Poor financial planning can lead to budget constraints in the midst of operations and even complete termination
  • Unrealistic budget planning causes failure to gain political support

References Library

EPA (Editor); U.S. ENVIRONMENTAL PROTECTION AGENCY (Editor) (2010): Tips on Writing a Grant Proposal. URL [Accessed: 08.05.2010].

EUROPEAN COMMISSION (Editor) (2009): Guide to Financial Issues relating to FP7 Indirect Actions. Seventh Framework Programme. URL [Accessed: 08.05.2010].

PHILIP, R.; ANTON, B.; BONJEAN, M.; BROMLEY, J.; COX, D.; SMITS, S.; SULLIVAN, C. A.; NIEKERK, K. van; CHONGUICA, E.; MONGGAE, F.; NYAGWAMBO, L.; PULE, R.; BERRAONDO LOEPEZ, M. (2008): Local Government and Integrated Water Resources Management (IWRM) Part III: Engaging in IWRM – Practical Steps and Tools for Local Governments. Freiburg: ICLEI European Secretariat GmbH. URL [Accessed: 17.04.2012].

SEAGA (Editor) (2001): Project Cycle Management Technical Guide. Rome: FAO. URL [Accessed: 05.09.2010].

UNIVERSITY OF IDAHO (Editor) (2010): Grant Proposal Budget Preparation. URL [Accessed: 08.05.2010].

UNIVERSITY OF VIRGINIA (Editor) (2010): Budget preparation. Office of Sponsored Programs. URL [Accessed: 08.05.2010].

WSP (Editor) (2004): Calendar 2004 July. Washington, DC: Water and Sanitation Program (WSP). URL [Accessed: 23.12.2011].

Further Readings Library

Reference icon

PHILIP, R.; ANTON, B.; BONJEAN, M.; BROMLEY, J.; COX, D.; SMITS, S.; SULLIVAN, C. A.; NIEKERK, K. van; CHONGUICA, E.; MONGGAE, F.; NYAGWAMBO, L.; PULE, R.; BERRAONDO LOEPEZ, M. (2008): Local Government and Integrated Water Resources Management (IWRM) Part III: Engaging in IWRM – Practical Steps and Tools for Local Governments. Freiburg: ICLEI European Secretariat GmbH. URL [Accessed: 17.04.2012].

The set of materials entitled “Local Government and Integrated Water Resources Management (IWRM)” aims to assist Local Governments with active participation in IWRM. The materials are primarily targeted at local government officials, but are considered equally useful for individuals and organisations that work with local governments in the management of water resources.


Reference icon

POTTER, A.; KLUTSE, A.; SNEHALATHA, M.; BATCHELOR, C.; UANDELA, A.; NAAFS, A.; FONSECA, C.; MORIARTY, P. (2011): Assessing Sanitation Service Levels. (= Wash Cost Working Paper, 3). Delft: International Water and Sanitation Centre (IRC). URL [Accessed: 07.11.2011].

The purpose of this working paper is to set out sanitation service levels to be applied as an analytical tool for WASH-Cost research on the disaggregated unit costs of water, sanitation and hygiene services. It should be read together with Working Paper 2: "Ladders for assessing and costing water service delivery", which introduces the concept of service levels, service level indicators and the use of ladders as a metaphor and a means to differentiate between broad levels of service. Both are working documents of the WASHCost team, aimed at providing a framework for data analysis to be used and tested by WASH-Cost.


Reference icon

FONSECA, C.; DUBE, A.; VERHOEVEN, J. (2011): Cost-based Decision Support Tools for Water and Sanitation. (= Wash Cost Working Paper, 4). The Hague: International Water and Sanitation Centre (IRC). URL [Accessed: 07.11.2011].

This working paper provides an overview of Decision Support Tools (DSTs) using disaggregated costs in the water and sanitation sector. The DSTs have been developed by international organisations for planning and budgeting interventions in low income settings. It highlights the disaggregated costs used for each tool and makes recommendations for matching them to practitioners’ needs and capacities.


