Step_8_Developing_the_Program_Budget.pdf

Step 8Developing the Program Budget

THIS STEP PROVIDES THE BASIC TOOLS to develop an effective pro-gram budget. It also introduces key terms and defi nitions that will help in understanding the various elements of a budget. Finally, there are a number of examples and tools included both here and online that will be helpful in creating a program budget.

General Budget Overview

When applying for grants typically two types of budgets may be requested—an organizational operating budget and a program budget.

An organizational operating budget details the income and expenses for the fi scal year for the grantseeking organization. An organization may have several projects or programs that it is responsible for implementing and managing throughout the year. A program budget would essentially fall under the purview of the organizational operating budget.

The program budget is one of the most important components of a grant proposal. It provides insight into how a single program plan will be fi nancially executed during the life of the grant or program. The budget also gives funders the opportunity to understand the depth and breadth of the pro-grammatic effort from a fi nancial perspective. One of the fi rst things that funders want to know is what the budget entails and how its money will make an impact if it funds the program or organization. While many organizations have the skills to implement the program plan, it may not necessarily know how to fi nancially explain or manage its program.

Helpful HintBe sure to research what an acceptable in-direct cost rate should be. Some funders have already established their allowable indirect cost rate for any grants they fund. For instance, if a funder will only allow an indirect cost rate of 12 percent, but the organization’s indirect cost rate is 20 per-cent, the program will have to off -set the 8 percent loss in overhead costs in other areas of the budget.

O'Neal-McElrath, Tori, and Mim Carlson. Winning Grants Step by Step : The Complete Workbook for Planning, Developing and Writing Successful Proposals, John Wiley & Sons, Incorporated, 2013. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=1469450.Created from ashford-ebooks on 2022-03-29 23:40:01.

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72 Winning Grants Step by Step

For the purpose of this workbook, only the program budget will be spe-cifi cally addressed.

Basics of a Program Budget

Developing a budget for a grant proposal can be somewhat similar to developing a personal budget. For instance, while personal expenses might include mortgage or rent, utility bills and personal loans, the program budget includes expenses such as salaries, marketing, and other cost items necessary to successfully run the program.

The following is a list of simple stages that are necessary to develop a program budget.

Stage 1: Review, research, and organize budget requirements and information

Stage 2: Develop and document the program budget

Stage 3: Review, update, and review again

Stage 4: Develop the budget justifi cation

Incorporating these specifi c stages into a budget development process will ensure a comprehensive budget that is refl ective of thoughtfulness and planning. Funders will pay close attention to a grantseeker’s efforts to adhere to their budget requirements, document projected revenues, and research relevant expenses for their proposed program.

Stage 1: Review, Research, and Organize

The fi rst stage is a two-part process that starts the budget formulation pro-cess. The fi rst part involves reading the grant application for understanding and clarity, while the second part demonstrates how to research and organize the information to be included in the budget. Let’s begin by understanding the grant application budget review process.

Review the Grant Application for Specifi c Budget

Requirements

Before investing too much time in developing the budget and selecting a budget tool, it is important to read through the grant application and deter-mine what is required. Funders often provide or specify a document or tool that should be used to capture the budget, as well as identify or list specifi c information to be included. As a potential grantee, it is important to follow the specifi c instructions provided in the grant application, supplementing

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Step 8—Developing the Program Budget 73

it with any information (if allowed by the funder) that will make the orga-nization’s fi nancial needs more clear.

Important items to consider in the grant application guidelines before developing the budget may include

• A budget template with instructions including whether or not it is mandatory to use the form

• Instructions on the specifi c budget categories or level of the budget details and how those details should be recorded

• Items that should not be included in the budget

• If a budget narrative should be included and in what format

• Clarity around the percentage of “indirect” or “overhead” an organi-zation is allowed to include in the budget. This will vary greatly from funder to funder, as well as for public funding at the local, state, and federal levels.

While this stage might appear tedious for some, it is absolutely neces-sary to get a funder’s attention, as well as to demonstrate an organization’s understanding of the importance of having its fi nancial house in order. By following directions, an organization further demonstrates its level of com-mitment to its program.

