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Building Your Budget

The following steps are intended to serve as a guide to assist you in developing budgets and budget narratives. However, it is important to remember that these are only guidelines. It is critical that you comply with the documentation requirements provided by the granting agency along with your organization’s internal policies.

1. Gather Information

Important points to note:

  • – What is the anticipated budget period?  One year?  Two years?  Five years?
  • – Are indirect costs permitted?
  • – What is the maximum award amount?
  • – Do indirect costs count against the budget total? Must the direct costs plus indirect costs be less than or equal to the maximum allowed budget?
  • – Are there specific budget exclusions? (e.g. no construction allowed)
  • – Are their caps on certain expenses? (e.g. travel  limited to $5,000 per year)
  • – Are their required costs?
  • – Does the program require cost share/matching funds?

Different regulations may apply to your proposal  depending on the funding source (federal vs. private vs. state dollars), the type of funding agency, the type of applicant institution, and in some cases, the type of program or activity. This information is typically included in the FOA and/or grant application package. If you can’t find this information in the FOA, you should contact the funder for clarification.

Carefully review the FOA for instructions on where to obtain the required budget forms.  Foundations and private funders will often have a specific format they prefer.  Many federal agencies use standardized forms (e.g. the SF-424a), but some agencies (e.g., Department of Education) have their own forms. All federal budget forms are accompanied by basic instructions for completion. Be sure to download these instructions when you get the budget form.

In addition to the required budget forms, different funders may request a variety of additional financial documents. For example, many foundations require audited financial statements for the previous fiscal year, a list of supporters and other funding sources, an annual report, and a recent tax return (Form 990).  A list of these requirements should be included in the FOA or grant information package.

The requirements for the budget narrative may vary widely by funder and may even vary by different programs within the same agency. For example, federal agencies like NSF limit the budget narrative to three pages, whereas many programs sponsored by the Department of Education do not have a page limit for the budget narrative.

2. Plan Your Budget

The budget planning process should parallel planning for and development of the proposal narrative. This will ensure that the requested costs are appropriately aligned with the proposed activities and comply with the grant requirements. Most funders do not expect your budget to predict perfectly how you will spend your money five years down the road. However, they do expect a reasonable approximation of what you intend to spend. Be thorough enough to convince the reviewers that you have a good sense of the overall costs.

ESTABLISH BROAD PROJECTS GOALS TO GUIDE DECISION MAKING

image of a compass
  • Determine overarching goals or aims for the project.
  • Establish the general project scope,  methods and anticipated outcomes.

DEVELOP
STRATEGIES TO
ACHIEVE GOALS

image of two arrows hitting the target
  • Identify specific strategies and activities to achieve project goals.
  • Prepare an outline of the proposed program activities for each budget period.

DEVELOP BUDGET
CONSISTENT WITH
PROPOSED STRATEGIES

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  • Define resources needed to support program activities
  • Rank order by their relative importance, which activities are the wisest expenditures of funds.
  • Eliminate less essential expenditures or limit certain expenditures.

ADJUST
AND
FINALIZE

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Revise, review, coordinate, cross-reference, and then assemble into a final budget; the budget must be flexible to anticipate conditions which might have been overlooked during the planning process.

Using the information from the budget planning process, prepare a budget for each year of the project. Finally, be sure to add any indirect costs. Calculate indirect costs using the institutional indirect costs rate for the funding agency as directed by the funding opportunity announcement and/or grant application packet.

For each project activity, you should consider the following budget items:

  • – What personnel are absolutely essential for this specific activity?
  • – What percentage of their time will be spent on this specific activity?
  • – Will the percentage of time or personnel required remain consistent in all grant years?
  • – Should I budget for salary increases (e.g. annual cost of living increases) in years two and beyond? If so, how much? (e.g. 3% is acceptable)
  • – Are fringe benefits calculated at the same rate for all personnel?
  • If travel is anticipated for the project, clearly state how the travel is directly related to the proposed project. Include the destination, number of people traveling, and duration of stay.
  •  
  • Research the actual cost of travel to and from the location. Include airfare, mileage, or rental car and fuel expense. You should also include ground transportation after arrival (train, subway, taxi, rental car).
  •  
  • Apply the appropriate reimbursement rate for mileage where appropriate (current IRS allowed rate is available here). You should refer to your institution’s travel policy for guidance, but if your institution lacks a policy, it is expected that you will follow the U.S. federal government policy.
  •  
  • Use the US General Services Administration’s per diem rates to calculate per diem for all domestic travel. Include lodging, meals, and incidentals. If the specific travel location is not available in the GSA information, use the county or state rates assigned.
  •  
  • Note that meals and incidentals for the first and last day of travel can only be charged at 75%.

Amounts may be requested in this category for both outpatient and inpatient care costs. Subject reimbursement and travel are not considered patient care costs and should be included under Other Expenses.

On federal budgets, equipment means an article of non-expendable, tangible personal property having a useful life of one year or more and an acquisition cost which equals or exceeds the lesser of the capitalization level established by the organization for financial statement purposes, or $5,000. Other sponsors may have different policies regarding the definition of equipment. Please check the sponsor’s policies and instructions.

List supplies by major types (e.g., glassware, chemicals, animals). Provide costs for each of the categories listed. Some agencies may require more details.

Supplies related to the general operation of the department (e.g., paper, pens, printer cartridges) are considered to be a part of Facility and Administrative Cost Recoveries. In a few circumstances, direct charging general supplies may be acceptable.

The suggested increase for the second and subsequent years of support is 3% to 4%. The increase(s) should be detailed in the budget justification with a statement such as:

Each category has been increased by ___% per year to account for anticipated inflationary cost increases.

  • Costs in this category usually are for formal contracts with third parties who will perform a substantive portion of the programmatic effort. Common contractual costs include external consultants, meeting facilitators, evaluators, and service contracts.

Other costs may include participant support costs (e.g., stipends, course materials), computer equipment or software, printing costs that can be specifically assigned to a grant activity, testing associated with evaluation, etc. Reevaluate any costs identified at this point to ensure they do not fit in one of the other categories.


Remember, all proposed costs should meet the following criteria:

3. Prepare the Budget Narrative

Unless otherwise directed by the funding opportunity announcement or grant application package, the budget narrative should include separate statements for each project year. Within each project year, identify the line items indicated in the overall budget on the required budget form and describe and justify the expenses included in the line item.

Each of the expenses identified in the planning stage and included in the final budget will appear in some form in the budget narrative. If the funding agency limits the length of the budget narrative, compress entries and descriptions as needed to fit everything in if possible. If that is not possible, use larger groupings of expenses under each entry or combine entries across years if practical. The most important thing to remember about budget narratives is that you must justify any expenses that are not immediately obvious even to the unskilled reviewer, and it is helpful to state explicitly the calculations or assumptions used to arrive at specific figures.

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Budget Management