How to Make a Budget for your NGO Project Proposal?


Want to learn about the development of a Budget for your Organization’s Project Proposal? You come to the right place, In this article, you will find out the exact meaning and development of a Budget for your organization’s funding purpose. In this article, you will find out the easy and unique tips for Budgeting and its sequence-wise results for Non-government Organizations.


Actually, Developing budgets for any project or for even your organization is one of the most time-consuming tasks. Often we think that a budget is a simple format attached to a project proposal and you need to fill it in according to the activities and strategies proposed in the project. However, when you start opening up a proposal backward, you will realize that the budget is a critical component of the project.

We have decided to develop a project proposal because we have understood and realized that there is a budget to support it. We also feel that the project needs can be fulfilled only if a budget is available for them. In fact, the budget determines the boundaries of the project. A budget is also one of the final determining factors for a project to receive its funding. If the budget is too high, the donor agency may either ask you to reduce it or in some cases, also reject the entire proposal if it is a highly competitive application process.

So understanding and developing a proposal is an important exercise in your proposal development process. In other words, “it is a program explained in monetary terms.”The reasons why we need a budget is not just to plan your project expenses but also to convince your donors that you will deliver value to whatever money they give to the project

What does the donor look for in a proposal?

This is a very important question because a project proposal is a lengthy document comprising of several different components. There is an introduction part, a background story, an explanation to justify the project, and there are of course goals, objectives, and strategies. But what is that single page in the proposal which every donor would turn and look into before giving a final decision?

For every donor, it is important that there is ‘transparency’ in the process of developing and implementing a project. Transparency is about involving stakeholders, sharing ideas, and building the project with every real activity connected to your goal and objectives.

‘Impact’ is necessary because of which most proposals seek enormous information about the expected results. In fact, big donor agencies dedicated several pages of their proposal format documents to ‘results analysis’ to identify and understand that every penny spent will generate some impact at the ground level. Further, the monitoring and evaluation process defined inside a proposal determines the ability of the agency to assess the impact the project will create in the long run.

‘Capacity’ is also another important component of a project proposal. Donor agencies are interested to know how the organization proposing to implement a project is positioned with its skills and capacity. For example, if your organization has proposed to implement a project on ‘human rights empowerment’, the donor agency is going to assess if it has got some previous experience in human rights and at what level. Similarly, any women-empowerment projects require the proposing NGO to justify that it has got the right skills to execute such a project.

Capacity also includes the number of experts you have in your organization on the subject. In some proposals, they also request information about your staff so that the donors are convinced that the project execution is in the right hands.

Donor agencies while reviewing project proposals are often under the habit of comparing project proposals. In highly competitive bids, this is very much prevalent. How other organizations have framed their project activities and strategies to achieve the desired goals and what type of resources they are using.

But the one last thing that influences most donors is what type of ‘budget’ the NGO is proposing inside the proposal. It is not rare that some donors will read your proposals backward to make sure that the proposed budget is well within reasonable expectations. If the budget is too high (or even too small), the donor will not take interest in reading the rest of the document.

When you are developing a project proposal, you need to check the application guidelines to find out if a budget limit has been mentioned. If it is not mentioned, then it is an essential part of your activity to collect intelligence about it. You can call the donor agency or research past projects to find out what is the budget limit. Once you know the budget limit, it is a great eye-opener for you to develop the project.

What are the types of budgets?

There are two types of budgets: Activity Budget and Line-Item Budget.

The activity budget, as the name suggests, covers the costs required for implementing a project activity. For example, if your project strategy is about building the capacity of civil society leaders in your area, then you usually organize workshops as part of the activity. Organizing workshops has costs involved: There are costs towards hiring resource persons, booking a venue where participants can gather, their transportation cost, food, lodging and materials, and handouts.

When developing such an activity budget, you need to break up each and every expense as given below. Please make sure that you list the unit costs of each expense. Whether you are organizing the workshop for one day or 3 days, you need to show the ‘per day’ expenses of the trainer, participants, etc. Then present the total amount of the activity. This helps the donor get full clarity of the project activity and its costs.

A Line-Item budget can be known under different names but they can be quite complicated, unlike an Activity budget. A Line-item budget requires you to present the budget under broad areas. As you can see in the image below, there are categories (in most cases, given by donors in proposal formats) and you are required to break the budget under these categories. Major donors like USAID, European Commission prefer to have their budgets as line items which can be quite complicated.

How can I start developing a project budget?

A project proposal has several components such as project goals, objectives, results, strategies, and activities. With so many sections, how and from where you can start the process of developing a project budget?

An ideal way of starting to develop a project budget is to look at your project activities. Although the project development process requires you to go back and forth from goals, and objectives to strategies and activities and back again, once your activities are ready, then you have achieved a great level of clarity.

No matter how complicated the budget format of a proposal application is, the first step towards developing a project budget is to first note down all your activities and then attach costs to them. This is the most logical and easiest way to establish a budget for a proposal.

How can I use Project Activities to prepare my project’s budget?

As project activities influence the budgeting of your project, it is important to gain greater clarity about them. If you know the specifications of your project activities, then budgets can be developed more easily and more frequently. We will understand this from the following example.

Let us say that you, as an NGO in Nepal, are proposing a project about building the capacity of civil society leaders in the country. One of the activities you will mention under this project is:

‘Organize workshops for civil society leaders in Nepal’

Now when you start developing a proposal and look at this activity above, you will find yourself a bit confused.

