A budget is the key element of many grant proposals.  An effective proposal budget outlines a proposed project in fiscal terms and helps reviewers to determine how the project will be conducted.  Budget information about activities planned and personnel who will serve on the project provides reviewers with an in-depth picture of how the project will be structured and managed.  Budget details usually reveal whether a proposed project has been carefully planned and may ultimately be feasible.

The budget should be complete; that is, it should include all the costs of any personnel, supplies, and activities required by the project.  The project needs to be feasible within the budget presented.  If major cost areas are omitted or underestimated, the project, as proposed, will not be considered feasible.

The budget should be reasonable; that is, it should be based upon actual costs when possible.  Reviewers are often familiar with costs that are common to many projects, such as computers, special equipment, travel, postage, and telephones.  Cost items in the budget do not need to be based upon formal price quotes.  Nonetheless, all costs should be based upon available price information.

The Purpose of a Budget

The budget of a proposed project serves as a blueprint for spending the project’s funds.  The proposed budget must give an accurate assessment of all cost items and cost amounts.  If the project is funded, the budget will become the financial plan used by the funding agency to provide support.

Kinds of Budgets

There are two major kinds of budgets corresponding to different approaches to funding-- cost reimbursement and fixed price.  Each approach affects the way the budget is prepared differently.

Under a cost reimbursement funding agreement, a funding agency reimburses the University for the actual costs of a project and the budget assumes a special importance.  Project expenditures are strictly limited to the items authorized by the approved project budget. Any expense items not included in the budget will be disallowed by the funding organization and the University, unless the funding organization revises the budget in writing.

Under a fixed price funding agreement, the funding agency obligates a fixed sum of money to support the project.  If the project incurs expenses less than the fixed sum, the University may retain the balance.  However, if the project’s expenses exceed the fixed sum, the funding agency is not obligated to provide additional monies.  The anticipated project expenses must be carefully and accurately assessed.  Often the funding agency may request an itemized budget to justify the fixed-price amount.

Cost Groups

Most budgets are composed of two kinds of costs: direct costs and indirect costs. 

Direct costs are those expenditures that are made by the project and directly allocable to the project.  These include expenditures for project personnel salaries and employee benefits, supplies, travel, equipment, telephones, and postage.  All direct cost items must be included in the budget.

Indirect costs are expenditures that cannot be allocated to a specific project.  These include the costs of purchasing, personnel, accounting, security and custodial services, building depreciation, and utilities.

Cost Sharing

When cost sharing or matching is required by a funding agency or offered by the University, the sources of a proposal's cost sharing or matching must be itemized and based upon current market prices as are all other budget items.  When projects are audited by a funding organization, cost sharing items as well as the expenditure of agency funds are commonly examined.

There are basically two kinds of matching: cash and in-kind.  All items that require the exchange of money are regarded as cash matching.  These include the costs of any faculty salaries, supplies, or travel which are to be charged to a University operating account.  Any items that do not involve the transfer of money are classified as in-kind matching, including any waived indirect costs and the use of specialized facilities not included in the University’s indirect cost pool.

Cost Limitations

Regulations pertaining to all federal agencies and most state and local government agencies specify cost principles required of all projects funded by the agency.  For most federal agencies, these regulations are published in OMB Circular A-21 (U.S. Office of Management and Budget). Some federal agencies have promulgated additional regulations; for example, the Department of Education has adopted EDGAR and the National Science Foundation and National Institutes of Health have issued additional guidelines for managing grants.

Circular A-21 uses three basic tests to judge whether project costs are appropriate: allowable, reasonable, and necessary.  A cost is allowable if it is within the applicable regulations or has been approved by the funding agency.  In A-21, a cost is “reasonable if the nature of the goods or services acquired and the amount involved therefore, reflect the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made.”  A cost is considered necessary if it is required to successfully and satisfactorily complete the project.  Any costs that are not allowable, reasonable, or necessary should not be included in the proposed budget.

