How to Develop a Budget for your CSO

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. 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, and project and also contribute towards an overall effective financial system.

Who is involved in developing a budget for CSOs?

This is a common question from our clients and participants of our scheduled training. Usually, senior and 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 organization’s board members may have also constituted a finance committee to oversee the income and expenses. It would be a good idea to involve one of the committee members or take his/her opinion.

The Project or Program Officer should be primarily responsible for developing the draft budget since this person will better understand the field realities and requirements. He or she can then submit the draft to the Finance Officer for any input.

The Director can then gather a meeting of key persons for a final review and approval. In this way, the budget formulation process will remain complete and all aspects of the organization and the project will be included.

Types of Costs to be included in the Budget

Different types of costs 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 directly impact the beneficiary community.

Activities such as organizing a village meeting, conducting a training workshop, and running an awareness campaign involve 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 for this time only. Other costs include staff meetings, stationery, and other office maintenance expenses.

Capital Costs

Although donor agencies are advising NGOs to cut down on capital costs massively, these costs continue to remain essential.

These include buying expenses for computers, furniture, vehicles, office building, etc. Some donors have even stopped funding capital costs completely.

Even if you propose these costs in a budget, ensure 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!