How to Develop a Budget for your NGO

Developing and managing budgets can be a challenging task for NGOs whenever they need to develop an organizational budget, plan a project, write a proposal and implement an activity. Besides, if you have a well-managed and transparent financial system, it also enables donor agencies to gain confidence in your NGO and offer support to it. However, setting up an efficient financial management system requires a sound understanding of financial practices and principles.

Here we are providing a basic resource for NGOs so they can improve their capacity in developing and managing budgets for their organization, project and also contribute towards an overall effective financial system.

Who is involved in developing a budget in an NGO?

This is a common question from our clients, and participants of our scheduled training. Usually, senior and the experienced staff of the organization are involved in developing the budget. They should be in a position to take responsibility for the financial aspects of the organization or a project. It is also better if they have experience in managing project finances in a cost-effective manner. Most times three staff are involved, and they include the Organizational Director, Finance Officer, and the Project Officer.

It is important for all these members of staff to be aware of the vision and objectives of the organization; the needs and integrities of the project implemented; the administrative and financial policies of the organization; and the approaches of the donor agency in case they are developing the budget for a request for proposal.

The board members of the organization may have also constituted a finance committee to oversee the income and expenses. It would be a good idea to involve one of the members of this committee or take his/her opinion.

The Project or Program Officer should be primarily responsible for developing the draft budget since this person will have a better idea of the field realities and requirements. He or she can then submit the draft to the Finance Officer for any inputs. The Director can then gather a meeting of key persons for a final review and approval. In this way, the process of the budget formulation will remain complete and all aspects of the organization and the project will be included.

Types of Costs to be included in the Budget

There are different types of costs that have to be included in the budget. Most donor agencies prefer to have the costs spread over different heads so as to get an overview of how the resources have been divided between different types. Basically, we can divide the overall costs as:

Operational Costs: Operational costs include those expenses that have to be met for implementing activities for a project or an organization. These are directly billed to the donor agency because they have a direct impact on the beneficiary community. Activities such as organizing a village meeting, conducting a training workshop, running an awareness campaign involves certain expenses. These expenses are listed under the Operational Costs in a budget.

Core Costs: Core costs are also costs incurred towards the payment of salaries and other operational expenses of the organization. Staff costs include expenses right from the recruitment of the staff (interview, orientation, etc) to their salaries. Professionally speaking, it is important to mention how much time a particular staff will provide for the project and his/her salary has to be calculated accordingly. For example, the head of the organization may be able to give only 25% of the time to a particular project for which funds are being requested and budgeted. So the salary will also be fixed towards this time only. Other costs here can include staff meetings, stationery, and other office maintenance expenses. 

Capital Costs: Although donor agencies are advising NGOs to massively cut down on capital costs, yet these costs continue to remain essential. These include expenses for buying computers, office furniture, vehicles, office building, etc. Some donors have even stopped funding capital costs completely. Even if you are proposing these costs in a budget, ensure that they cover less than 10% of the total budget.

What are the other things your NGO considers when putting together your budget? Kindly share with us in the comment box. Do you need support in putting together your budget? Let us know by using the comment box. Happy Budgeting!