April 03, 2023
Grant proposals have at least two parts: the project narrative and the budget (aka cost proposal). If you work for a large nonprofit, different people may be assigned to the narrative and cost proposal, with the two groups meeting periodically throughout the proposal process to ensure the sections stay in sync. At a small nonprofit, there may not be a division of responsibilities between the cost and narrative proposals, leaving the project lead (or the grant writer) to both write the proposal narrative and prepare the budget.
Assigning a single person as the lead for the entire proposal is not necessarily a bad thing. It can help ensure that the budget reflects the latest decisions regarding the project’s activities. However, if you’ve never prepared or managed a project budget, the budget piece can be intimidating. To help new grant writers, below is a list of several strategies you can employ to make the budgeting process easier and more accurate.
The first step in the budgeting process is to set up your budget template. Unless the proposal requires a very simple budget that must be embedded into the narrative as a small table, it works best to develop the budget in Excel or a similar spreadsheet tool, such as Google Sheets. A spreadsheet will give you access to formulas, making the budgeting process faster and usually more accurate.
In the funding opportunity announcement, the funder will either include a budget template or describe the budget your proposal should include, including any required line items. If the funder has not provided a template, you can use your organization’s standard budget template, modifying it as needed to reflect the proposal’s requirements. If your organization does not have a template, you can find a basic one by searching the template libraries linked to Microsoft Excel or Google Sheets. You can also do a Google search for budget templates and often find something that will work, though you’ll want to check that it is from a trusted source before downloading the file. Because of concerns about malicious software, it’s safest to stick to templates from Microsoft, Google, or downloaded from a government agency or well-known foundation.
Regardless of where the template comes from, even if it is included with the solicitation, you’ll want to check it against the proposal’s requirements before entering any data. If the template requires changes to its formulas or other features, you can find tutorials on YouTube from Microsoft and Google, as well as on LinkedIn Learning and other course platforms.
Proposal budgets cannot be finalized until the project design is far enough along to provide a clear picture of what should be included. For most proposals, this means that until the first draft of the proposal narrative is ready, the person leading the budget must stick to preliminary tasks, such as building the budget template. While the proposal narrative is being drafted, it’s also possible to begin researching the costs of expected budget items. For example, regardless of the project details, you may already know which staff members will be involved in implementing it. While the project details are being finalized, you can collect the salary information for the proposed project staff and confirm how their benefits should be calculated and included in the personnel costs. If you know the project will require the help of consultants, you can research the average rate for consultants who possess the type and degree of experience you will need. Or, if you have already identified a consultant, you can use this preparatory period to confirm their rate and complete the consultant agreement.
After the first draft of the narrative is complete, a clearer picture of what needs to be budgeted will emerge. For each line item, you’ll need to research its expected cost for the duration of the project period. For some items, such as office supplies, there may not be much seasonal variation; you can look up what an item costs currently and use that same figure for the duration of the budget. However, when it comes to travel expenses or renting meeting space, the costs can vary significantly depending on the time of year. To accommodate this, you’ll need to know roughly when each project activity will occur so the budget can reflect these rate fluctuations. For example, if three community meetings will take place during the project, you want to know when each will be held to prepare the most accurate budget. You’ll also need to know when activities will occur for the project timeline, so this level of planning helps strengthen your proposal on multiple levels.
One of the biggest problems we’ve seen with budgeting newbies is that they fail to research the actual costs of line items. Instead, they use “guesstimates”—or numbers that seem reasonable—to produce a budget that reaches a desired amount. Sometimes this approach works okay, and the budgeted costs will be largely accurate. At other times, line items may be significantly underbudgeted, delaying project implementation. While some funders will provide additional funding or allow project activities to be scaled back to help a grantee that has significantly misjudged costs, many funders will be unwilling to do so.
When an organization does not have enough grant money to cover a project’s activities, it must try to honor the terms of the grant agreement by finding supplemental funding to cover costs and complete the project. Many funding gaps are ultimately filled by unrestricted funds generated through traditional fundraising activities (e.g., cash gifts from individuals) or other cash reserves.
