How NGOs can develop budgets in their

Proposals
Developing and managing budgets can be a challenging task Ior NGOs whenever they need to
plan a project, write a proposal and implement an activity. EIIicient Iinancial management is
essential Ior the growth oI any organization. Besides, iI you have well-managed and transparent
Iinancial system, it also enables donor agencies to gain conIidence in your NGO and oIIer to
support to it. However, setting up an eIIicient Iinancial management system requires a sound
understanding oI Iinancial practices and principles. Here we are providing a basic guide Ior
NGOs so that they can improve their capacity in developing and managing budgets Ior their
organization and project and contribute towards an overall eIIective Iinancial system.
dvantages of Effective Financial Management System in NGOs

What is a Budget - for NGOs?
'Budget is a term that NGOs oIten come across when they need to plan and implement a
project activity. Besides, we also come across this term again and again when we are in the
process oI developing a proposal. Any donor Iunding Ior NGOs is limited and a proper and
planned budget is required to convince the donor to access this Iunding. Donor agencies also
have their limitations and they distribute their Iinancial resources evenly amongst NGOs based
not only on their project plans but also according to the budget they present.
Budget, in simple terms, means a document where you speciIy how much money you are going
to spend (in other words, expenditure), especially iI your organization has received grants. In
some cases, as in businesses, budgets can also include the money that the organization is going to
generate or 'income. The latter is important Ior all NGOs now because managing any
organization, including an NGO does not mean just spending we also need to look at how costs
can be covered and money can be saved Ior other activities.
In another sense, budget is all about planning your expenses and saving your costs.
Many NGOs tend to plan out a budget only when they need to develop a project proposal Ior a
donor agency. Besides, they only think oI the short term project needs not about the long-term
sustainability oI the organization.

What should not be done with a Budget - for
NGOs?
We have read about what NGOs can do with a budget: manage organizational expenses and
income, plan project activities, IulIill donor expectations and also work towards long-term
sustainability oI the organization.
Now we try to understand the essential things that should not be done with a budget. For
example, we tend to believe that a budget submitted to a donor agency cannot be changed.
!ractically speaking, this is not true to some extent. Budgets can be changed, but in many cases,
it is required to take prior permission Irom the concerned donor agency.
Myths about Budgets clarified:
"8udgets cannot be
changed"
8udgeLs can be modlfled Lo some exLenL ?ou can dlverslfy your resources and
cuL your cosLs Cf course Lake prlor permlsslon from your donor agency for
Lhls
"8udgets can be deve|oped
overn|ght"
CfLen ln our efforL Lo meeL proposal deadllnes we develop budgeLs overnlghL
1hls ends up ln poor plannlng and even re[ecLlon of proposals Always Lake Llme
Lo bulld your budgeL your nCC should llve wlLh a budgeL always!
"8udgets do not have a
bas|s"
8udgeLs should be developed on a cerLaln base 1hey cannoL be developed
wlLhouL any basls ln mosL cases Lhe basls should be Lhe prevlous year's
lncome and expendlLure lf applylng for a pro[ecL look ouL for Lhe expenses of
Lhe pro[ecL's prevlous year uonor fundlng llmlLaLlon Lo be also consldered
"8udget can be deve|oped by
a s|ng|e person"
8udgeL work ls a [olnL exerclse lL ls a Leam work lnvolvlng Lhe enLlre Leam ls
lmporLanL Lo produce an effecLlve budgeL
"8udgets have same
formats"
All budgeLs do noL have same formaLs ulfferenL budgeLs are developed for
dlfferenL purposes lf you are wrlLlng a proposal lL ls a dlfferenL budgeL formaL
and lf you managlng an organlzaLlon you wlll have a dlfferenL budgeL formaL
Slmllarly dlfferenL donor agencles have dlfferenL budgeL formaLs
Why budgets are so complicated for NGOs?
Developing budget is always a complicated task Ior NGOs especially when they need to develop
a proposal and satisIy every entry given by the donor agency in the budget Iormat. Sometimes it
is easier to write a proposal than developing a budget to request Iunding.
Budgets will continue to become more complicated. However, iI you keep your Iinancial system
clear, the task oI developing it also becomes simple.
A typical budget developed by an international NGO Ior the European Commission


