Facing Reality: The Full Cost Budget
When you construct the budget for your grant application,
you must face an uncompromising reality: How many actual dollars will you
need? Can the grant cover those costs? In short, can this project be done?
To construct your budget, first develop the the budget's
left-hand side, where you list the anticipated categories of costs. As
you flesh out your proposal, jot down the resources you think you will
need for each activity. This exercise is especially important as
you write the "methods" section of your application. For each task
you propose, ask yourself: How many staff will this take? What new
equipment will you need? What supplies? Should you offer incentives
for subjects to participate? Will the grant cover patient care costs?
Should you consider subcontracting for specialized services? How
much consultant time will you need?
Start with a full-cost budget. What would this project
cost if you had everything your heart desires? This amount will usually
be more than the funding agency is prepared to give to any one grantee.
Even so, the exercise of doing the full-cost budget -- and then cutting
it -- is good for you, because making budget cuts forces you to set priorities,
to justify expenditures in your own mind (making it easier to justify them
to the funder), and to make informed choices about what the local department
or unit will be asked to contribute to the project. Full-costing and then
cutting your grant budget clarifies your goals and informs your choices.
At this point, remember:
Often the wisest choice
you can make on a grant application is to decline to write one.
If you can't possibly perform the work within the
budget limits, then don't write the application.
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What's Your Limit?
The guidelines for applications often give the maximum
funding level for any one project as a total cost including both direct
and indirect costs. How do you ascertain the maximum direct costs
you may budget? As an example, say the maximum allowed for directs plus
indirects will be $175,000.
First, add 1 to the indirect cost rate you will be using
(say 50.7%, or .507 in decimal form). This gives you 1.507. Next,
divide 1 by this number (1/1.507 = 0.66357).
Finally, multiply your funding limit by this number (175,000
x 0.66357 = 116,125). This product ($116,125) is--approximately-- the maximum
you can budget in direct costs while still staying within the limit of
$175,000 for total costs.
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Refining the Budget
Assuming you have decided the project is feasible, you then
need to refine your budget. To make your cuts and adjustments, work
from a detailed time line for the whole life of the project. This gives
you a clear picture of when grant-funded staff will be brought on board
and when they will be let go, when supplies will be purchased, when consultants
and subcontractors will be needed. Once you have this picture, you
can prorate costs according to this time line. Plan for an initial
start up period for hiring, executing subcontracts, developing forms, pretesting,
etc. Carefully budgeting your start up phase will save substantially on
your project's first year costs. Adjusting your time line so costs
fall into one budget year or the next can also help work around funding
limits.
In the Sample Budget presented later, the project's activities
start up and phase out according to the 3-year goals of the project, and
costs for each year reflect the anticipated levels of activity in each
year. As in this example, most funders ask to see your budget broken down
into yearly budget periods, and also summarized for the entire project
period. Each funder has its own format for budgets, and will have specific
guidelines for which costs are allowable. Follow these guidelines exactly.
For most grant budgets the largest item will be personnel
costs. For each person staffing the project, you must provide the base
salary, percent effort on the project, and the amount you are asking the
funder to reimburse. If some staff time will be contributed, include this
contribution in the budget, but without a dollar value in the cost column.
In the example, the funder asked for a separate column showing these contributions.
If a separate column is not part of the application format, put "0" or
"NC" or "Contributed" where the dollar amount would go. It's important
to show these contributions of effort in your budget so reviewers know
at a glance how much total staff time will be devoted to the project.
For each request for salary reimbursement, add the fringe
benefits associated with this salary. If you don't know the current fringe
benefit rate at your institution, request it from the Finance Office.
Build into your budget future raises and inflation of
fringe rates. Most funding agencies allow up to 3% per year salary increases
in grant budgets; most will accept a 1% yearly increment for fringe benefits.
Remember that the base salaries of staff already employed by the institution
will probably rise before the start of the project. For currently employed
persons it is legitimate to raise their present base salary by 3% for the
first budget year. If you do this, be sure to explain it in your budget
justification.
Some grant applicants looking to cut costs want to list
certain grant-funded personnel under "Personal services contracts"
or "consultants" rather than as salaried staff, thus eliminating the fringe
benefits and, sometimes, the indirect costs associated with these personnel.
You should be very careful about using this approach. There are specific
IRS guidelines spelling out when someone is an employee
and when he/she is an independent contractor. Among the criteria are: Does
the person work in an office you provide? Does this person have other clients?
