7. Budget development and management
- Give proper attention to budget development preparedness activities.
- Avoid common budget development process traps (see section 7.3 below)
- Ensure that the program team provides project implementation assumptions and oversight to the budget development team.
- Follow the scheduling of the required steps to prepare a budget for submission while remaining flexible.
- Don’t focus only on costing major items when preparing a budget-include auxiliary items in the budget.
The purpose of this guideline is to assist in the development and management of budgets in an emergency response scenario. While an emergency response programme, as a whole, can benefit from more relaxed policies and procedures, budget development and management should follow the same thoroughness as regular non-emergency programmes, except that they should be put together in the context of funding uncertainty and within a shorter period of time.
Lessons learned by CARE during recent emergencies (see Tsunami Emergency Response, in section 9 ) suggest that CARE should invest more time and resources in emergency preparedness activities. Also, it denotes the need of promoting institutional learning, team building and efficient support systems. That is, the CO should have strong foundations-reflected in good working systems and teams-which are built during non-emergency times to better cope with emergencies.
Given the difficulty in estimating costs, and the limited time available to write the proposal and develop budgets, it is necessary to give proper attention to Budget Development Preparedness Activities. The data necessary for these activities will come from existing systems such as the main financial system (Sun/Scala/Serenic) and other subsidiary systems such as Payroll, Human Resources, Fleet Management, Procurement and market investigations conducted for certain lines of procurement. This data, however, should be compiled into a toolkit to assist emergency teams speed up budget preparation and reduce guesswork.
Everyone’s knowledge channelled into a single, collaborative process helps to minimise the time diverted from the critical activities and ensures a broader participation of key positions. The following are some of the recommended preparedness activities and toolkit contents:
- The Country Director formally appoints a team of CO staff responsible for leading and supporting the budget development/management process. This team should be comprised of the different emergency programme managers, Finance (Controller, and Grants and Contracts), Procurement, Human Resources, Design, Monitoring and Evaluation and audit staff.
- When the emergency procedures are enacted, the mandate of the team will be to undertake all emergency budget preparation and revision exercises, by applying a set of locally developed budget tools and following a collaborative role-based approach. See section 7.4 Budget development process and team roles, for suggested team composition and relationships.
- The Human Resources department is responsible for maintaining updated salary scales for all positions (regular and emergency) and corresponding guidelines for hiring/firing, emergency compensation packages and relevant internal procedures. This salary scale should also include information about positions to be hired from international sources. This may involve discussions at levels outside the control of the CO. In a broader sense, following lessons learnt during the South-East Asian tsunami, this budget input should be part of an ‘emergency roster’ database developed by the CO.
- The CO Finance Department is responsible for developing budget templates for budget development (for example, BudgetMate for CARE USA COs and Annex 17.16 for other COs). The Finance Department should also have a set of templates with pre-filled costs for existing cost pools such as shared programme costs (SPC) and sub-offices, as well as provide guidelines on calculating percentages/allocation basis on cost-pool costs. These templates should be updated whenever funding position changes. There should also be templates for direct costs, which include current calculation formulas and factors such as benefit information.
- The Finance Department is responsible for preparing CARE to donor account maps to speed up the presentation of budgets in donor formats, help with transaction encoding (which in turn will speed up reporting) and detect/highlight expense categories where the likelihood of budget gaps is greater. Annex 17.13 is an example of how this can be accomplished.
- As recommended in the Tsunami Best Practices Report, the Procurement Department-with the assistance of the Programme Department-should establish and maintain ‘Approved Vendor Lists’ and ‘Updated Price Lists’, including emergency relief items, emergency-related support services and equipment-for example, communication equipment, vehicle rentals, computer equipment and temporary storage.
- As recommended in the Tsunami Best Practices Report, the Procurement Department-with the assistance of the Programme Department-should develop standardised/predefined items for various relief kits with clearly-stated specifications that can be included in the Vendor/Price Lists. This can help with faster procurement of relief items during the initial days of relief response activities.
- The Programme Department is responsible for keeping donor emergency guidelines for writing proposals, budget formats and guidelines for major donors. They should also request the Finance Department to provide analyses on funding exclusions and limitations in terms of how they affect the financing of projects. These exclusions and limits can be expressed as amounts and/or nature of the expense. The following are some examples of major donor exclusions/limitations based on the ‘nature’ of the expense:
- partial/total exclusion of for certain positions and/or costs associated with them (pension, Rest and Relaxation, etc.)
- donors may use different naming conventions on restricted items. For example, syringes may be considered ‘medical supplies/drugs’ by one donor and ‘disposables’ by others
- some donors don’t finance capital purchases such as vehicles, communication equipment, office equipment and office furniture.
