Budget


Home Introduction Problem Statement Objectives Methodology Evaluation Budget Proposal Summary Cover Page Sample Grant Grant Writing Links UT Public Health Nutrition Program UT Public Health UT College of Education, Health and Human Sciences				Once you've got the funding agency or foundation interested in your proposal by writing a well-documented and clearly written plan, the question of money arises. How much will this project or research cost? Since grant funds are so competitive and limited, you must itemize your budget clearly. This section is divided into three parts. First, you will learn what a budget is, its two parts, and how to calculate direct costs related to personnel. Then, you will learn how to calculate direct costs not related to personnel, or non-personnel direct costs. Finally, you will learn how to calculate indirect costs and determine your final budget cost. Preparing a budget is not as difficult as it may seem! It may help you to think about a proposal budget this way: A budget is simply a proposal written in numerical terms. What this means is that once you have carefully detailed everything you are planning to do in your Methodology, there should be a charge in the budget for each activity! Let's take a look at how budgets are put together. The total cost of any project is usually covered by two broad categories: Direct costs and indirect costs Let's look at direct costs first. There are two kinds of direct costs (Personnel and Non-Personnel). Direct costs are easy to identify. The following categories are examples of Direct costs: Personnel Costs Salaries and Wages Fringe Benefits Consultants and Contractual Costs Non-Personnel Costs Materials and Supplies Equipment Communications Travel Other Expenses Let's look at Personnel Costs, first. These are the direct costs for salaries and wages. Let's figure a sample personnel charge. Chatoya Neal will be the director of your project. She will be paid a 12-month salary of $60,000. She will work for your project only 40% of the time (i.e., the equivalent of two 8-hr days per week). What will it cost to pay Dr. Apple's salary? You need four pieces of information. SALARY INFORMATION EXAMPLES 1. Base rate of pay $60,000 yearly 2. Period of pay 12 months 3. Percentage of 40% time effort 4. Total Pay $24,000 ($60,000/yr x 1 yr x 40%) What if she worked full time at $60,000 a year for half the year and 25% of the time for the other half of the year? Salary Calculation $60,000 X 6 Mos X 100%(1.0) = $30,000 $60,000 X 6 Mos X 25%(.25) = $15,000 --------- $45,000 Base Rate Period Percent Total of X of X of = Pay Pay Effort Pay Now you try one. . . Suppose you need two weeks of secretarial help for the entire year. The temporary personnel agency approved by your human resource development office quoted a current hourly wage of $12.00, excluding fringe benefits. Salary Calculation $8 per X 2 Wks X 100%(1.0) = $______ hour (8 hrs daily, 5 days per week) Base Rate Period Percent Total of X of X of = Pay Pay Effort Pay Here are your choices: $724 $690 $960 The next category on our Direct Costs list is Fringe Benefits. Personnel Costs Salaries and Wages FRINGE BENEFITS Consultants and Contractual Costs Non-Personnel Costs Materials and Supplies Equipment Communications Travel Other Expenses Fringe Benefits can be either mandatory or voluntary. Mandatory Benefits can include: State Unemployment Workman's Compensation Voluntary Benefits can include: Life and Health Insurance Social Security (FICA) Retirement Plans Other Benefits Fringe benefits are expressed as a percentage of salaries and wages. Let's assume in the case of Chatoya Neal, who earns $60,000 a a year, you want to provide the following benefits: State Unemployment Workman's Compensation Health Insurance Let's also pretend these benefits are equivalent to 25% of Dr. Apple's salary. To determine how much to charge to your grant for Dr. Apple's fringe benefits, simply multiply the salary for this project by the fringe benefit percent rate. $45,000 X 25% = $11,200 Budget Salary X Fringe Benefit Rate = Fringe Benefits for Mrs. Neal Now determine the secretary's fringe benefits. You are hiring a secretary for two weeks with a budget request of $960 for that time. Multiply her salary request by the 25% fringe benefit rate: $960 X 25% = $_____ Salary X Fringe Benefit Rate = Fringe Benefits for Secretary Answer here: $ $190 $220 $240 The next item on our Direct Cost list is Consultants/Contractual Services. These are the most important people you have working with you and no expense is to be spared in hiring the best to provide expert consultation or contractual services. A. Personnel Costs Salaries and Wages Fringe Benefits CONSULTANTS and CONTRACTURAL COSTS B. Non-Personnel Costs Materials and Supplies Equipment Communications Travel Other Expenses What if you wanted to contract with a local service provider, the LSP Company, to provide a specified service daily for 