February 13, 2019
Below are our answers to four frequently asked questions, to help you begin to craft your own program budget:
In short, funders want to know where their money is going. Organizational budgets often have lots of information rolled up into a handful of line items. And for multi-service organizations, in particular, it can be difficult to determine how much time and money any one program requires. A well-crafted program budget will complement your grant narrative, providing a more detailed picture of the inputs required to operate each program effectively and the need for the exact funding requested.
Creating program budgets should ideally be a collaborative process between your program, development, and finance teams, as each holds specific information needed to complete this task.
The program team should identify the inputs to the program: what staff members work on that particular program, what other contractors or vendors provide supports for this program, and what other direct costs are needed to execute the program (listed below).
The development team should identify the relevant revenue sources for the program: what current and prospective funding streams and/or particular funders support that program and determine what other financial resources are needed to match the program’s expenses.
The finance team should then take these inputs and calculate the exact revenue and expense for each program aligned to their internal accounting controls.
Program budgets not only can but SHOULD include the salary and fringe benefits costs associated with the staff time relevant to this project. Other common direct expense line items that should be included in a program budget may include:
Note: if you are unsure of how to differentiate between Supplies and Equipment, the University of Arizona defines equipment as, “tangible personal property (including information technology systems) having a useful life of more than one year and an acquisition cost of $5,000 or more per unit.”
Don’t forget – you can and SHOULD include a 5-10% administrative cost to your program expenses! Administrative expenses help to cover the very necessary costs of running your organization—management and administrative salaries, annual audits, central office costs, etc. Once you have determined the direct costs to your program, add an additional 5-10% administrative expense to the budget total. However, be sure to check each funder’s guidelines to see if they have any specific restrictions on administrative costs.
This will vary by organization and your exact accounting methods. However, two helpful rules of thumb are:
To calculate salary costs: you must determine which staff members support that program and what percent of each staff person’s time is dedicated to that program, then calculate this cost based on their full-time salary.
Use the following formula to calculate staff costs:
(% of staff time spent on program) x (staff salary + benefits)
(0.4) X ($52,500+ $7,500) = $24,000 allocated to the program budget.
You can use a similar formula when calculating direct costs shared across multiple programs.
To determine direct costs that are shared by multiple programs across the organization: try your best to determine what share of the costs goes to each program and allocate accordingly. If, for example, you use a database to store information for all three of your programs, the total annual cost of your database fees should be divided by three across each program budget.
Proactively creating budgets for each of your programs not only avoids stress during the grant submission process, but can actually support organizational budgeting, strategy, and growth.