Reference icon

WSUP (2013): 100 percent Access by Design . A Financial Tool for Urban Sanitation. (= Practice Note, PN#009, MAY 2013). London: Water and Sanitation for the Urban Poor (WSUP). URL [Accessed: 06.06.2013].

This Practice Note from WSUP (Water and Sanitation for the Urban Poor) describes an Excel-based financial analysis tool which generates reliable costings of different options for achieving 100% sanitation access across low-income and non-low-income areas.


Reference icon

IRC (2011): Applying the Life-Cycle Costs Approach to Sanitation. (= Briefing Note, 3). The Hague: International Water and Sanitation Center (IRC). URL [Accessed: 07.08.2013].

This briefing note presents an application of the life-cycle costs approach (LCCA) to sanitation in rural and peri-urban areas in four different countries— Andhra Pradesh (India), Burkina Faso, Ghana, and Mozambique. The document compares the differences between the financial costs of traditional and improved latrines, and the quality of service delivered to users.


Case Studies Library

Reference icon

NORMAN, G.; PARKER, S.; WSUP (Editor) (2011): Business models for delegated management of local water services: experience from Naivasha (Kenya). (= Topic Brief, 2). London: Water & Sanitation for the Urban Poor (WSUP). URL [Accessed: 03.03.2011].

This Topic Brief describes a business model for delegated management of local water services, recently developed with WSUP support in the Kenyan Rift Valley town of Naivasha. This business model is designed to ensure affordable but high-quality services for consumers, profitability for the operators, and sufficient revenues for sustainable asset maintenance.


Training Material Library

Reference icon

SEAGA (Editor) (2001): Project Cycle Management Technical Guide. Rome: FAO. URL [Accessed: 05.09.2010].

This guide contains useful sections on project identification, design, appraisal and also proposal preparation.


Reference icon

UNIVERSITY OF VIRGINIA (Editor) (2010): Budget preparation. Office of Sponsored Programs. URL [Accessed: 08.05.2010].

This 7-page document tells you how to prepare a budget.


Reference icon

UN-HABITAT (2013): Finance Policies and Procedures Manual. Nairobi: UN-HABITAT. URL [Accessed: 28.03.2013].

This manual is part of a Utility Management Series for Small Towns. This volume is intended to provide guidance to those engaged in execution of finance and accounts function in water utilities for systematic and consistency in their financial work. The manual comprises of methods and measurers adopted by a utility to safeguard its assets, secure the accuracy and reliability of its accounting data and promote operational efficiency. The manual also provides an introduction to finance policies and procedures, role of key officers in financing and accounting functions, how to budget and dealing with various financial transactions. Demonstrates how internal accounting control extends beyond internal checking, internal audit and other matters relating directly to the accounting functions.


Important Weblinks

http://www.epa.gov/ [Accessed: 17.08.2010]

This web page of the United States Environmental Protection Agency provides information on the nutrient management and the production of fertiliser out of human waste like for example manure or sludge. Further links to related topics are available.

http://www.nonprofitgrantblog.com/ [Accessed: 20.09.2010]

This site contains videos, tips, articles related to the financing of projects.

http://www.un.org/ [Accessed: 19.05.2010]

This site contains a list of links related to the strategic planning and writing of project proposals and concept notes.

http://www.uro.uidaho.edu/ [Accessed: 20.09.2010]

This site present tips and tricks on how to develop a budget.

http://foundationcenter.org/ [Accessed: 16.02.2011]

The subject of this short course is proposal writing. It is available in French, Chinese, Portuguese, Russian and Spanish.

http://www.irc.nl/page/79727 [Accessed: 07.08.2013]

This video by IRC’s WASHCost project examines the full costs of building traditional latrines in Mozambique. There, cost data for planning are collected by local authorities. They gather the information around households in the area. Households are visited and their sanitation situation is assessed. This gives a clear picture of what is actually achieved.