Budget Principles

Most funding organizations require that a proposed budget be based upon a good faith estimate of the anticipated costs. A person may not knowingly include false, inaccurate, or misleading cost information.  The proposal writer must make a conscientious effort to obtain comparable cost information in preparing a budget.  Cost estimates cannot be simply fabricated, but must have a reasonable basis.

BUDGET FORMAT

Some funding agencies provide budget forms.  Others specify the budget categories that they will approve.  The following budget categories are commonly used.

Personnel.  The project director, research associates, graduate assistants, student workers, secretarial support, and technicians.  Staffing should be sufficient and appropriate to the needs of the project.  Often, the wages of student workers are placed in a separate category because they receive different employee benefits.

Employee Benefits.  All benefits provided to project personnel that are paid by the project, including FICA, vacation leave, sick leave, and health insurance.

Office Supplies.  Any special items that will be consumed by the project, such as chemicals, film, videotape, and audiotapes.  All items should be listed separately and based upon current prices.

Copying.  Estimate the number of photocopies to be made by the project and compute the cost based upon the current University charge for copying.

Printing.  Estimates for printing project materials should be obtained from the UTSA Printing Center.

Postage.  Estimate the number of items to be sent by first class and/or bulk rate and compute the expected cost.

Telephone.  To estimate the cost of regular telephone service for project offices, obtain the current costs for each instrument and line.  For long distance telephone costs, estimate the number of calls and the average length and cost of each call.

Travel.  All travel needs to be itemized, such as specific trips to conferences and conventions or field trips.  Current airfare rates can be obtained or State mileage rates can be used to determine expected transportation costs.  Lodging costs can be obtained from hotels, and food costs can be computed from the State’s per diem allowances.  Additional costs for items such as tips, taxi, parking, and conference rooms should be included.

Foreign Travel.  Any foreign travel using Federal or State funds must be itemized in the budget and requires specific written prior approval from the funding agency.

Equipment.  All equipment purchases must be itemized with current market prices listed.  Some funding organizations do not allow the purchase of equipment.  Some require specific approval for equipment purchases.  Circular A-21 requires prior agency approval for general use equipment purchases over $5,000.

Some agencies permit the rental of equipment.  However, any rental of University equipment must be based on the actual costs of such use and maintenance of the equipment as long as such costs are not included in the indirect cost pool.

Professional Services.  Each individual consultant or company must be itemized along with the consulting rates and duration of each professional service to be purchased by the project.

Indirect Costs.  The University of Texas at San Antonio (UTSA) has an Indirect Cost Agreement with The Department of Health and Human Services. The UTSA uses the Modified Total Direct Costs (MTDC) to determine Indirect Costs. MTDC consists of all salaries and wages, fringe benefits, materials, supplies, services, travel and subgrants and subcontracts up to the first $25,000 of each subgrant or subcontract (regardless of the period covered by the subgrant or subcontract). Calculations shall exclude equipment (capitalized at $5,000), capital expenditures, charges for patient care, tuition remission, rental costs of off-site facilities, scholarships, and fellowships as well as the portion of each subgrant and subcontract in excess of $25,000. For projects that will be housed off-campus, the off-campus rate should be used. Multiply all direct costs (minus the exclusions above) x the appropriate rate below:

Rates:
On Campus Rate - MTDC 47% for Organized Research or Instruction
On Campus Rate - MTDC 35% for Other Sponsored Activities
On Campus Rate - MTDC 44.5%
On Campus Rate - MTDC 43.4%
26% Off Campus, All Programs

Total Agency Cost.  The sum of the direct costs and the indirect costs.

Total Project Cost.  When cost sharing is used, the total project cost is the sum of the total agency cost plus the cost sharing dollar value.

Pre-Award Costs.  Proposal preparation costs and other costs incurred before funds are awarded are usually not allowed.