Under-budgeting is one risk associated with submitting an inaccurate budget. Another risk of using “guesstimates”—or essentially, made-up figures for your budget—is that if a funder is interested in funding your project but requests additional justification of certain costs, you cannot provide that information readily. To be prepared for a funder’s questions about your project budget, you should not only do your research but also save it for future reference. For example, if your project includes air travel, you should research the average cost of flights that you expect project staff to take during the project (i.e., from place A to place B at X time of year) and save those results so you can provide a copy to the funder to back up your figures if requested to do so.
If you are new to preparing a project budget, you might think the hardest part is budgeting for year 1, and that once you have year 1 done, you can simply duplicate the figures for the subsequent project years. A variation of this approach is to take whatever the funder lists as the maximum award amount and divide it by the number of years to get annual budget figures. Each approach produces unrealistic, identical budgets for each budget period (typically 12 months). In number 5 below, we address the issue of asking for the maximum award and why that’s not always the best approach. Regarding the first scenario—developing the budget for year 1 and duplicating it for subsequent years—this doesn’t work because project activities and their associated costs invariably fluctuate from year to year.
For general support grants, it can sometimes work to propose the same annual budget amount for multiple years. This is because general support grants are usually intended to contribute to an organization’s general operating costs but not cover them in full. The general support grant would be (or should be) one of several sources of unrestricted funding that an organization could use to cover expenses such as rent, office equipment, and salaries and benefits for administrative staff. However, even for general operating costs, requesting a flat amount per year is not ideal. Because an organization’s annual costs are likely to increase from year to year, requesting a flat amount (e.g., 20K/year for 3 years) means that the grant amount will likely represent a smaller percentage of the organization’s overall operating budget with each passing year, leaving a bigger gap to fill with other funding sources.
A better way to budget for general operating costs or a project budget is to try to calculate as precisely as possible how much you’ll need in a given period based on what is projected to happen in that year.
For a project-based grant, you will have start-up costs in year 1 that will not need to be repeated in the following years. There will also be project close-out tasks that will only occur in the project’s final year. Additionally, your project will consist of multiple activities, including some that will require resources for just a few months of a single year. For example, you might have a big meeting scheduled in year 2. As a result, year 2 will look different than the other project periods that do not include a large meeting. You may need to hire someone at the beginning of year 2 to manage the meeting, which will increase your personnel costs that year. Additionally, if you are renting space and hiring a caterer, those expenses will have to be budgeted for year 2.
Thinking about your grants by budget period matters because, for multi-year grants, funders typically do not provide all the funding at the start of the grant. You will receive each payment only after the funder has approved any required project reports from the previous budget period.
As noted above, project costs fluctuate from year to year; personnel costs almost always increase over time. Most organizations make annual adjustments to salaries and benefits. Budgets that do not factor in these increases may have to cover the shortfalls with unrestricted funds, which, for most organizations, are in limited supply. Because personnel costs are often the single largest expense for any project, miscalculations in this area can significantly affect the entire budget. In addition to personnel, annual increases for core expenses should also be factored in, such as for insurance, internet service, and office security.
While we’re on the subject of personnel, another good practice is to budget for the level of expertise you will actually need to implement the project, even if that makes the budget tighter than you would like.
To make the budget go further, sometimes organizations will either (a) budget a limited time on the project for senior personnel to reduce personnel costs, or (b) budget salaries too low to attract the type of candidates needed to fill particular positions. It’s not unusual for funders to flag salaries they consider too low, sometimes making an award contingent on their adjustment to a more competitive level. But funders may not flag the salary issue, instead holding the grantee to the budget they set. When this happens, the grantee may not be able to recruit the level of expertise required to successfully implement the project. When insufficient time is budgeted for senior staff, the project may lack adequate oversight, resulting in negative consequences, such as missed deadlines.
