7.3 Budget development process tips
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.