Is this person under your direct supervision or does he/she work independently?
If you list someone as an independent contractor who is actually an employee
under IRS rules, you may be liable for back taxes and penalties. Also be
aware that you may not name as a consultant another employee of your own
institution -- consultants are expected to be outside resources.
Federal agencies have set some limits on the costs you
may claim for reimbursement. For instance, the base salary on an NIH grant
may not be more than $130,200
per year. This does not mean that someone can't be paid
by the institution at a higher rate, just that NIH will only compensate
the institution up to a yearly base rate of $130,200 from a grant.
When budgeting for new equipment in a federal grant, keep
in mind that federal funders don't like to buy equipment at all. That's
not to say they won't pay for a computer, printer, or fax machine, it's
just that the expenditure has to be well justified (See Justifying
Your Budget below). The higher the cost of the equipment, the more
justifying you'll need to do. Get accurate costs for the equipment
you propose to buy. If it's very specialized, get a description from a
likely vendor, and include this and a price list as an appendix to the
application. Choose middle-of-the-line models. Asking for the
Rolls Royce of the line is asking to have your budget cut.
What items qualify as equipment? For most grant
applications to Public Health Service agencies, equipment
is defined as an article of tangible property with a useful
life of more than 1 year and an acquisition cost of $5000 or more. Other
funders
may have different rules, so read your guidelines carefully.
Typical expenditures for a research grant include personnel,
equipment, consultants, supplies, operational costs (i.e., long-distance
telephone, laboratory tests), subcontracts, travel, and patient care costs
if allowed. Two items which you might want to include but are generally
not allowed are refreshments for meetings and office furniture. A
summary of allowable costs under Public Health Service grants can be
found in the PHS
Grants Policy Statement.
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4How to Deal with Subcontracts
Ideally, your proposed subcontractor will formulate a budget
for his/her portion of the funded activity in close consultation with you,
to insure that requested costs are reasonable and within the funder's limits.
The format for the subcontract budget is usually the same as for the main
proposed budget, using the same categories and following the same guidelines.
Then you will include the total cost of the subcontract(s) (direct + indirect
costs) as a line item -- a direct cost -- in your main budget. In some
application forms, such as the PHS 398, you will sum the direct and indirect
costs from subcontracts separately.
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4o Pad Or Not To Pad
Should you pad your budget? Many funded federal projects
have their budgets cut from the outset. This fact may suggest
that the original budget should be plumped up to allow for these expected
cuts. On the other hand, padded budgets are easy to spot -- remember
that your reviewers do this kind of work for a living and they know what
things actually cost. One answer to this dilemma is to build in contingencies.
For instance, you may budget for the most optimistic start up period --
say, 2 months -- but hold open the possibility of your start up actually
taking 3 months. If this will still allow you to get the project done in
time, you may have the option of using that extra month's operational costs
to cover budget cuts. Be reasonably generous in budgeting for costs
that are not usually itemized before the project begins, such as office
supplies and long-distance phone calls. This may give you some slack to
work with if your award is cut. As mentioned above, keep open the option
of moving some activities into another budget year when possible. For more
tips on making grant budgets maximally flexible, sign up for the workshop,
"Constructing a Grant Budget" offered by the Office of Research Development.
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Justifying your Budget
Whatever you request, you will have to justify it.
What goes into a budget justification? In the section below are excerpts
from the Budget Justification for an NIH-funded hypertension intervention
project.
SAMPLE BUDGET JUSTIFICATION
PERSONNEL:
Dr. X, Co-Principal Investigator,
10% Effort, Years 1 - 4: As Co-PI, Dr. X will, along with Drs. A,
B, C, and D oversee the progress, quality and consistency of the project
as a whole. Dr. X will act as a resource for the content of the interventions
designed by community advisory boards, will present programs on hypertension
control, will provide quality assurance for any clinical services or health
screenings that may be part of community programs, will make referrals
for any additional clinical services that may be required, and will be
an active liaison between local health care providers and all three target
communities. Working closely with Dr. C, he will take part in ongoing
staff meetings and community advisory board meetings, will take part in
the training of interviewers and lay health advisors, will help arrange
and provide group educational programs, and will maintain contacts with
community leaders throughout. Along with the rest of the research
team, Dr. X will prepare research articles and progress reports.
