A proposal budget simply refers to a document which specifies how the money will be allocated to implement the project activities described in the proposal. The budget gives a clear picture of all expenditures involved in carrying out a project. In short, a budget is a description of the project in numbers.
A proposal budget must include the costs required during the performance of the project backed up with details of how, where and when it is going to be used and why the cost is important for attaining the project goal. Most donor agencies prefer to have the costs spread over different headings to get an overview of how the resources have been divided between different categories. The two most common ways to sort expenses in proposal budgets are by activity or by line-item.
Note: always follow the guidelines established by the donor when designing a budget.
Types of Costs to be included in the Proposal Budget
A proposal budget should reflect a project plan. When drafting a proposal budget, list out all direct or indirect costs that you think can be presented to the donor in a proposal. Then use the principle of “Allowable, Allocable and Reasonable” to justify the legitimacy of the listed cost.
Allowable: what is the limitation of the grant proposed by the donor
Allocable: are the expenses being solely allocated to an achievement of the project goal
Reasonable: does the quoted cost matches the market price
Operational costs are the expenses which are related to the implementation of a project. They are non-discretionary expenses that are used to keep the project running. If a project is to provide hygiene education to girls, the operating expenditure of the project might be things like organizing training, trainers fee, campaign materials, rent of training hall etc.
A project needs a human resource. The personnel cost is the salary or any other compensation made to the staff members directly contributing to the development and execution of the project. To justify the cost always list out the details of the staff, their responsibilities and time s/he will provide for the project. A portion of the salaries of upper managers who perform the administrative duties necessary to keep your NGO functioning can also be added to this. For example, if a chief accountant is only giving 25% of the time to it, the salary will be budgeted towards this time only.
Just as for-profit organizations, an NGO also needs working capital to function not only a single project but an organization as a whole. It may be building a new office space or buying technical equipment to support the smooth running of the organization. Many donor agencies do not support capital cost and advice NGOs to cut out capital costs from the budget. However, there are some donor agencies who explicitly support fixed asset acquisition and technology improvements in addition to project and operating funding.
Some costs incurred towards the operation of a project are not limited to a project only, but for the organization as a whole. Also, sometimes listed as an administrative cost. Costs here can include; legal and consultant’s fee, salary of staffs-not directly involved in the project, purchasing office supplies, utility bill and other office maintenance expenses. There is no instructed maximum percentage of total expenses that you may present as an administrative or an overhead cost on a proposed budget. But many donors allow a 10 to 15 percentage of the total budget as an overhead cost.
In a proposal budget, do not just show the cost but also include funding from other sources. In many cases, a donor will only grant partial funding for a project. Donors are interested in an NGO who has a diversified funding source. It shows the sustainability of not only the project but an organization as a whole.
Other Funding Sources
Many donors urge NGOs to diversify their funding sources. Often it is seen that the chances of success for a proposal grow with the number of funding sources. So, if you have any other source that is funding your organization show on your budget. It can be a grant from different donor or cost shared by Board members or contribution from the community. The reason donors want to see the diversified funding sources is to calculate the financial stability of a project and of an NGO.
Types of Support: Beyond Grants
Do not forget to include other types of support that your project is received in your budget. Any expense that is being covered by an in-kind contribution, pro-bono support, volunteers or a co-payment should be deducted from the total cost of the project.