- Certain exclusions are more subtle and may affect the overall project costing if these are not considered. These items should also be red-flagged for negotiation with the donor.
o Some donors don’t pay the cost of import or customs duties (or any similar fee) imposed by overseas governments on goods imported or services.
o There are instances where certain costs associated with commodity transport, storage and handling are not covered or are partially funded. It is also possible that the Internal Transport Storage and Handling (ITSH) rate offered doesn’t reflect the economic realities on the ground.
- Other relevant information to know and/or document may include:
- donor position (encourage/discourage/no opinion) regarding the use of local partners and other civil society organisations to deliver assistance to end-users. This usually has significant cost and operational implications
- allowance for contingency budgets (allowed, not allowed, percentages, amounts, what kinds of items, etc.).
- per diem/lodging rates applicable to emergencies if different from regular programmes. This may involve discussions at levels outside the control of the CO.
The following tips can help to avoid common budget development process traps:
- Budget development/management should be a collaborative process. There isn’t (or shouldn’t be) a single person in a CO expected to (or actually) know everything about project costing and budget preparation. The Budget Development/Management Team should have the required skills and experience to carry out the process successfully. The leader of this team should also liaise with CI, according to emergency protocols, to keep informed about overall funding developments.
- Don’t develop your own parallel budget system and formats. If the donor does not provide a budget format, use CARE’s standard account rollups. (See Annex 17.14 Sample budget formats based on CARE’s Chart of Accounts). Also, all budgets must be prepared in CARE’s Chart of Accounts first and then transposed to donor formats. The idea of having a Budget Preparation Toolkit is to avoid duplication of effort. Most COs already use official budget preparation tools issued by their Lead Member (BudgetMate, in the case of CARE USA). These should also be used to prepare budgets for new projects. There are two major reasons for this: 1) failure to use an official system would create two separate systems operating within the CO, which creates unnecessary confusion; and 2) there will be gaps on necessary project costs that are overlooked by the budget preparer or not covered by donors, which will later become apparent and require the CO to deal with these.
- Document and report budget gaps. When donor exclusions/limits are applied to project budgets, the resulting budget gaps (and in some cases, excesses) must be highlighted and documented. If a remedial course of action is known (for example, allocate to a different fund code), it should also be mentioned. Failure to disclose and ignore budget gaps is an unacceptable practices, because it jeopardises the financial position of the CO. The Budget Gaps/Excesses and Recommended Actions document should be presented to the Emergency Response Team before final budget review and submission to donors.
- Be mindful about the level of detail provided versus the level of detail required. The balance between detail and the need for flexibility (as represented by line item descriptions and the number of line items) is a judgment call based on experience including knowledge of the donor. However, in general, the fewer the number of line items and the broader the description of line items in the version submitted to the donor, then the more flexibility the budget will provide. The detail should be contained in a more detailed working budget within the working papers. In other words, prepare the budget with as much detail as possible and consolidate when preparing final donor version (for example, by the CO).
- Look for simplicity in project cost allocations. If the project is to be funded by a number of donors, then allocate the donor contribution by the percentage of the total project budget wherever possible-rather than by individual line items-to maximise flexibility and ease of reporting. Alternatively, the second preference is to ensure that donors are funding discrete/complete line items for discrete/complete activities. The Line Item Description should, wherever possible, be described in terms of the nature of the activity/cost.
- Prepare the budget in USD, then convert the budget to third (local)currencies.
- Be flexible in cost projections. Allow for price increases in fuel, labour and other major inputs.
Other tips on budget preparation and presentation are included in Annex 17.14 Basic Project Budget Preparation and Presentation Guidelines.
Team roles: The following diagram shows the recommended team roles, supervision and coordination lines within the budget development process.
- estimated duration of the intervention
- geographical areas
- required staff structure (skills, number of staff, locations)
- number of offices supporting the effort
- procurement requirements
- project activity plans
- intervention funded by single or multiple donor(s)
- donor proposal/budget formats.
The Budget Development team consists of staff from programme and finance. It is given the task of compiling the initial draft of the budget using CARE’s Standard Chart of Accounts, processing revisions and obtaining approval from the Emergency Response Team before submitting the final budget to the donor. This team will seek input from the Procurement, Human Resources and Logistics teams to complete the budget.
To efficiently address the different cost components, this team will branch into two smaller teams-programme and finance-with the following responsibilities:
- Programme: The programme team, with the support of the Procurement, Logistics and HR departments, will prepare a budget that outlines the project direct costs. These direct costs shall be calculated according to the design of the project in line with the budget assumptions that are provided by the Emergency Response Team. In practice, the programme team is also responsible for writing the project proposal document and therefore has a complete overview of the project.
- Finance: The finance team, with the support of the Procurement, Logistics and HR departments, will prepare a budget that outlines the project support cost structure according to the assumptions provided by the Emergency Response Team.
The following is the sequence and scheduling of the required steps, according to the critical path method, to prepare a budget for submission to a potential donor. The complete list of accounts to be budgeted is detailed in Annex 17.17 Chart of Accounts for Emergency Programmes.