Many organizations adopt the practice of always requesting the maximum grant amount. If the funder says it will provide 3 grants of up to $25K each, the organization will apply for $24,999. If the award ceiling is $150K, the organization will submit a budget of $149,999. It just makes sense, right? It does if you’ve prepared a detailed, realistic budget and found that the project will cost $149,999. Otherwise, it doesn’t make sense because you’re backing into the budget instead of building it based on expected, reasonable costs.
The problem with budgeting to the award ceiling may not be obvious at the proposal stage. The problems can appear later, when it’s time to implement the project and report on expenditures. At the reporting stage, it can be challenging because the actual project costs may differ significantly from the budget for some or all line items. When project spending appears to be way off, funders will want an explanation for the under- or overspending. A funder may also request that the grantee provide a revised budget that better approximates the project’s anticipated costs.
A solution funders sometimes employ when an organization has underspent project funds is to give a no-cost extension. No-cost extensions extend the performance period, allowing the organization additional time to spend the money already received, complete any remaining activities from the original scope of work, and sometimes conduct supplemental activities.
While renegotiating a project’s budget with a funder is not uncommon, it’s best to avoid the potential of a significant mismatch between the proposed budget and reported expenditures. For more accurate budgeting and stronger projects, it generally works best to think about the project’s design first, letting the activities guide the budgeting process rather than starting with a dollar figure.
Will you need to adjust the activities to fit the budget? Yes, activities may need to be dropped, scaled back, or shifted to different project periods to fit within budget caps. That’s part of the normal back-and-forth between the proposal narrative and the budgeting process. What isn’t a best practice is to start the proposal process by saying, “The funder provides grants up to $100K. Let’s find things to do to get to that amount.” However, that said, opinions differ on the appropriateness of budgeting to the award ceiling. For many organizations, the strategy works because it is familiar. Regardless, creating a budget that accurately reflects the project's cost is the most straightforward and defensible approach.
To summarize, there are three steps to accurate budgeting, including (1) designing the project, (2) identifying everything necessary to implement the project, and (3) pricing out each piece to determine the total budget figure. If you’ve done your budget correctly and find that your final budget amount is too high and eclipses the award ceiling, you can look back at how you derived each line item and make calculated, intentional adjustments to ensure that—even with the reductions—you can still implement the project. In contrast, if you’ve created your budget using guesstimates, you can never be sure that the budget (the total budget or the amounts of individual line items) will be enough.
While any budget is somewhat of a guess because projects can face unexpected events and higher-than-predicted costs, there is a difference between educated guesses and fiction. If you have padded every line item to reach a target figure, your budget will be tilting more toward fiction than fact. The same is true if you start with the award ceiling and randomly assign numbers to line items based on what feels reasonable.
There are real repercussions from poor budgeting. If your budget is not based on actual or reasonable projected costs, you could run into problems when reporting on expenditures. Additionally, if the funder discovers that you’ve significantly padded your budget, it could harm your relationship with them.
As you build the budget, keep in mind that you will need to justify each cost in the accompanying budget justification.
The level of detail required in the justification varies by grant opportunity. Some funders ask for a few sentences to describe the purpose of each line item, while others, such as the U.S. government, require a detailed budget justification that explains each line item's purpose and how costs were calculated. The budget justification, the budget, and the proposal narrative all must align. You don’t want an activity described in the narrative that doesn’t appear in the budget, and you don’t want a line item in the budget that isn’t justified.
To ensure that your budget and budget justification are comprehensive, it helps to work on the budget justification simultaneously with the budget. Sometimes the proposal lead (the person overseeing the proposal process) will initially focus 100% on the proposal narrative, start the budget process only after the narrative is done, and save the budget justification for last. There’s nothing wrong with this approach per se. However, if you wait to start the budget, you may discover late in the proposal process that you can’t afford to do some of the activities you’ve described in the proposal narrative. To avoid surprises, we suggest starting the budget when the first draft of the narrative is ready, and there’s a general idea of the project’s activities.