Now that the budget instructions and specifi c requirements have been properly read and digested, it’s time to begin researching and organizing specifi c budget details.

Research and Organize Budget Information

The process of researching, collecting, and organizing the budget data is often underestimated when developing the budget. What if an organization has never used the services of a printer for printing marketing material?

How does the organization know how much it will cost to perform that task? This stage demonstrates the process to collect the information required to determine revenue and expense estimates that will be included in the budget.

Before actually beginning to develop the budget, there are several actions that should occur:

• Identifying the types of revenues and expenses that are included in the organization’s budget

• Researching, developing, or collecting estimates for revenues and expenses

Helpful HintUsing a spreadsheet to document the in-formation researched will help to track and organize the information collected.

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Winning Grants Step by Step74

• Organizing the data to easily facilitate the budget development pro-cess (next step)

• Remembering that budgets consist of good faith estimates—a best guess based on solid research.

Thinking that perhaps this process is time consuming? That would be a correct assumption. It typically is, but organizations that invest in this stage will be one step closer to presenting a budget that is fair and reasonable and a step closer to winning the grant!

Stage 2: Develop the Budget

Now that understanding the budget requirements for the grant proposal is in hand and budget information is organized, it is time to actually develop the budget. The initial action here is to select spreadsheet software, such as Microsoft Excel, to document the budget items. The next step is to fi ll in the budget using the information gathered from Stage 1. It is more likely than not that the funder will provide an online proposal budget spreadsheet, so the more organizations are familiar with spreadsheet software, the easier it will be to navigate the online (and paper) budget spreadsheets.

Selecting a Spreadsheet Software Tool

A number of electronic tools are available to document a budget. The tool selected should be based on the complexity of the budget in addition to long-term needs in terms of compatibility with other software tools. While word processing software like Microsoft Word and WordPerfect can assist with documenting the budget, they do not have the same fl exibility as spread-sheet software like Microsoft Excel and Lotus, as two examples. Spreadsheet software allows the documenting of the data, the application of formulas to the numbers, and the creation of fi gures and graphs using the data in the spreadsheet. Finally, for those who are not “numbers” people, spreadsheet software will help in quickly checking for errors in math.

Establish the Budget Period

Every budget has to have a beginning and ending period called the budget period. This budget period for a program will be one of these three: (1) the

organization’s fi scal year, (2) the program year, or (3) the grant period. For instance, the budget period may cover January 1, 2012, through December 31, 2012.This information should be clearly stated on the budget spreadsheet. Also,

Key NoteFor general operating grant requests, the pro-gram year and fi scal year will be the same.

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Step 8—Developing the Program Budget 75

be sure to note whether the budget covers multiple years (based on the grantee request).

Estimate Revenues and Expenses

In Stage 1, all revenues and expenses that should be included in the budget should be identifi ed. At this point, most revenues and expenses will be esti-mates and should be documented as such. There are instances when actual revenue and expense amounts

are known and, if so, those should be included as actuals.Revenue is income identifi ed and/or already committed for the program

such as memberships, fee-for-service, other grants, and other fundraising endeavors such as special events and individual giving. Depending on the program, your budget may contain several different revenue streams. A list of potential revenue sources includes other foundation support, government funding, and individual funds. In addition, items like in-kind donations of supplies, services, and human capital and other volunteer services should also be listed as revenue sources.

The revenue sources included in the budget will be based on the program and should be estimated according to the expected or known revenue stream. For instance, if the revenue is based on memberships or fee-for-service, the amount can be calculated as follows:

Revenue = quantity of the memberships/fee-for-service × price of membership/fee-for-service or

Revenue = Amount assessed for membership fees and/or services rendered

Example: Revenue Budget Table for Swim 4 Life

Revenues Projected

Individual Fundraising $60,000

Corporate Funding $45,000

Some City School Program Funding $45,000

YWCA $45,000

In-Kind Goods $60,000

In-Kind Services $55,000

Interest $800

Total $310,800

Expenses are the costs of those items required to sustain the program. They are a critical piece of the budget because they identify the costs

Helpful HintKeep in mind that some grants may cover multiple years, thus the need for a mul-tiyear budget. Make sure the budget is consistent from year to year and includes adjustments, like cost-of-living, general service, and product increases.