TBN, Administrative Assistant:
100% effort, Years 1 - 4. The Administrative Assistant will: type
all draft materials, reports, manuscripts, memos and letters; will coordinate
and arrange for meetings of advisory boards, survey teams, intervention
teams, training sessions, and focus groups; will set up, keep, and maintain
Chicago project files and records, and will be responsible for general
administrative activities of the project.
EQUIPMENT: This project
will require extensive word processing, record keeping, maintenance of
large data bases, and data analysis. For this reason, we request
2 IBM compatible Pentium II-level workstations, which each include
CPU, color monitor, graphics card, keyboard, CD ROM drive and a minimum
4 gigabyte hard drive.
SUPPLIES: Educational Supplies
for Chicago Hypertension Registry (intensive intervention). Of the
Chicago area participants in the Hypertension Registry, 900 will be randomly
selected to receive intensive interventions via the activities of the Lay
Health Advisors. In Year 1, $300 will be allotted for supplies for starting
up the intensive intervention, including duplicating of informational materials
and questionnaires and initial mailings to the selected individuals. In
each of Years 2 and 3 half (450) of the total number receiving the intensive
intervention will be actively helped to control their hypertension.
Informational materials, supplies for group events, educational aids, and
mailings will be needed to carry out the intervention. The estimated cost
will be $15 per individual per year. In Year 4, follow up questionnaires
and project summaries will be mailed to participants in the intensive intervention
program.
OTHER: Household Surveys:
In both Years 1 and 4, all persons over age 18 in 885 households will be
surveyed. These surveys will serve as pre and post intervention comparisons,
and will also provide data for use in designing the community education
interventions. Two residents of each of 6 neighborhoods (3 experimental
and 3 control) will be hired and trained to conduct these surveys. The
Household Interviewers will be paid $25 for each completed household survey
instrument. The following assumptions were made to arrive at this figure:
1. An
average of 2 persons over age 18 will reside in each household.
2. Time commitment
per household survey will be 1 hour 40 minutes, including introductions,
obtaining general household information, obtaining blood pressure, weight
and height of each respondent, completing individual interview schedules,
traveling to and from clusters of sampled households, scheduling return
visits to interview absent household members, and interviewer training.
3. An
hourly rate of $15, the standard reimbursement for part-time community
interviewers in Chicago.
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Note that the rationale for developing budget figures
is fully explained for those requests which are unique to this project
-- the educational supplies and the costs of doing the Household Surveys.
The justifications in these portions not only show the base figures used,
but also tie the costs to very specific tasks of the proposed project.
Be sure to save the work sheets you used to develop your justifications
so you can explain how you arrived at the numbers, and can adjust them
later if necessary.
Other portions of the justification, such as for office
supplies or postage, can be much briefer, since these tend to be standard
costs of performing a research project.
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Cost Sharing and Matching
Most DHHS research grants don't require matching funds from
the grantee institution. Many service and training grants, however, do
require local matching. In most cases the required match can be accomplished
by in-kind contributions of staff time and use of equipment and other resources.
One source of matching that is often overlooked with federal
grants is the "lost" indirect costs entailed when faculty time is devoted
to service or training rather than research. Federal agencies do not as
a rule provide the full negotiated indirect cost rate for non-research
grants. In most cases there will be a cap on indirect costs -- anywhere
from 5% to 15% -- which will be far below the research rate. If you calculate
what would have been recouped under the full rate, and subtract from it
what will be recouped under the service or training grant reduced rate,
the difference will be a legitimate institutional match.
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A SAMPLE BUDGET
Year 1 Sample Budget
Notes to Sample Budget
Sample Project Timeline
Follow these links to the year-by-year grant budget for
a three-year project to study the impact of managed care on the control
of Type II diabetes. This project, prepared for the National Institutes
of Health, involves both a population-based survey and in-depth interviews
of persons with diabetes at a community site. Sections of each year's budget
are linked to notes explaining the budget strategy employed. A timeline
is also provided to show the onset and offset of various project activities.
Such changes in workscope over the course of the project are reflected
in prorated costs for each year.
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Grant Budget FAQ
Q: What are indirect costs?
A: Indirect costs are the costs to the institution
for carrying out grant-funded projects which cannot be easily allocated
to single projects. Examples would be the cost of electricity, of
maintenance on the space used, or the cost to the central administration
of handling the paperwork. Federal funding agencies now prefer to use the
term "Facilities & Administration" or F&A instead of "indirect
costs".
Q: How is the indirect cost rate determined?
