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Understanding the Basics of Budgeting 

This course is not focused on budgeting, so we're not going to go into detail about how to develop a budget. However, there are four key points we want to mention about budgeting and how to approach the process. 

1. Budgets should be comprehensive. When you are working on a proposal, you may be in a rush to prepare it or unclear about what the proposed project will involve in terms of equipment and human resources. Despite these challenges, it's important to create as comprehensive a budget as possible, thinking through every part of the project and the resources that will be required for implementation. For example, if your project requires home visits or travel between field offices, you should think through what transportation costs you will incur. You may need to purchase motorbikes, which will need insurance, fuel, and repairs. Another example is security costs. To protect your office equipment from theft, you may need to install a security system or hire a security guard to protect your office. All these costs must be captured in your budget or you risk under-budgeting for your project and potentially not having enough money to cover your costs. To ensure you do not miss anything, it helps to think about your budget from multiple angles, such as:

1. What will it require to start your project? Your start-up costs may include budget items that are unique to your first year of operation and can easily be missed. 
   
   

2. What will be required to close out your project? Like start-up costs, the closeout period of a project may require activities and resources unique to your final year or months of operation. If you prepare your budget with each year consisting of the same basic line items, you may run into difficulties covering close-out costs as you wind down the project.
   
   

3. What types of events will be held? If your project will require holding in-person events such as conferences and training sessions, you will likely need to cover an array of expenses from catering to printing costs, office supplies, and rental costs associated with the venue.  If you are unsure of what hosting an in-person event will entail, you can base your calculations around prior events you may have held, or, if it will be an entirely new undertaking for you, you could reach out to another organization in the locale where you plan to hold the event to ask them for guidance.
   
   

4. Line item amounts should be as accurate as possible. Related to point #1, when you are developing your budget, you want to be as accurate as possible when you assign a dollar amount to a particular line item. When preparing a budget, it can be tempting to assign what you think is a reasonable amount without doing research to determine the average cost of the item in question. Approaching budgeting in this way, especially with big-ticket items like the rental costs for office space, can lead to significant budget shortfalls when it comes time to implement your project. When you prepare your budget, try to determine the average cost of the items you are budgeting for and build your budget on those figures. In addition to giving you some reassurance that your budget will be reasonable and adequate to cover your costs, another reason to research average costs is that you can show the funder the results of your research if they ask you to defend why you budgeted a certain amount for a specific line item. One line item funders often question is airfare. If your project will involve travel by air, you should research the cost of flights for your planned travel routes and retain that research to defend your budget figure.
   
   

5. Personnel costs should be realistic and include annual adjustments. The highest single cost for any project budget is usually personnel. Because personnel costs can be expensive, it might be tempting to try to lower the costs of this category by building a budget from the salaries of more junior staff and including only a tiny fraction of time for more experienced (and expensive) staff.
   
   It also may be tempting not to include annual salary adjustments for staff and budget the same amount for salaries for each year of the project. This is risky. For most projects, personnel costs go up every year because the cost of benefits goes up incrementally as do salaries.
   
   If you under-budget in the personnel category, you may not be able to hire people at the salary you budgeted or be able to cover the time of senior staff whose expertise is needed on a project.
   
   Bottom line: Create a realistic budget that covers the true costs of hiring and retaining qualified staff.
   
   

6. Summary budgets should have a detailed budget supporting the figures. Sometimes a grant application asks for a summary budget. A summary budget can take the form of budget totals for a handful of categories or sometimes just a single figure meant to represent the total budget across all years and categories.
   
   When a grant application calls for a summary budget, one of the common mistakes organizations make is to not create a detailed budget that breaks out each cost in detail, such as by position and year (in the case of personnel) or by type of equipment and mode of travel (for the equipment and travel line items).
   
   Instead of figuring out the budget's details, organizations often throw out figures that seem reasonable. This approach can cause significant problems down the line if the grant is funded.
   
   Examples of the two types of summary budgets are below:
   
   Summary Budget (total sums for major line items)
   Personnel | $10,000
   Equipment | $2,000
   Printing & Distribution | $1,500
   Travel | $1,500
   TOTAL | $15,000
   
   OR, the funder may simply ask for a single figure:
   
   Total Budget Request: $15,000 (summary figure with no detail)
   
   The problem with throwing figures out without first doing a detailed budget is that your guesses could be significantly off. Your total budget figure may be wrong, and you may have budgeted the wrong amounts in several categories.
   
   If you do a detailed budget, you may realize that your personnel costs for the proposed project are $25,000 and cannot go any lower than that, or that, while the total budget figure you came up with ($15,000 in the example above) is correct, the money needs to be distributed very differently than you were imagining.
   
   Maybe you thought travel was going to be your highest cost, but after you did your detailed calculations, you discovered that your highest cost was going to be equipment. While funders generally allow budget adjustments of 10 percent following an award (that is, you can move 10 percent of the funds in any line item to another line item, often without having to ask the funder first), you can't count on this flexibility as an option. Consequently, it's important to get the budget as accurate as possible from the beginning.
   
   Second, regarding submitting a single budget figure, what typically happens is that organizations submit a budget figure that matches the maximum award size the funder offers. For example, if the foundation offers grants up to $25,000, the organization will say it needs $25,000.
   
   Why is this a problem? If you've done a detailed budget breakdown and you know you actually do need $25,000 for your program, it isn't a problem. On the other hand, if you have not prepared a detailed budget and you're asking for $25,000 simply because it's the maximum award amount, you may find after you receive the grant that you can't meet your project's objectives for that amount of money or that it is way more than you need (both of which are a problem).
   
   If you can't meet the terms of the grant because you failed to create a budget, you are going to have to go back to the funder and let them know.
   
   In some cases, the funder may be sympathetic. They may offer you more money or extend the period of performance to give you time to secure additional funding or restructure the project.
   
   In other cases, the funder will ask for the grant money back if you can't deliver on promised outcomes. Either way, your relationship with that funder is damaged, and they might not fund you again.
   
   Bottom line: When a funder tells you to only submit a summary budget, always take the time to do a detailed budget behind the scenes.
   
   

7. Create Budget Templates and Systems. While some funding opportunities will provide a budget format and template for you to use, not all will do so. To make it easier to prepare the budget portion of your proposal (aka the cost proposal), having a proposal template already in place will save you time. Additionally, if you have a standard budget template, you and your colleagues will be familiar with it, making your budgeting activities faster and less susceptible to errors.
   
   We recommend using Excel to create your budget template, customizing it as needed to meet the requirements of specific funding opportunities. Note that you can use other tools to create a budget template, such as Google Sheets. However, because US government agencies and many private foundations require proposal materials to be submitted as Microsoft Word and Excel files, it is best to create your templates using these programs.

Resources

To learn more about budgeting for proposals, you can find useful guidance through philanthropy resources such as philanthropy.com. Many government agencies in the United States also provide proposal writing and budgeting tips and tutorials on their websites. 

Lastly, another great resource for learning about proposal development, including budget development, is university websites in the United States.  Universities develop tutorials for their faculty and students about how to write proposals and post this information on the public-facing parts of their websites.

Learning Excel

If you want to learn Excel, you can find excellent resources online, including on Microsoft's website as well as on YouTube. You can also find Excel tutorials on course platforms such as Skillshare and Udemy.