There should be flexibility in the schedule to accommodate more complex budgets that require more time to complete. Yet while it is important to remain flexible, the Budget Development Team requires some basic assumptions to start work:
- Most of the basic assumptions indicated in section 7.4 have been provided to the Budget Development/Management Team.
- The Budget Development Preparedness Activities have been carried out and the CO has a Budget Preparation toolkit with the recommended previously prepared inputs.
- Proposal writing may be carried out at the same time as budget preparation, but essential sections such as the activity plan and implementation schedules should have been agreed upon.
- If the available funding is notional, a bottom line figure should be provided.
Any significant deviation from these principles would mean that the process may need to be restarted.
7.5.1 Sequence and scheduling of required steps
|Initial coordination meeting||Budget Development Team||Discuss budget assumptions and donor fund application guidelines
Understand the scope of the project, operational challenges, required set-up (compound, camps, communications, etc.) and geographical areas
|Day 1||Project staffing plan (project management and additional support services)
CARE to donor account map (Does this exist? If not, then develop one.)
Programme support requirements and structure
redistribute Budget Development Toolkit
|Finance Team||Orientate staff in the use of the toolkit
Explain toolkit contents
|Day 1||All teams are familiar with budget preparation tools|
|Budget input: Procurement Plans (one-time and recurring purchases)- Account Series
51XX – Professional Services
52XX – Equipment Purchases (Expensed);
53XX – Materials, Services & Consumables;
54XX – Travel and Transportation;
55XX – Occupancy Costs)
Procurement, Logistics and HR
|Identify one-time procurement activities, timing, prospective suppliers and cost estimates
Identify recurring procurement needs such as:
|Day 2 (first session) Day 4 (follow-up/
|Procurement requirements included in the Direct Cost section of the Budget Format (BudgetMate, etc.)|
|Budget input: Project Staffing plans (Project Management and additional support services)-
50XX – Personnel Costs;
5335 – Food Preparation services
|Programme Team and HR||Project staffing action plan (local hires, international hires, compensation packages)
Casual labour needs
|Day 2 (first session) Day 4 (follow-up/
|Staffing plan included in the Direct Cost section of the Budget Preparation package|
|Budget input: Other direct costs -Account Series
57XX – Grants/ Sub-grants
|Determine monitoring and evaluation needs, timing and cost
Travel costs (fares, per diem, accommodation) associated with monitoring
|Day 3||Costs included in the Direct Cost section of the Budget Preparation package|
|Budget input: Support Cost Budgets||Finance Team||Determine Fair Share Budget of SPC costs
General insurance costs
Determine Fair Share Budget of sub-office costs
Determine which CI Member costs need to be covered
|Day 2 (first session) and Day 4 (revisit AdRet/ICR costs)||SPC and Other Shared Costs in the Support Costs section of the Budget Preparation Package|
|Budget input: Consolidated Draft Budget||Budget Development Team||Calculate support/direct ratios and adjust as necessary
Identify additional costs not yet budgeted (see section 7.6 Commonly overlooked costs)
Calculate/recalculate CI Member costs
Review Procurement and Staffing plans and adjust as required
|Day 4||Draft Budget of Project ‘Necessary Costs’
|Budget in the Donor Format||Budget Development Team||Apply donor exclusions/limits
Identify and document budget gaps
Update Funding Matrix
|Final Budget (in the donor format) for review by Emergency Response Team
Schedule of Budget Gaps/Excesses and Recommended Actions
Updated Programme Funding Matrix
When the budget and accompanying schedules are handed over, the Emergency Response Team needs to officially submit the budget as per the donor’s guidelines for fund applications. The following is a diagram of the process described above.
Diagram-Budget development process
One of the major pitfalls during the budget development process is to focus on costing major items and to forget about ancillary activities and costs. The following list, while not exhaustive, highlights some of these costs.
7.6.1 Descriptions and account codes of commonly overlooked costs
|Common description||Account codes|
|‘Visibility costs’||5361 – Art supplies
5362 – Audio visual promotion
5370 – Printing costs
5371 – Promotional items
5372 – Signs, banners, posters
|Monitoring, evaluation, After Action Reviews, audits||5103 — Consultant fees-Programme
5170 – Other professional services
5120 – Audit fees
|International staff benefits and other compensation
employee training, security personnel
|502X – Social taxes
503X – Pension benefits
504X – Health insurance
505X – Overbase compensation (moving costs, etc.)
5080 – Employee training
5104 – Other consultant fees
|Translation fees||5171 – Translation fees|
|Stipends for non-CARE workers||5335 – Food preparation service fees (for example, non-CARE workers’ fees at supplementary feeding centres)
5315, 5325, 5348 – Stipends non-CARE staff depending on type of intervention
|Shipping services, customs clearance, taxes||5346, 5371|