A: Any institution which carries out federally-funded
research projects may negotiate an indirect cost rate with a cognizant
federal agency. This rate is based on an accounting of all the expenses
described above, adjusted by the proportion of those expenses devoted to
research. This rate usually applies only to federally funded research.
Other types of projects often have a cap on indirect costs which is much
lower than the negotiated rate. Non-federal agencies have their own policies
on indirect costs, which should be explained in the grant guidelines. If
there is no information in the guidelines, you can call the project officer
listed for help in determining what, if any, indirect costs will be acceptable.
For some federally funded service projects the project
officer may be coy about setting a limit for indirect costs. This is because,
in theory, all federal projects (other than training projects) should
allow the negotiated rate, but in fact many don't. If your project seems
to fall into this twilight zone, use a rate of 15% of modified total direct
costs (that is, 15% of your total budget, excluding the costs for equipment,
patient care, and subcontracts). This rate is usually acceptable, and won't
lead you to set aside too much of your budget for indirect costs that the
agency ultimately won't pay.
Q: What is the indirect cost rate for grants at County
facilities?
A: The joint rate negotiated with the Department
of Health and Human Services for Cook County Hospital and the Hektoen Institute
is 38.7% of salaries and wages (the total of your budgeted direct costs
for salaries and wages, not including fringe benefits). Grant
applications handled through either of these entities should indicate the
appropriate rate. Other County facilities do not have negotiated
rates, but may request from the granting agency that the Cook County Hospital
rate be applied.
Q: Why do some grants pay indirect costs at rates lower
than the negotiated rate?
A: The agreement with the cognizant federal agency
is usually based on the cost of doing research. Most
often only grants for research are allowed the full indirect cost rate.
Grants for other types of activity, such as training or service, may have
a cap on the indirect costs paid by federal agencies. Indirect costs for
training grants are capped at 8%; those for service grants vary from 5%
to 15%, depending on the specific program.
Q: Do these rates apply to grants not funded by a federal
agency?
A: No. State, city and private funders each set
their own maximum indirect cost rates. The Illinois Department of Public
Health pays no indirect costs on many of its grants. Many private foundations
also do not allow indirect costs, although a few do permit addition of
an "administrative allowance". These allowances typically range from 5%
up to 15% of total costs excluding equipment and rent.
For contracts with pharmaceutical companies to perform
clinical trials, the rate is negotiable. Currently the Hektoen Institute,
which handles most clinical trials at CCH, charges a 15% administrative
fee for these projects.
Q: If I ask for the full indirect cost rate on my grant
-- thus raising its total cost -- don't I reduce its chances of being funded?
A: No. Funding decisions are based primarily on the
quality of the application. Considerations of cost have to do with whether
the direct costs requested are reasonable. If an agency decides that
a high quality project costs too much, it will request a reduction in the
direct costs.
Remember also that others competing for the same grant
are requesting indirect cost reimbursement at a rate similar to yours.
The CCH/Hektoen indirect cost rate of 38.7% of salaries and wages
is well below those of other Chicago area institutions. The national average
is 51%. This cost has already been figured into the agency's projections
of how many awards it will make, and at what level.
Q. What's the difference between the fringe benefit rate
and the indirect cost rate?
A. Fringe benefits are the extras that go along with salary
expenses: health insurance, life insurance, workman's compensation, etc.
Usually they are estimated as a percentage of the base salary. At Cook
County Hospital, for instance, an estimate of 35% of salary is currently
applied to calculate the fringe benefits to be paid. For employees to be
hired through the Hektoen Institute, a direct calculation of the cost is
preferred, and may amount to 35% to 46% of salary. To make this calculation,
consult John Prochaska at 312-633-7131.
Indirect costs are the overhead expenses incurred by the
institution as a result of a grant-funded project. These would include
the costs of administration (i.e., payroll, accounting and personnel records),
the costs of maintaining the physical plant, utility costs, and costs of
special supportive services such as a research laboratory (or a Research
Development Office!).
Remember that the difference between direct costs and
indirect costs is whether an expense can easily be allocated to a particular
program. The cost of electricity to run your computer cannot easily be
split out from the institution's total electric bill; therefore, this is
an indirect cost. Fringe benefits, on the other hand, are readily identified
with particular employees. To the extent that an employee's time can be
easily identified by program tasks, so can that employee's salary and fringe
benefits. Therefore, in most institutions fringe benefits are a direct
cost.
Q. Does this mean you have to budget for both fringe benefits
and indirect costs in your grant application?
Yes-- both are genuine and distinct costs of performing the
project.