Budgets have become complicated because the increased need Ior transparency and
accountability. Let us not Iorget that donor agencies are also required to submit their expenditure
Ior proper audits and they have to maintain proper books.
Another important Iactor to be observed here is that as budget Iormats become more and more
diIIicult, the expenditure on administration has also been tightened. Donor agencies are less
interested in supporting overhead costs oI an organization. Besides, the less you propose Ior your
oIIice inIrastructural needs the better chances you have Ior getting the requested grants Irom the
donor agency.
nvolving the NGO team in developing the
budget
Usually the senior and the experienced staII oI the organization are involved in developing the
budget. They should be in a position to take responsibility Ior Iinancial aspects oI the
organization or a project. It is also better iI they have experience in managing project Iinances in
a cost-eIIective manner.
Following are the staII members who can be involved in developing the budget:
O Organizational Director
O Finance OIIicer
O !roject OIIicer
It is important Ior all these staII members to be aware about the vision and objectives oI the
organization; the needs and integrities oI the project implemented; the admin and Iinancial
policies oI the organization; and the approaches oI the donor agency.
The board members oI the organization may have also constituted a Iinance committee to
oversee the income and expenses. It would be a good idea to involve one oI the members oI this
committee or take his/her opinion.
The !roject OIIicer should be primarily responsible Ior developing the draIt budget since this
person will have a better idea oI the Iield realities and requirements. He or she can then submit
the draIt to the Finance OIIicer Ior any inputs. The Director can then gather a meeting oI key
persons Ior Iinal review and approval. In this way, the process oI budget Iormulation will remain
complete and all aspects oI the organization and the project will be included.
Planning the Budget or Budgeting the Plan
When developing a budget Ior a project or an organization, the exercise involves going back and
Iorth Irom your activities to your budget and Irom your budget to your activities. This process
will continue till you have reIined it and gained conIidence in the entire proposal.
When conceiving a project, you also decide upon what kind oI activities have to be implemented.
Or iI you are planning the budget Ior your NGO, you need to list out activities that will be
carried out Ior the coming year.
Have an intense discussion with your team about the costs involved in implementing various
project activities. What kind oI manpower and material support is required Ior these activities?
Take some Ilipcharts and on each oI it, write down a project activity. Discuss with your team Ior
the inputs required in delivering this activities.
Estimate the realistic costs Ior these inputs. Whether it is to cover expenses oI the staII persons
involved in the project activity or buying some material or paying Ior travel, all these can be
written down on the Ilip chart Ior each activity.
In an Excel sheet, you can then start mentioning these activities and the proposed costs and
calculate the total expenses.
The Finance OIIicer can advise on the inIlation costs, current prices and any other overheads you
are missing.
The Organizational head may include other administrative expenses, iI required, salaries and any
new purchases.

%ypes of Costs to be included in the Budget
There are diIIerent types oI costs that have to be mentioned in the budget. Most donor agencies
preIer to have the costs spread over diIIerent heads so as to get an overview oI how the resources
have been divided between diIIerent types. Basically, we can divide the overall costs as:
Operational Costs: Operational costs include those expenses that have to be met Ior
implementing activities Ior a project or an organization. These are directly billed to the donor
agency because they have a direct impact on the beneIiciary community. Activities such as
organizing a village meeting, conducting a training workshop, running an awareness campaign
involve certain expenses. These expenses are listed under the Operational Costs in a budget.
Staff costs: StaII costs reIer to the expenses towards paying salaries and consultancy Iee to the
staII oI the organization. StaII costs include expenses right Irom the recruitment oI the staII
(interview, orientation etc) to their salaries. !roIessionally speaking, it is important to mention
how much time a particular staII will provide Ior the project and his/her salary has to be
calculated accordingly. For example, the head oI organization may be able to give only 25 oI
the time to a particular project Ior which Iunds are being requested and budgeted. So the salary
will also be Iixed towards this time only.
Core Costs: Core costs are also costs incurred towards the operational expenses but oI the
organization. Most donor agencies would like to know how much money the NGO will spend on
the administration oI the organization. Costs here can include staII meetings, stationary and other
oIIice maintenance expenses. In some cases, the expenses towards hiring a receptionist or
caretaker who is not directly contributing to the project can be listed here.
Capital Costs: Although donor agencies are advising NGOs to massively cut down on capital
costs, yet these costs continue to remain essential. These include expenses Ior buying computers,
oIIice Iurniture, vehicles, oIIice building etc. Some donors have even stopped Iunding capital
costs completely. Even iI you are proposing these costs in a budget, ensure that they cover less
than 10 oI the total budget.

