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 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 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.
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. During recent years, overheads have become an extremely 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 put a condition to grantees that they should not directly propose overheads to them or they should source this type of expenses from elsewhere.
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 it 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 travelling, 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 for slightly increasing the overhead costs.