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necessary to manage and sustain a program. Expenses can be recorded in two categories—direct and indirect costs.

Direct Costs

According to the Nonprofi t and Philanthropy Good Practice guide from the Johnson Center at Grand Valley State University, direct cost: “Includes all items that can be categorically identifi ed and charged to the specifi c proj-ect, such as personnel, fringe benefi ts, consultants, subcontractors, travel, equipment, supplies and materials, communications, computer time, and publication charges.”

They are typically itemized and can be traced directly to the project they support. In Stage 1, we discussed researching, developing, and collecting revenue and expense estimates. This section further highlights why this stage is necessary.

Since these costs are directly related to the project, they should be easy to identify. Here is a short list of potential expenses that may be listed as direct costs or expenses:

• Staff and travel

• Supplies and materials

• Equipment

Calculating direct costs should be kept fairly simple, especially if develop-ing program budgets is a new experience for the organization. For instance, Swim 4 Life employs nine people: one director, one program assistant, and seven part-time staff. For simplicity, all of the employees are salaried. After salaries are researched in the market for the different roles, documentation may look like the following table:

Example: Estimated Salary Table for Swim 4 Life

Role # of Staff Monthly Wages Yearly Total*

Executive Director 1 $4,500 $40,000

Program Assistant 1 $3,125 $25,000

Half-time staff 7 $2,208 (cumulative) $26,500

Total $91,500

*Yearly total calculation = # Staff × Monthly Wages × 12 Months. Salary information should be collected from some market research database.

The “Total” amount listed in the table is the number that will be included in the Salary row of the budget spreadsheet.

In general, this is the process that should be followed when estimating all direct costs associated with a program. While the actual background

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Step 8—Developing the Program Budget 77

research is not demonstrated in this example, the information in the table was derived from a refer-ence data source. Again, this process can be time consuming, but it is necessary.

Indirect Costs

Indirect costs—also known as overhead costs—are costs that are shared within an organization or with another program or project. Using the same refer-ence tool from the Johnson Center, indirect costs are:

“Costs that have been incurred for common or joint objectives of a university or nonprofi t organization and the sponsored program, and which, therefore, cannot be identifi ed specifi -cally in reference to a particular project, such as building operations and maintenance, laboratory space, library service, utilities, and administra-

tive services.” Here is a short list of potential indirect costs or expenses that may be listed as direct costs.

Indirect costs may include

• Utilities

• Information technology support

• Audit or legal staff

• Rent

• Administrative support

• Equipment rental

This estimate is usually determined by using an indirect cost rate.

Helpful HintIn some instances, personnel costs are split between programs because staff may spend only a portion of their time on a particular project. If this is the case, the personnel costs should be determined by using the percentage of time spent on the program budget in question.

Key NoteMany established nonprofi ts already have an indirect rate that can be applied to the budget.

Helpful HintLet’s assume the organization’s indirect cost rate equals 20 percent. Since this rate was already established within the organization, Swim 4 Life’s indirect costs can be calculated. So if Swim 4 Life’s direct costs total $200,000, the indirect cost amount that will be included in the budget is $200,000 × 20 percent or $40,000.

Key NoteKeep in mind that the indirect cost rate calculation is only useful when there are some expenses that are shared among programs or projects and the organization is trying to determine only those programs’ indirect costs.

