How to set a Project Budget
by Keith Nicholson
Project teams in charities understand the real needs of beneficiaries and are able to translate this into new and innovative models of delivery. The narrative they create shows how charities can deliver excellence in services and respond to a direct call to action from beneficiaries.

Part of turning a narrative into action is to prepare a budget so that any future plans are costed robustly, can be communicated to others inside and outside the organisation, and can be measured against future performance. Larger charities will have a finance team, templates to use and experienced finance staff to lead or help in the preparation of project budgets. Small charities may have limited resource to apply to the setting and monitoring of budgets, but hopefully, by following a formulaic process, setting a project budget can be done accurately, involve team members and support and enhance successful operational delivery.
Why?

There are many reasons why you may need to provide project budgets, from seeking grants through to presenting an internal case for funding. Your charity will have an organisational budget which shows in detail how you plan to deliver the services in your business plan. Project budgets must be easily understood and will generally form part of an overall organisational budget.

A good project budget should:

• Help articulate the narrative of a project and make sense in relation to any funding applications

• Include comprehensive costings showing projected income and expenditure and show how it fits within a wider organisational budget

• Give a timescale, which may be specific to a project but should be expressed in a way that fits with an overall organisational budget

• Have the facility to be flexed for changes.

In creating a good budget, it will help a team make timely and effective financial decisions and help control a measured progress alongside operational reporting. Many, if not all, funders will require at least some form of financial reporting as will internal teams, so think about how you will be able to easily report against progress.

How do I prepare a project budget?

Preparing a project budget can be a great way to allow you to really test your operational plan and communicate well with those around you. Not least, being organised with a clear and well thought out project budget alongside a project plan is immensely helpful to those around you, including funders. Some additional resources on the web are listed at the end of this article which are helpful in dealing with specific aspects of preparing project budgets.
1. Leave adequate time – a key element of planning a project budget is to make provision for adequate time to consider who needs to be involved from the team, prepare a plan, consult and obtain sign off.

2. Form of budget – does your organisation have a template form that is used for project budgets? If not, can your finance team prepare one for you which helps you to consider all possible elements required and help to not miss any? Is there a shopping list of items or headings that exists for you to start with? If you aren’t comfortable using spreadsheets, is there someone who can provide a template or help you learn? Will a budget require formal sign off once completed and have you left enough time for this step given that there may be revisions to make?

3. Income – what about project income? Will there be multiple sources and when will they all be confirmed? If you are seeking multiple years funding from multiple funders, how can you manage the risk of some funders not funding the work? Do you have a backup plan or do you need to do some basic scenario planning?

4. A word on salaries – you need to consider all the associated statutory costs incurred in covering a salary including PAYE, pension and so on. You might want to seek guidance from your finance team as to your specific needs but as a general rule of thumb this will be expected to be about 14-16% on top of salary costs for PAYE and pension. If you run an hourly, daily or weekly rate or run sessional work then you need to have an understanding as to how ancillary salary costs are broken down, for example various types of leave, sickness and so on all have a cost associated with them which different charities account for in different ways.

5. Work as a team – keep the dialogue flowing between the various people involved in the planning and delivery of a project and you will have organisational buy-in from the very outset of the work.

6. Direct or indirect cost - separate out direct (programme staff, direct capital costs) and indirect costs (managing the whole organisation, rent, fundraising, insurance) and understand them. You will then be able to make an informed decision as to how to articulate these to particular funders and provide evidence as to the basis of your budget calculations. Some funders may exclude indirect costs, which is becoming less common over time, but is still very prevalent. If you aren’t able to fully recover costs for a project, should you be delivering it at all?

7. Be as accurate as possible – spend some time with the team around you so you can build a project budget based on your collective experience or previous actuals. So much information is available if you ask!

8. Be a fortune teller – consider what might change over the course of delivery. If your project is over multiple years, think about what effect inflation might have on costs. If you’ve obtained quotes from outside your organisation, ask suppliers opinions on how costs might increase over time or ask them to fix their costs. Take some time to consider unforeseen costs such as Brexit when importing goods from within Europe. Funders may allow for a contingency element to the budget, especially if they can see a sensible rationale behind your calculations.

9. VAT – despite being a complex and dry subject, make sure that you understand your position with regards to VAT, especially when undertaking larger capital projects. If necessary, seek specialist advice – it may be expensive to get a qualified advisors opinion, but it won’t be anywhere near as expensive as getting a VAT decision wrong at the outset and having to foot an unforeseen and substantial bill.

10. Cashflow – not thinking about managing cash could cripple delivery of a project and incur irrecoverable overdraft charges. Some funders take a common sense approach to cash and will work with you to help manage cashflow or pay up front with regular reporting and reconciliation. Those funders who fund quarterly in arrears mean you need to be particularly on top of your cash flow to ensure that you can stay in the black during the project delivery. If you don’t have the cash available, consider engaging in a dialogue about this with your funder.
A note on Full Cost Recovery

When working out the costs of a project, you need to think about what resources and what support is required from across the organisation as well as the direct costs incurred in delivering the project.

There are several ways to allocate support costs against a project budget e.g. by personnel, by floor space, by usage – the principles are straight forward but be methodical and organised with calculations. Most funders accept this as a reality at 10 to 15% of the project costs, and should reflect a fair and relevant proportion of support costs. If a funder will not fund these costs, you at least have the information to make an informed decision about whether to move forward with the activity or not.

Information on setting project budgets

https://www.caplus.org.uk/pricing-and-costing-service-and-specific-products

https://www.resourcecentre.org.uk/information/budgets-for-community-groups/

http://smallcharityfinance.org.uk/budgets/

https://knowhow.ncvo.org.uk/organisation/financial-management/planning-and-budgeting/project-budgeting-and-full-cost-recovery

Examples of FCR

https://www.biglotteryfund.org.uk/funding/funding-guidance/full-cost-recovery

https://communitysouthwark.org/sites/default/files/images/Full%20Cost%20Recovery.pdf

https://www.caplus.org.uk/pricing-and-costing-service-and-specific-products

https://media.biglotteryfund.org.uk/media/documents/full-cost-recovery/fcr_applicants_5.pdf?mtime=20181218101958

This article was written by Keith Nicholson in January 2019. If you would like to discuss or comment on the content please feel free to get in touch at keith.nicholson@kedaconsulting.co.uk or https://twitter.com/KEDA_Consulting