Standard 3: Accurate and cost-efficient proposal budgeting.
Develop an accurate and cost-efficient proposal budget including a budget narrative based on project activities and timeline, and in accordance with CRS policies and donor requirements.
Establish amounts for indirect and allocated direct costs, and identify potential high-level budget constraints and decisions so the proposal development team can begin budgeting for direct-direct costs ("back of the envelope" calculation).
Developing preliminary budget calculations at the beginning of the project design process gives an early sense of the funding that may be available for programmatic activities (“direct-direct costs”). This estimation is particularly important when developing proposals for external funding. Generating an early estimate of the funding available for “direct-direct” costs helps the design team to:
- Make realistic decisions about project scope and scale;
- Establish initial partner budget ceilings; and
- Begin to generate ideas on the project’s potential value for money“Value for money is the optimal use of resources to achieve intended outcomes. A value-for-money perspective in project design is the analysis of what drives costs and then making decisions and choices based on evidence in order to deliver the desired quality and impact at lower cost (DFID 2011a). .
- Primary responsible: Proposal budget lead and country representative (CR)
- The proposal budget lead oversees the process, compiling relevant inputs and sharing the estimated budget amounts following preliminary calculations;
- The CR makes final decisions regarding CRS discretionary funding and any cost-share funding.
- Others involved: Finance manager (FM); proposal coordinator; other proposal development team members
- The FM provides inputs related to country program allocated direct costs, staffing, and CRS’ indirect costs;
- The proposal coordinator leads the proposal development team in analyzing the call for proposals and donor intelligence for information on any other budget earmarks or parameters.
- For proposals for external funding, initial "back-of-the-envelope calculation"A “back-of-the-envelope” calculation is an initial calculation done to get a sense for how much is available for programmatic activities, and to help inform partner budget ceilings. within 2-3 days of a final "go" decisionA “Go/no-go decision” is the decision whether to pursue a specific funding opportunity. Go/no‑go decisions may be made at multiple points; a preliminary go/no-go decision may be made based on a draft solicitation or intelligence such as information in a forecast of upcoming funding opportunities. The go/no-go decision is often revisited after the formal release of a solicitation. for initial planning purposes, followed by more detailed budget determinations and planning as the design process moves forward.
- For discretionary funded projects, as soon as CRS has identified a general project funding amount.
All aspects of implementation of this key action are guided by CRS’ policies regarding tiered costs (direct-directDirect-direct costs are costs associated specifically and entirely with a proposed project. These include direct labor, direct materials and supplies, direct sub-awards and consultants, direct travel, and other direct costs. The costs in this tier are entirely dependent on the project design. , allocated directAllocated direct costs are CRS country program expenses that benefit multiple donor source/project numbers (DSPNs), but for which the level of benefit is less easily identified at the time of incurrence. These types of costs are “allocated” to cost centers (e.g., projects) based on the benefit that each cost center receives from the expense.
, and indirectAn indirect cost is an expense that has been incurred for common or joint objectives and cannot be readily identified with a particular award, project, or other direct activity. In CRS, indirect costs are usually comprised of costs related to the country representative, and regional and HQ support costs. costs).
“Back of the envelope” calculation
The budget lead, with support from the FM and proposal coordinator, follows these steps to prepare a “back of the envelope” calculation (see “Back of the Envelope” Example):
- Identify the overall project budget ceiling (i.e., maximum funding amount) per the call for proposals, and any other information about donor budget parameters, or, for discretionary funded projects, the CR-confirmed budget ceiling.
- For proposals for external funding: Subtract the estimated indirect costsAn easy formula for this calculation is:
Budget ceiling divided by 1.X (where X is the NICRA or ICR rate) = total available for direct costs (including allocated direct costs).
Note that USAID and other donors do not allow applicants to charge indirect cost recovery (ICR) on budgets for sub-recipients who have their own negotiated ICR rate with the donor. If CRS plans to work with such a sub-recipient, keep in mind that the team will need to adjust the calculation. See “Back of the Envelope” Example for further details.
(NICRA for USG; indirect cost recovery for other donors) from the estimated budget ceiling. This step generates an estimated maximum amount available for total direct project costs. Keep in mind that this amount must cover all allocated direct costs, including allocated direct staffing; direct-direct staffing; all activities required by the donor; and CRS-defined project activities.
- The budget lead works with the FM to confirm if the donor has any restrictions on maximum percentages allowed for indirect cost recovery (ICR) or “administrative” costs and notes any cases of potential non-alignment with CRS policy regarding ICR.
- If necessary, the proposal coordinator works with the CR to initiate the ICR waiver approval process per CRS procedure.
- For all proposals: Subtract estimated project allocated direct costs (facilities pool, vehicle pool, project support pool) from the total direct project costs figure generated in step 2 (for externally-funded projects), or from the budget ceiling (for CRS discretionary funded projects). This step generates a rough estimate of the total funds available for direct-direct programming expenses. Keep in mind that for externally funded opportunities, CRS will need to budget all donor-required project personnel and programmatic or operations activities within this total amount.