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Winning Grants Step by Step78

In-Kind Support/Donated Goods and Services

Many organizations operate programs using a combination of paid employ-ees and purchased goods and services, and volunteers and donated goods and services. The volunteer time and donated goods and services are con-sidered support and are a vital part of the budget process and should be included as both revenues and expenses where applicable. The following (short) list of items can be considered when including in-kind contributions:

• Volunteer or staff time of those unaffi liated with the program and therefore not included in the staff budget line

• General volunteers

• Donated services, including food, printing, marketing, accounting, and other services

• Donated items including offi ce equipment, vehicles, and other tan-gible items used for the program

• Donation of offi ce or facility space (rent, utilities, and renovations)

There are a number of factors that should be considered when estimat-ing the costs of these items. For instance, volunteer and staff time estimates can be calculated using the average amount an organization would pay someone providing the same or like service multiplied by the number of hours performing the service, as shown in the formula below:

Volunteer/staff time estimate = $ of service if purchased (in the marketplace) × number of hours volunteered

On the other hand, new product and service costs should be calculated based on the “market value” of that new product or service. Used products should be estimated based on the depreciated or resale value of the item. The depreciated value is the value of an item once you remove the accu-mulated depreciation.

In-kind contributions should not be ignored or taken lightly during the budget process. There are a number of benefi ts to including these items in your budget, including

• Reduces the overall cash outlay for program expenses

• Expands resource capacity to sustain an organization’s program

• Opens the door for community partners to learn and support the organization’s program or cause

• Demonstrates to the funder the value of the donor and volunteer contributions

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Step 8—Developing the Program Budget 79

As mentioned earlier, in-kind contributions are typically shown as rev-enues and expenses to create a net-zero effect. For example, if a volunteer contributes $2,000 worth of her time, that amount should be shown as $2,000 in volunteer support revenue and $2,000 in volunteer support expenses.

It is important that in-kind contributions are net-zero when balancing the budget because there should not be non-cash income covering cash expenses.

There are a number of resources available to assist with developing an organization’s budget. However, do be mindful of the type of organization in which funding is being sought. For instance, when seeking funding from the Federal Government, CIRCULAR NO. A-122 is the reference most used to establish principles for determining costs of grants, contracts, and other agreements with nonprofi ts. Private funding sources use myriad sources, and it is up to the grantseeker to read and understand the grant guidelines issued by individual funders.

Record Budget Information

Once the budget categories have been identifi ed and researched and revenues and expenses fi nalized, it is time to record this information. The information should be listed in an easy to follow format, preferably using a spreadsheet tool selected early in the process.

Be sure to follow the grant application guidelines with regard to the format in which this information should be recorded. Not following instructions is the surest way for a proposal to be declined.

Stage 3: Review, Update, and Review Budget Again

This stage in the budget development process is a fairly commonsense yet an often missed step—review the budget for formula and number errors and logic. Essentially, grantseekers should take the time to review the bud-get from the perspective of the funder. Revenue and expense items that appear out of line with the overall budget should be identifi ed and resolved. Grantseekers should also look for budget items that are “questionable” or outside of what is customary for similar programs. Once the fi nal review has occurred, a clear and concise explanation of the items in the budget should be provided in the budget justifi cation.

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Winning Grants Step by Step80

Stage 4: Develop the Budget Justifi cation

Now that the budget spreadsheet is complete and the numbers reviewed and verifi ed, a budget justifi cation should be developed to explain how the numbers were derived.

The Budget Justifi cation

After the budget is developed, a detailed narrative of the signifi cant items in the budget—called a budget justifi cation—should be written. In its simplest form, this document provides a narrative explanation of the revenues and expenses that require greater explanation of how expenses and revenues were derived and why they are needed. It also shows that there was suffi cient thought put into why the grantee believes the revenues and expenses are what is noted in the budget and explain any signifi cant variances. Here is an example of what Swim 4 Life’s budget justifi cation may look like:

Sample Budget Justifi cationThe total budget required to support Swim 4 Life’s initiative listed in the grant proposal is $460,800. Additional details of the budget are described below:

EXPECTED SOURCES OF FUNDING

Swim 4 Life has outlined several funding sources that will ensure the sustainability of the services it provides to the community. The following is a list of committed funding for the year:

YWCA $45,000

Corporate Sponsorship $45,000

Some City School Program $45,000

Individuals $60,000

Total $195,000

In addition to the above we have in-kind goods and services revenue of $115,000 and interest of $800. We are looking to a number of private sector funders to provide an additional $150,000 needed to run an eff ective program in the service community.