Q. What's the difference between a grant and a contract?
A. Who designed the project? A grant is generally given
to you based on your own original idea, with a certain amount of latitude
allowed for adjusting the program to meet your scientific or service goals.
A contract is a clear, detailed agreement to perform a certain amount and
type of work. In most cases the funder has designed the project and transmits
a protocol to be followed. The dimension on which these types of
externally-funded programs vary is the extent to which you as the local
Project Director/PI "own" the project.
Although this distinction can be easily articulated, there
is in fact a certain amount of fuzziness in real life. Some service "grants"
are so specific about the work required that they essentially amount to
contract work. On the other hand, some federal Requests For Proposals (RFP'S)
-- which result in a contract -- allow you a certain amount of flexibility,
and creative thought, for getting the job done.
Q: What's the difference between a grant and a cooperative
agreement?
A. A cooperative agreement is a creature that lives in the
territory between the grant and the contract. When applying for a cooperative
agreement award, you pledge to adjust your project according to the wishes
of the funder, in conjunction with the other awardees. This might mean,
for instance, that all awardees under a particular agreement would measure
their outcomes in the same way, or adopt the same criteria for inclusion
in the study. In this way, the research will achieve a certain amount
of direct comparability among sites. Performing a cooperative agreement
requires a great deal of consultation among performance sites, and usually
requires that you meet with the other PI's in your cooperative agreement
group several times a year.
Q. How can I budget for raises in salaries and other expenses
several years in the future?
A. Most funders will allow you to build in small inflationary
factors in salary when you prepare a long-term budget. An acceptable figure
is 3% per year. For staff already employed by your institution, add the
3% to this year's base salary for Year 1 of your project -- the project
probably won't start until the next fiscal year, by which time everyone
named will have gotten a raise. For each year thereafter, multiply the
previous year's salary by 1.03.
Fringe benefits can also be inflated to cover future rate
increases, by a adding 1% increment every year. For currently-employed
County employees, any expected step increases they will receive in future
grant years can also be included in the budget with appropriate explanation
in the Budget Justification.
For other expenses, such as office supplies, funders are
less agreeable about allowing automatic inflation in your budget. It's
better to show in your budget justification how much more paper (or photocopying,
or postage) you will be using three years down the line to support increasing
the costs.
Q. How can I find out which expenses a grant will pay for?
A. For federal grants, there are published guidelines, called
"cost principles", which list many possible costs you might want your grant
to pay for, and whether, or under what circumstances, they are allowable
costs. There are somewhat different guidelines for different kinds of awardee
institutions. For grants awarded to non-profit institutions, OMB
Circular A-122 is the guideline; for state and local governments, OMB
Circular A-87 applies. Copies of either can be obtained from the Office
of Research Development.
Two frequent pitfalls for investigators budgeting for
federal grants are furniture and food. Generally, you will not be allowed
to include these as part of the usual cost of your project. There are exceptions,
of course. If food or food coupons are employed as an incentive to
get subjects' participation, they might be allowed. Refreshments for your
staff meetings, however, will not be. Likewise with furniture: if
you need to buy special child-sized desks for your project, you may get
them, but forget about a new desk for yourself.
Some grants from the State adopt these same cost principles;
often the grant agreement will specify which OMB circular applies. When
dealing with private funders, you will often be told during the application
phase which costs are or are not allowable. If you have any doubts, call
the agency.
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Practical Words of Advice & A Spreadsheet Substitute
Preparing a grant application can be traumatic. You can
make it less so by relying on readily available technological aids, such
as spreadsheet software. Developing and fine-tuning a grant budget is made
immensely easier if you use a spreadsheet such as Lotus, Quattropro, or
Excel. Once the formulas are in place, you need only do minor editing to
make budget changes and the program will take care of the rest. It's well
worth your while to invest in a spreadsheet package for your personal computer
(and learn how to use it).
If this is not possible for you, the Office of Research
Development can provide you with a Budget Worksheet/Spreadsheet
that works on Wordperfect. Essentially, this is a Wordperfect table with
the formulas already in place. With this document, you can punch in any
number in any category, and the table will calculate the sums, and recalculate
them automatically any time you change an entry.
See Also:
Hektoen Institute
Spending Grant Money
NIH
Grants Policy: Definition of Significant Rebudgeting
NIH:
Grants Policy and Guidance
NIH
Grants Policy Statement - Table of Contents
NIH
Grants Policy: Terms and Conditions of NIH Grant Awards
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