- Time permitting, the FM generates project allocated direct costs estimates using the shared cost calculator, or by estimating rates based on recent proposals.
- To facilitate the FM’s calculations, the budget lead works with the technical lead to give the FM a preliminary estimate of the number of kilometers to be driven for the project and the estimated total square meters to be occupied by anticipated project staff.
- For proposals for external funding: The proposal coordinator and other members of the proposal development team scan the call for proposals for any high-level donor budget requirements and preferences, such as:
- Staffing requirements, e.g. “key personnel” or other project positions specified by the donor (knowing donor staffing requirements allows CRS to develop a rough estimate of how much to set aside to cover anticipated direct-direct personnel costs).
- Geographic focus, e.g., target locations that would require establishing a sub-office or more frequent or higher-cost travel, etc.
- Expected/required partnerships.
- Required activities or programmatic costs, e.g., required trainings; an amount that must be reserved for a small-grants program; etc.
- The budget lead and proposal coordinator, with inputs from the proposal development team, develop preliminary earmark estimates based on the above, and subtract this amount from the direct-direct total to generate an estimate of the direct-direct funding available for CRS and partner-defined activities.
Additional steps for preliminary budget calculations
After determining the rough direct-direct budget for programming activities via the “back of the envelope” calculation, follow these steps to develop a more accurate understanding of funding available for CRS-and partner-defined programming activities:
- For proposals requiring cost share or those where “excess” cost shareExcess cost share is a legal commitment. “Excess” is defined in relation to what is required by the donor solicitation. Though strongly discouraged, there may be occasions when cost share beyond what is required by the solicitation is offered for competitive position. The percentage over the minimum requirement is labelled “excess”. might be considered for competitiveness or other reasons:
- Build cost share budgeting, including prioritized sourcing of it per the Planning and Managing Cost Share policy, into the design discussions. See the Public Donor Cost Share Examples ToolsThis document complements the Finance Cost Share Procedure by providing examples and the tools PMs used to document and validate cost share in different CRS projects. Properly used, these tools have proven acceptable for USG cost share purposes. CRS encourages the use of in-kind cost share when appropriate given project objectives. document for ideas and examples.
- Complete a Cost Share Decision Summary and seek approval as required by the policy.
- For all proposals: The budget lead may further refine the rough direct-direct program budget estimate by:
- Working with human resources and the FM to estimate/further refine direct-direct staffing costs (e.g., salary, fringe benefits, and any other allowances for anticipated project staff).
- Forecasting additional travel costs based on geographic target areas, if known.
- Inputting earmarks for sub-awards and contracts, if known.
- Inputting other earmarks for activities, objectives, or other constraints, particularly donor requirements and preferences such as:
- Amounts/percentages allowed or required for personnel or office expenses.
- Amounts/percentages to be budgeted for specific activities (e.g., MEAL) and/or objectives.
- Branding and marking“Branding and marking” is a USAID term; other donors may use different terms for requirements related to acknowledging donor sponsorship of the project. Per USAID, “Branding” refers to how a program or project is named and positioned, who it is from; it identifies the sponsor of the work. “Marking” refers to applying graphic identities or logos to program materials or project signage to visibly acknowledge contributors; it identifies organizations supporting the work. or other donor publicity or recognition requirements.
- See Standard 5, key action 4 for guidance on analyzing the implications of donor requirements and preferences on project budgeting
- Identifying a “reserve” amount/percentage, to allow for budgeting flexibility during project design, and to account for issues that may affect budgeting (e.g., currency exchange, inflation, uncertainty about project target areas and activities, etc.).
When CRS is a sub-recipient
- Although this is an internal CRS action, the process impacts the budget available for partner-level project staffing and activities and helps inform partner budget ceilings.
- Many partners will be aware of the above-described process for calculating the funds available for direct programming costs. For partners unfamiliar with the process, CRS should take the time to explain the indirect and allocated-direct costs that CRS must account for, and the process for arriving at initial CRS and partner-level budget ceilings. It may be most appropriate for the proposal decision-maker/senior management to lead such conversations.
- Clearly communicate to partners when providing any early budget ceiling figures that these are initial estimates. Ensure partners are aware that CRS may need to adjust these figures as the proposal development process advances.
- After receiving CRS’ budget ceiling from the prime, the budget lead follows the same process for determining the amount available for CRS direct-direct project expenses and for estimating any initial budget ceilings for CRS partners.
- Follow the same process, after the proposal coordinator or decision-maker consults Humanitarian Response Department (HRD) leadership about any available emergency reserve funding and the status of any emergency appeals.
Tools and templates
Public Donor Cost Share Examples Tools This document complements the Finance Cost Share Procedure by providing examples and the tools PMs used to document and validate cost share in different CRS projects. Properly used, these tools have proven acceptable for USG cost share purposes. CRS encourages the use of in-kind cost share when appropriate given project objectives.
Policies and procedures
- Primary responsible: Proposal budget lead and country representative (CR)