Matching Contribution in the Budget
You may have noticed in several Calls Ior !roposals, donor agencies put a condition that they
would be able to Iund only 70-80 oI the total budget submitted to them Ior Iunding. The rest oI
the 20 should be sourced Irom elsewhere. Sourcing Iunding Irom elsewhere means matching
the contribution made by the donor agency Irom other places.
Donor agencies stress upon this because it only ensures that the grantee. NGO takes
responsibility and ownership to the project. But Irom where can the NGO source this matching
contribution Irom. The donor agency expects the contribution to come either Irom the NGO itselI
or Irom the community. It could also be possible that another donor agency can support the 20
costs. In some cases, iI a government agency is a partner in the project, it can provide this Iund
as well.
NGOs oIten Ieel discouraged to apply to such calls because they think they would not be able to
mobilize the 20 Iunding Irom other sources. However, in real terms, this condition should not
deter them Irom applying. It is only a matter oI perspective to clearly understand matching
contributing.
In mobilizing the matching contribution, NGOs Iirst need to look at other available sources oI
Iunding: another donor agency willing support a meeting, a staII salary, a conIerence or make a
simple donation. OIten small donors easily give out money when they see that there is already
80 Iunding available with the NGO.
II donor agencies are not available, then look Ior the governmental agencies with whom
partnership is essential Ior the project. It may not be easy Ior the local government to give out
direct money Ior the project as matching contribution, but you can always request them support
in terms oI using their inIrastructure and other resources. You can request the government Ior
using their building premises to organize workshops and meetings Iree oI cost. You can request
one oI the government oIIicials to participate in a project activity as a resource person Iree oI
cost. These contributions can then be calculated in terms oI costs and put in the budget as a
contribution.
Similarly, iI there is a community contribution in kind (like community members providing labor
service Ior a project activity) can also be considered as a cost contributed by them to the project.
This can be put up in the budget.
Another important source can be the NGO itselI. II your organization is well-established and you
have your own oIIice, computers, vehicles and other inIrastructure that can support the project,
you can estimate its costs and put it in the budget as your matching contribution.
II all these small contributions are put together, there is a complete chance oI paying up Ior the
20 matching Iund.

efining certain terms in a budget
Here we discuss some commonly used terms in a budget and try to deIine them:
Contingency mount: Contingency amount reIers to the money set aside to cover any
unIoreseen expenses oI the organization or the project. Contingency expenses are required
because any organization or a project can Iace an uncertainty because oI which certain costs are
incurred. As a standard practice, the contingency amount is usually 10 oI the total budget.
Monitoring & Evaluation Costs: Some budget Iormats seek speciIic inIormation about costs
proposed by NGOs Ior monitoring and evaluation oI the project.
Overhead Costs: Overhead costs are expenses that are required Ior running the organization.
These expenses may not be directly contributing towards implementing a project but they are
still essential to maintain the oIIice and manage the day-to-day aIIairs oI the organization.
Usually, these costs should not exceed more than 10 oI the total budget in any good proposal.
R& expenses: R&D or Research and Development expenses reIer to those expenses required
by the organization or a project to undertake research, assessment and consultation Ior the
intervention. In some projects, it could be just be part oI the initial work or in some others, it
could remain a continuous activity.
Start-up Costs: Start-up costs relate to the expenses incurred by the organization initially Ior
launching a project or developing the organization. For new projects or organizations, activities
such as oIIice set-up, staII recruitment, orientation, pre-Ieasibility studies etc all Iall under the
Start-up Costs.
&nit Cost: Unit cost is the cost oI a single item or a unit. It could be per day cost oI a staII
member or a consultant or single cost oI a computer machine.