Preparing the budget justification as the last step in the proposal process is a common practice. If the budget justification is simple, this isn’t a problem. However, if the budget justification must be detailed and show the calculations used to determine each cost, it is helpful to work on both the budget and the justification simultaneously. Doing so will help you remember to document your research and give you more time to compare the justification against the proposal to ensure they align. Working on the justification early in the process can also help in other ways, depending on the solicitation requirements. If your proposal narrative exceeds the page limits, some content from the narrative’s management and staffing section can sometimes be shifted to the budget justification. If the budget justification is already underway, you’re in a better position to determine if you have enough room within the justification’s page limits to make this change.
It’s a good practice to have at least one person external to the proposal team evaluate the proposal against the budget to ensure they align. If your organization’s finance staff has not been directly involved in developing the budget, it’s important to have someone from the finance department review it. Finance staff may spend most of their time managing departmental budgets and have less experience with proposal budgets and funder requirements. To help them with their review, it’s a good idea to provide a bulleted list of the budget requirements found in the solicitation, highlighting any specific questions you may have. Finance staff may not take the time to read the narrative proposal, so you will also want to give them a summary of the proposal to help them evaluate whether the budget and budget justification are comprehensive and accurate.
In addition to the finance team, it’s helpful to have someone from the organization’s programs side review the budget (again, someone not involved with the proposal). Often, these individuals are better than the finance staff at comparing the proposal narrative and the budget to ensure they match. Experienced project leads are also well-positioned to see if the budget includes everything it should, something that’s difficult to do without direct experience managing projects.
To ensure there is enough time to make any necessary budget changes, schedule budget reviews at different points during the proposal process, with a final review about a week before the proposal is due. For more information about how to schedule a proposal process, please see our posts The 6-Week Proposal Process and Follow This Plan and You'll Never Miss a Proposal Deadline.
The final bit of budgeting advice is more for your reference than for inclusion in the proposal. If you are preparing a proposal where there the potential award size has not been given, you may want to create more than one budget: one for the best-case scenario, where you get the full amount that you are requesting (this will be the budget included with the proposal); a middle-ground budget, which provides a decent amount but less than the ideal; and a worst-case scenario, which is the lowest you can go and still conduct the proposed activities.
We’ve seen some funders occasionally ask for projections like this to be included in the proposal. Mainly, though, this activity is for the organization’s benefit, not the funder’s. Having an idea of what you could accomplish based on the size of the grant is valuable information to have on hand if the award amount is lower than you hoped, allowing you to respond quickly to the funder with a revised budget and scope of work. Doing this type of planning will also make it clearer what the minimum award size must be if you are to do the work and avoid financial risk.
Project budgeting can be challenging because projects rarely roll out exactly as planned. However, with adequate research and planning, you can minimize some of the challenges that can arise, particularly during the project’s implementation period. When preparing a project budget for a grant proposal, a good approach is to be as thorough as possible in identifying expected costs associated with conducting the proposed activities, including accounting for annual cost adjustments.
For those working on the pre-award side, such as grant writers, it can be tempting to develop a budget that reaches the maximum award amount by using back-of-the-envelope estimates for each line item. The temptation stems from the fact that, on the pre-award side, your focus is on winning the grant—the larger, the better. What happens post-award will be resolved by others. Sometimes this less-rigorous budgeting approach works out. Other times, it doesn’t, and those on the post-award side (the project and finance staff) have to address the issues and negotiate a resolution with the funder, whether that’s a plea for additional funding or a no-cost extension. Either way, a poorly developed budget affects the project’s implementation. The best grant proposal budgets strike a balance between decisions on the pre-award side designed to win the grant and an awareness of the budget’s influence on the post-award phase.
We hope the suggestions above will help you create budgets that serve you well throughout the project lifecycle. If you have budget tips from your own experience, please share them in the comments below!