However, what if you have mentioned the same activity as:

‘Organize 3 workshops for 15 civil society leaders in Kathmandu’

Don’t you think now it is easier for you to develop the project budget? In the last example, you are now absolutely sure how many workshops you need to organize and the number of participants and you also have an idea of its location. You can quickly calculate the costs based on the above specifications.

Even your donor agencies will be highly impressed if you visualize your activities with greater clarity and mention them in your project proposal. If your list of activities is clear and precise, most part of your budget work is done!

What are the other costs that can be mentioned apart from activity costs in a project budget?

Donor agencies emphasize covering activity costs. In fact, some donors can only fund activities. However, for more extensive project proposals, there will be overheads and staff costs on top of the activities that are listed out. To implement activities you are required to have human resources, an office, and other operational mechanisms. These costs often fall under the line-item budget.

Human resources can be costs towards salaries for project officers, project assistants, accountants,s or even consultants responsible for implementing the activities.

There are operating costs like rent, telephone, and travel that are necessary to support the successful execution of your project activities.

Costs for monitoring and evaluation should also be included in the budget. In most project proposal formats, donors require NGOs to submit a monitoring and evaluation plan. This plan may require extra costs like hiring an external evaluator or carrying out extra research work. The costs associated with such a process can be mentioned in the budget.

Some costs for contingency can be added if your NGO is working in a volatile situation where most conditions are out of control such as in a conflict-affected project area. In any case, you need to justify this amount and it may require some break-up to be done like costs towards communication during an emergency, etc.

How to calculate staff time in a project budget?

In some project proposal formats, you may have come across ‘staff time or the number of ‘man hours’ required in the project. Large donors are very meticulous about these details and require minute calculations for the money they are going to give to organizations. So they expect budgets to be clear to the last detail.

Salaries are a very sensitive part of the project budget – even for the donors. More and more funders are resisting allocating money for salaries and overheads. As they tend to become extremely controversial, it is important for NGOs to be absolutely transparent about this part of the budget. Donors would be happy to cover salaries if properly justified.

If you are calculating the project manager’s salary during the budgeting process, you can first ask yourself the number of hours the manager is expected to work in a day. You should reflect your local conditions and local market salary rate. Do not inflate salary costs unnecessarily as it would irritate donors very easily. To justify to the donor that you are paying the salary as per the local market rate, you can refer to some examples like government salaries or other project salaries.

If your manager is expected to work 8 hours a day, then you can calculate the salary on a per hour basis and the total on a monthly basis. You can mention the number of ‘man hours’ the manager is expected to give in a month’s time and the unit as the per hour rate. Then you can mention the total salary of the manager.

How can I include overhead costs in my project budget?

Overhead costs refer to those expenses that are required by the organization to run its operations and they do not cover any direct expenses of project activities. However, they still form a part of many project budgets.

Overheads can include office rent, telephone expenses, accounting fees, salaries to the organizational staff, repairs, supplies, travel, etc. In recent years, overheads have become an extreme issue for donors. The less you talk about it, the better but for smaller organizations without a strong financial background, the overheads are an important issue.

The question is now whether to include overheads or not in your project budget.

You should first refer to the proposal submission guidelines to find out if the donor agency allows you to include overhead or at least administrative expenses in your project. Some donors will only fund activities and will condition grantees that they should not directly propose overheads to them or source this type of expenses from elsewhere.

A Billboard by Charity Defense Council in Boston Area

If the donor does allow you to include overheads in the project budget, you can feel a bit relieved. However, now almost all types of donors want NGOs to specify a certain percentage of the overall project budget for overheads. In most cases, it should be 10%-15% but not more than that. Even if you mention more than 10%, then you need to provide enormous justification.

Suppose your project is located in a very tough geographical landscape such as in remote mountains and you require spending a lot of time and resources on traveling, then an overhead expense above 10% is justified. But in most cases, where project conditions are easier, you should not request more than 8% of overheads.

Also, once your project is approved, there may be some scope for revising budgets, you can directly negotiate with the donor to slightly increase the overhead costs.

What is a Matching Contribution and from where can my NGO get it?

Often you must have come across in RFPs and other donor proposal guidelines that only 90% of funding will be given for the project. So where will the 10% come from?

This 10% is referred to as the matching contribution towards the project. It does not mean that the donor agency is refusing to take responsibility for this 10% but rather it wants to ensure that there is a certain presence of partnership and a sense of ownership about the project and that other stakeholders become part of it.

But for smaller organizations, it is still a challenge to source 10%. Below are some of the options from where they can mobilize this 10%

  1. From own resources
  2. From another donor agency
  3. From the beneficiary community
  4. From local authorities

One important element of matching contribution is that it does not necessarily have to be in monetary form. You can explain to the donor that you or the beneficiary community is willing to provide an in-kind contribution to the project that will be 10% of the total budget.

In-kind contributions can be your organization’s office space, the staff time of some of your existing staff like the director, accountant, etc. who may be getting paid from another project or from the organization’s corpus funding.

In-kind contributions from the community can be in form of land and labor and the costs can be evaluated and presented in the budget.

The contribution from external donors or even the government can also be an excellent choice. Many donors will easily extend 10% of a project’s costs because they are getting a chance to get associated with a bigger project at such a small cost. So when you approach them and say that you have a strong prospect of funding up to 90% of the project, they will be more than willing to join you with the rest of 10%.

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19 thoughts on “How to Make a Budget for your NGO Project Proposal?

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