Chapter 12
Preparing the Proposal Budget

In this chapter, you will learn a systematic method for preparing the budget for your proposals. To prepare the budget, you will have to have completed your objectives and tasks lists (Chapter 8) and your monitoring, reporting, and evaluation sections (Chapters 10 and 11). The objectives and tasks that you generated in these chapters and entered into the Expanded Project Task Summary Chart will have budget implications and will be used to identify budget resources in Chapter 12. This chart will be expanded in Chapter 12 to identify both personnel and nonpersonnel costs. After you complete your draft budget, you will compute budget subtotals for the major budget categories and enter them into the budget pages that your sponsor requires. You will also learn how to prepare a budget narrative.

Learner Outcomes

After completing this chapter, you will be able to

  1. Distinguish between different budget categories, the differences between in-kind and matching costs, and the differences between direct and indirect costs

  2. Prepare a comprehensive proposal budget

  3. Prepare a budget narrative

  4. Complete the budget forms provided by the sponsor

Key Terms

Budget—The budget of a project is the financial plan for the project.

Budget narrative—The budget narrative generally follows the budget page and it explains how any large numbers in the project budget were calculated.

Consortium funding—If you ask a number of sponsors to fund part of your project, you are building a consortium of sponsors and are seeking consortium funding for your project.

Cost sharing—Cost sharing includes cash or in-kind contributions that the applicant provides for the project. Some sponsors require matching funds, which is a way of getting the applicants to share part of the cost of a project.

Direct Costs—Direct costs include all of the personnel and nonpersonnel costs incurred in conducting a project.

Fringe benefits—Fringe benefits are those costs required by law (such as, social security taxes and federal and state taxes) and any additional options that are provided by employers for the benefit of employees (such as, health insurance and pension plans). Fringe benefit rates are calculated as a percentage of salary costs.

Indirect costs—Indirect costs are costs that a nonprofit incurs that cannot be charged to particular projects, such as insurance on its building, janitorial services, maintenance of the building, and so on. Indirect costs cover institutional expenses that constitute "the cost of doing business," and they sometimes provide a hedge for unexpected costs once the project is underway. Nonprofits can have their indirect cost rates certified by the federal government, so that they can use indirect cost rates on government proposals. Foundations usually do not pay indirect costs.

In-kind contributions—In-kind contributions are non-cash contributions that the applicant provides for the project, such as the use of space or equipment that is owned or rented by the nonprofit or secretarial help paid for by the nonprofit.

Nonpersonnel costs—Nonpersonnel costs are all other items on a proposal budget with the exception of salaries, wages, and fringe benefits (personnel costs). Nonpersonnel costs usually include rent, equipment, supplies, travel, communication, and so on.

Per diem costs—Per diem costs include daily costs for meals, lodging, and miscellaneous expenses, such as ground transportation, laundry costs, local telephone calls, and so on while you are traveling.

Personnel costs—Personnel costs include any item in the proposal budget that relates to salaries, wages, fringe benefits, consulting fees, and stipends. Personnel costs are the costs of hiring project personnel.

Negative Sample Budget

Download Negative Sample Budget

This budget is a negative example that has a number of problems. See if you can identify the problems and come up with the changes that should be made. This was Jim's early draft for the CFK project budget. His later budget is presented in the text on p. 314. His updated budget draft is on pp. 310-311.

Questions for Review and Discussion

  1. Do you need four columns for this budget?

  2. Should you create a budget narrative? If so, what would you enter into the budget narrative?

  3. There are things under the personnel category that are tasks. How would you revise this section to reflect only salaries wages and fringe benefits?

  4. What other suggestions would you make to improve this budget?

Summary

In Chapter 12 you learned basic budgeting strategies and accounting terms that will help you to create your own budget or to communicate with the accountant on your proposal development team who will be preparing the budget for you. You learned about the different budget columns, such as direct costs, cash matching costs, and in-kind costs. You also learned about indirect costs as a way of recouping institutional expenses that cannot be attributed to specific projects. Since most budgets are broken into two major budget categories: personnel and nonpersonnel costs, you learned what items to include in these categories and how to calculate them. In preparation for completing your sponsor's budget page, you expanded your Extended Project Tasks Summary Chart from Chapter 9 by adding cost columns and calculating your project costs. You then learned how to combine and transfer these costs to the sponsor's budget pages.

Writing Assignment

  1. Complete your Expanded Project Task Summary and Budget Table (Table 12.1) by adding your costs. To complete Table 12.1, copy the information you generated in the table in Chapter 9 into the table in 12.1 and add your costs.
  2. As you are compiling the costs into the standard cost categories requested in the sponsor's guidelines, save your calculations for the large or suspiciously rounded numbers for inclusion in the budget narrative.
  3. Enter your project costs into the budget form provided by your sponsor. Use superscript numbers to identify any items that you will explain in your budget narrative.
  4. Compile your budget narrative to explain any large costs.
  5. Save copies of your Expanded Project Task Summary and Budget Chart and the project budget on the sponsor's budget forms in your electronic or print notebook.

The Table 12.1 Expanded Project Task Summary and Budget Chart can be downloaded for your use.

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