100 clients? You could handle the cost of that contract by agreeing to pay the LSP Company $25,000 to purchase supplies and provide the specified service for your clients. Since this is a contract with another agency, you DO NOT have to pay fringe benefits. LSP Company pays fringe benefits for its own employees and will probably use some of the funds in the $25,000 contract to do this. What about a consultant? Again, you DO NOT have to pay fringe benefits. You usually figure consultant charges as either a lump sum for work performed or a daily or hourly rate for some period of time. Suppose you wanted to hire an Evaluation Specialist to help you evaluate your program. The Specialist could work with you in one of two ways: She could charge a lump sum for all work to be done on the evaluation (for example, $5,000)... or she could charge you $250 a day for her services and commit to 20 days of work---and the cost would still be $5,000. Before you hire a consultant, however, there are four things you need to know: Consultant relationships must be bound by agreements (signed by you and the consultant) stating the specific goods or services to be delivered. The consultant cannot be supervised. However, You can coordinate her activities. The consultant is accountable for the services or written report you expect. However, she is not accountable to you for the time or place of work that went into these expected end products. You cannot hire a consultant to do a task someone on your staff is capable of doing. REMEMBER: YOU DON'T PAY FRINGE BENEFITS ON CONTRACTUAL OR CONSULTANT COSTS! That concludes personnel costs. Now, consider the items that contribute to non-personnel direct costs. Non-personnel Costs MATERIALS and SUPPLIES Equipment Communications Travel Other Expenses Materials and Supplies are typical non-personnel expenses. Materials and supplies include paper, pencils, computer software, photocopy paper, print-making chemicals, etc. The key is that these items are Consumable. They can be used up. In the case of a lunch program, food products can be charged under Materials and Supplies. Why? Because they are consumable! But don't put duplicating and photocopying charges under Materials and Supplies. A rule of thumb to remember is to figure approximately $125 worth of supplies for each person on your staff. Now, let's move to the next Non-Personnel Direct Cost line item--Equipment. Personnel Costs Salaries and Wages Fringe Benefits Consultants and Contractual Costs Non-Personnel Costs Materials and Supplies EQUIPMENT Communications Travel Other Expenses The accepted definition of what constitutes "Equipment" is: Any item having a cost of $500 and a life span of at least three (3) years. This definition means that computer software is classified as supplies, but the computer terminal, screen, and printer are equipment. A typewriter is equipment, but a hand- held calculator is a supply. When you write your proposal budget, you may consider one of two options: Buying your equipment outright (More expensive alternative) Leasing or renting it (Cheaper alternative, but you have nothing once the grant funds cease) Some funding agencies limit equipment purchases, so be sure to know what expenses are allowable in the budget! Now go to the next Non-Personnel Direct Cost line item--Communications. Personnel Costs Salaries and Wages Fringe Benefits Consultants and Contractual Costs Non-Personnel Costs Materials and Supplies Equipment COMMUNICATIONS Travel Other Expenses Include your telephone installation and monthly telephone charges here (including long distance calls). Communications also include the following types of charges: Answering Services Internet Service Provider (ISP) / ISDN/ DSL Line FAX costs Reproductive Costs (Photocopying and Duplicating Expenses) Metered Letter Charges (Stamp charges are OK, but the cost of stationery and envelopes is a MATERIALS AND SUPPLIES charge) The next Non-Personnel Direct Cost is Travel. Personnel Costs Salaries and Wages Fringe Benefits Consultants and Contractual Costs Non-Personnel Costs Materials and Supplies Equipment Communications TRAVEL Other Expenses There are two types of travel expenses: Foreign Travel Domestic Travel If your funding agency is a Federal Agency, you have to have permission for Foreign Travel. Usually only domestic travel is funded. Agencies, both federal and non- federal, expect you to use round-trip economy rates if you are travelling by air! What items make up Travel charges? These items include: Transportation (Air, boat, auto, etc.) Hotel Meals Tips Phone Calls Taxi Consider this expense account for a conference trip. You want to attend a national conference in Seattle and you live in Jackson. The meeting is in June. It begins at 8:00 a.m. on Monday and concludes at 5:00 p.m. on Wednesday. You should fly. Air fare is cheaper and less time consuming than driving 3,000 miles at 22.5 cents per mile! You have to arrive Sunday