EXECUTIVE DIRECTOR SALARY—$40,000

The executive director is essential to the success of Swim 4 Life, thus requiring a salary that takes into consideration the responsibility involved in leading a high visibility program. The amount covers the salary and benefi ts for one full-time director to manage the program for one year. Responsibilities will include leading the day-to-day operations of the program, managing a full-time program assistant and several volunteers, developing and managing program initiatives and performance, and ensuring that all fi scal responsibilities are met.

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Step 8—Developing the Program Budget 81

Again, the budget justifi cation is typically documented in a narrative format and presented as a supplement to the budget. While it does not have to be a dissertation of explanations, it should be clear and concise and explain those items in the budget that require further clarifi cation.

The Budget: Final Thoughts

Now that the basics for developing the program budget have been described, there are a few points that should always be remembered:

• Read and understand the type of budget the funder is requiring for the grant application.

• Provide a true and honest picture of expected revenues and expenses.

• Justify, in writing, any budget items that standout as unusual or costly.

Remember, the presentation of the budget is just as important as the presentation of the overall program that will be supported by the grant.

Program Budget Dos and Don’ts

The following is a list of Dos and Don’ts when developing the grant appli-cation’s program budget.

Do . . .

• Understand that a budget is an important part of the grant application process

• Read the grant application for budget requirements, including formats and specifi c instructions

• Identify elements to include in the budget based on the program’s needs

• Collect and record data to substantiate revenues and expenses listed in the budget

• Provide a budget justifi cation to explain any major funding variances or requests

• Itemize revenues and expenses

Don’t . . .

• Overlook the importance of developing a logical and reasonable budget based on the funder’s instructions

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Winning Grants Step by Step82

• Include items that are not specifi cally requested in the grant application

• Lump all revenues and expenses together; rather, itemize for clarity

• Forget to review and check the fi nal document before submitting

Use Worksheet 8.1 to prepare a budget for the program. On the com-panion website, grantseekers will fi nd two sample Excel template with the formulas already entered as tools for practice. One template is for a one-year budget; the second is for a three-year budget. There is also a sample Excel budget for the Swim 4 Life program on the website. For best results, grant-seekers should start by creating a budget using Worksheet 8.1, followed by experimenting with the online spreadsheet. Simply enter projected revenues and expenses and add categories if necessary and appropriate. Asking the Budget Review Questions at the end of this step will highlight those areas in the budget that need further attention.

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Step 8—Developing the Program Budget 83

WORKSHEET 8.1:

Revenue and Expense Budget

Cash

Required

In-Kind

Contributions

Total

Budget

REVENUEFoundationsGovernmentCorporationsIndividual contributionsDonated printing and suppliesVolunteer servicesOther (specify):

Total revenue

EXPENSESSalaries (prorated if less than full-time)

___________________________________________________________________________

Payroll taxes and benefi ts (percentage of salaries)

Bookkeeping contractorOther (specify):

Total personnelOffi ce rent (percentage for program)SuppliesPrintingUtilitiesTelephoneCopy servicesPostageTravelMembership duesOther (specify):

Total nonpersonnelTotal expenses

On the Web

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Winning Grants Step by Step84

Budget Review Questions

1. Is the budget consistent with the proposal’s program plan (methods)?

2. Is there a budget narrative that explains items that may not be imme-diately clear?

3. Does the budget include in-kind revenues and expenses?

4. Does the budget address the question of how overhead costs will be recovered?

5. Is the budget realistic? In other words, can the organization accom-plish the intended objectives with the proposed budget?

6. Has the organization kept the budget worksheet, so that it has a record of how costs were determined for the expense items?

Now it’s time to focus on the organization background statement, which is Step Nine.

References

National Institute of Health, http://grants.nih.gov/grants/glossary.htmBurke Smith, N., and Tremore, J. 2008. Everything Grant Writing Book (2nd ed.).

Avon, MA: Adams Media.Greater Washington Society of CPAs, http://www.nonprofi taccountingbasics

.org/reporting-operations/budgeting-terms-concepts

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Step_8_Developing_the_Program_Budget.pdf

Step_8_Developing_the_Program_Budget.pdf

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