evening to be there for the start of the conference. This means that you need hotel reservations for Sunday night, Monday night, Tuesday night, and perhaps Wednesday night (if there are no return flights to Jackson after 6:00 p.m.). Figure your travel this way: Travel: To Seattle, Washington on June 5, 1992 to attend the Nation Service Training Conference (June 6-8, 1999). Return June 9, 1999. Air Fare (Economy, round trip) = $385.00 Hotel $95 daily X 4 days = $380.00 tax @ $6 daily = $ 24.00 Meals ($30 daily X 4 days) = $120.00 Ground Transportation (Taxi) = $ 35.00 Tips/Baggage Handling = $ 8.00 TOTAL COST = $952.00 So, suppose you want to include in your budget, travel to the Hospitality Trainers Association's Annual Meeting in Boston. Your total travel request will include: Air Fare (Round-Trip) or Car Fare (Round-trip mileage X reimbursement rate per mile) to Boston. + Hotel in Boston + Meals in Boston (at a rate established by your agency) + Tips + Telephone calls (work-related) + Taxi (e.g. from airport to hotel) ____________________ Total travel request Registration Costs are not part of Travel; they are Other costs! And that brings us to the last Non- Personnel Direct Cost line item--Other! Personnel Costs Salaries and Wages Fringe Benefits Consultants and Contractual Costs Non-Personnel Costs Materials and Supplies Equipment Communications Travel OTHER EXPENSES Other Expenses is the preferred phrase to use here. Do Not use "Miscellaneous." It is too vague! And NEVER, NEVER, NEVER put a nice round figure into a budget under this category!!! Other expenses should be as carefully defined as they are in the rest of the budget. What would YOU think about a proposal with a $5,000 charge identified simply as "Miscellaneous?" The Other Expenses line item can be used for the following expenses (for example): Training and staff development Patient charges (if you are doing a medical study) Computer use charges Special insurance costs Costs for arranging a conference or a symposium Tuition Conference registration expenses Remember the hypothetical trip to the Hospitality Training Association's Annual Meeting in Boston? Expenses for the registration fees for the Annual Meeting would be itemized under OTHER...NOT under TRAVEL. That concludes our discussion about DIRECT COSTS. Now, what about Indirect Costs? Indirect costs seem to scare a lot of people, yet they are very simple to describe. Direct costs are easy to identify: they are costs for items like paper, computers, salaries, and travel. Indirect costs are intangible costs. They are those costs that are common to a number of projects, like lights, maintenance, building and equipment depreciation, and administrative operations. Should you be concerned about Indirect Costs? If you are part of a large institution, you probably need to think seriously about indirect costs. However, if you are part of a small organization, you would probably not be concerned with indirect costs. It would be simpler for you to charge every expense as a Direct Cost. Indirect costs, like fringe benefits, are figured as a percentage. This percentage is calculated on part or all of your Direct Costs. Let's do one quick example: Suppose you work at an institution and your Business Manager says that the institutional indirect cost rate is 34% of salaries and wages. If your proposal contains a total of $55,000 as direct costs for Personnel Costs, then you determine the indirect cost rate by multiplying salaries and wages by the indirect cost percentage: $55,000 X .34 = $18,700 This $18,700 would then be added to the $55,000 total of all your Direct Costs. Let's assume your Direct Costs add up to $90,000. What are the total project costs for this budget? DIRECT INDIRECT TOTAL COSTS COSTS PROJECT COSTS $90,000 + $18,700 = $ Here are your choices: $106,700 $108,700 $118,700 Now, suppose you are employed by a small agency and want to forego adding a percentage of direct costs for indirect costs. Instead you can simply add DIRECT COSTS to your OTHER EXPENSES category, like this: Office Rental $ 20,000 per year Electricity $ 7,000 per year Maintenance $ 5,600 per year Contracts Audit Fee $ 2,500 per year Remember, indirect costs can be itemized just the way direct costs can be itemized. Usually, however, it's much simpler to have a rate that has been determined by an internal audit to summarize (cover) those expenses. To recap, let's look once again at the major items in a budget: DIRECT COSTS Personnel Costs Salaries and Wages Fringe Benefits Consultants and Contractual Costs Non-Personnel Costs Materials and Supplies Equipment Communications Travel Other Expenses INDIRECT COSTS The budget is your proposal written in numerical terms. It itemizes how much the project or research will cost. It includes two parts: Direct Costs and Indirect Costs. Direct Costs are the costs for personnel and non-personnel. Indirect Costs are intangible costs, such as lights and maintenance.