SS 13 Budget 08.04.2024-1.pdf

08/04/2024 “ESSENTIALS OF PROJECT PLANNING, MONITORING AND EVALUATION” 2023/2024 Andrea Pozza PROJECT BUDGET 1 BUDGET: when should it b...

08/04/2024 “ESSENTIALS OF PROJECT PLANNING, MONITORING AND EVALUATION” 2023/2024 Andrea Pozza PROJECT BUDGET 1 BUDGET: when should it be developed? (1) If the project is supposed to be funded by an external donor, the Project Designer after the identification of the activities works out a “draft” budget to verify that the total cost does not exceed the financial envelope (=maximum budget) available 1  08/04/2024 PROJECT BUDGET CYCLE RESOURCES PLANNING BUDGET BUDGET CONTROL ESTIMATING COST BUDGETING PROJECT BUDGET: WHAT? The Project Budget is a tool used by Project Managers to estimate the total cost of a project. A project budget template includes a detailed estimate of all costs that are likely to be incurred before the project is completed. 4 2  08/04/2024 PROJECT BUDGET ADJUSTMENTS Budgets are usually prepared after the activities are scheduled. During the implementation of the project some more details may be added in order to reflect project planning. That is what is called “project adjustments” 5 PROJECT BUDGET: WHY?  Must be developed in order to obtain the needed/justify resources  It is a plan for allocating organizational resources to the project activities  It ties the project to the final outcome through its Results Chain starting from the use of inputs necessary to carry out all project activities  It acts as a tool for top management to monitor and guide the project 6 3  08/04/2024 BUDGET: BENEFITS DURING IMPLMENTATION First, it is an essential part for securing project funding. The numbers will tell stakeholders exactly how much money is needed to button up the project and when the money is needed. Second, a well-planned budget provides the basis for project cost control. Having an end budget estimate helps you measure the project’s actual cost against the approved budget and see how much costs you’ve burned already. It will give you an understanding of how the project is progressing and if any changes need to be made to the plan. Third, a project budget has a direct effect on the project implementer's financial viability (in case it is founded with own resources). When calculated feasibly and with resource constraints in mind, a project budget will increase the operating margin and improve overall project success. 7 BUDGET FORMULATION: PRELIMINARY RULES (1)  It is important to stress that there is no standard budget typology.  Each funding agency has its own requirements with respect to procedures, budgets and cost categories.  Sometimes the same funding agency can use different budgets for different budget lines (e.g., European Commission)  Therefore, to determine which items should be used, it is important to carefully read the procedures of the chosen agency.  It is in the applicant's interest to provide a realistic and cost- effective budget. 8 4  08/04/2024 PROJECT BUDGET : PRELIMINARY RULES (2) (before budget calculation) a) Normally (.. but not always).. all costs should be included and detailed, whether they will be financed by funding agencies or whether they represent a contribution in kind or a valorization of one or more stakeholders. b) Only use activities for the budget and avoid using sub- activities as these would complicate budget formulation making the tool too hard to elaborate and too fragmented to be used. 9 PROJECT BUDGET : FORMULATION (1) Budget can be presented as follows: a) NOT DETAILED. The budget it is just disaggregated by intermediate outcome (component) or by cost category (e.g. “salary”, “equipment”). It might (or not) included in the text of project proposal b) DETAILED. The budget it is disaggregated by output or by categories and subcategories (e.g. “salary for national staff” and “salary for international staff”) and by year. It must be annexed to the project proposal. 10 5  08/04/2024 PROJECT BUDGET : FORMULATION (2) Budgets can be formulated in very different ways and the most used are : a) ACTIVITY BASED BUDGET. The budget is calculated by disaggregating all activities generating each Results Chain Output (=direct costs) in standardized cost categories b) COST CATEGORY BUDGET. The budget is calculated by disaggregating all project costs (not only the direct ones) by cost categories proposed by the founding agency 11 RESULTS CHAIN INCLUDING CROSS CUTTING ACTIVITIES FINAL OUTCOME INTERM. OUTCOME 1 INTERM. OUTCOME n CROSS CUTTING OUTPUT 1.1 OUTPUT 1.2 OUTPUT 1.n ACTIVITIES Activity 1.1.1 Activité 1.2.1 Activité 1.3.1 Monitoring and Activity 1.1.2 Activité 1.2.2 Activité 1.3.2 Evaluation Activity 1.1.3 Activité 1.2.3 Activité 1.3.3 Develop the Activity … Activité … Activité … communication and visibility plan. Etc… 6  08/04/2024 ACTIVITY BASED BUDGET : DIRECT AND INDIRECT COSTS Two different type of costs in budget are : a) The “direct costs” are those required by operations carried out to produce all Results Chain outputs b) The “indirect costs” (“operating costs”) are those required by operations providing services and products carried out to produce non-specific outputs listed in the Results Chain. 13 ACTIVITY BASED BUDGET : FORMULATION DIRECT COSTS ACTIVITIES OUTPUTS Cost of the activities 1 Activity 1.1: Human Resources, 1 Equip & Supplies, Infras., other costs Activity 1.1 Output 1 Cross-Cutting & Operating costs Activity 1.2: Human Resources, Equip & Supplies, Infras., other costs Activity 1.2 1 1 (Contingency) Activity 2.1: Human Resources, Equip & Supplies, Infras., other costs Activity 2.1 Output 2 1 1 (Administrative Costs) Project staff, Project Crosscutting PROJECT Management Office, Support equipment, M&E, Other costs activities BUDGET 7  08/04/2024 ACTIVITY BASED BUDGET: TOTAL COST CATEGORY COSTS + OPERATING & CROSS-CUTTING COSTS + (CONTINGENCY) + (ADMINISTRATIVE COSTS) + = TOTAL BUDGET OF THE PROJECT The TOTAL BUDGET using the “Activity Based” approach includes the direct costs and the operating costs. Plus (eventually) administrative costs and contingency 15 ACTIVITY BASED BUDGET: OPERATING COSTS “operating costs” are resources that are cross-cutting and functional to manage the whole project (e.g. management costs such as salaries), the other “cross cutting costs” are those which cannot be assigned to any single activity in particular (e.g. “costs for the final Evaluation of the project” or “costs for the communication plan”) 16 8  08/04/2024 ACTIVITY BASED BUDGET: DIRECT COSTS TOTAL COST OF THE PROJECT – OPERATING COSTS & CROSS-CUTTING – (CONTINGENCY) – (ADMINISTRATIVE COSTS) = DIRECT COSTS 17 COST CATEGORY BUDGET : FORMULATION CATEGORY OUTPUTS ACTIVITIES COSTS Cost of the Activity 1.1 activities Human Resources Output 1 1 1 Activity 1.2 Travel (Contingency) Equip. & Supply 1 1 Output 2 Activity 2.1 (Administrative Local Office Costs) Crosscutting Other costs activities PROJECT BUDGET 9  08/04/2024 COST CATEGORY BUDGET: TOTAL COST CATEGORY COSTS + (CONTINGENCY) + (ADMINISTRATIVE COSTS) + = TOTAL BUDGET OF THE PROJECT The TOTAL BUDGET using the “Cost Category” approach correspond to the cost of all cost categories and operating/cross- cutting costs. Plus (eventually) administrative costs and contingency 19 ACTIVITY BASED BUDGET : CATEGORIES (1) Direct cost categories may vary depending of the founding agency. Thus the list presented below cannot be considered exhaustive HUMAN RESOURCES : These are the costs including all the human resources requested to implement a particular activity such as an expert or a trainer INFRASTRUCTURES. These are costs for instance used to build a physical structure (e.g. school, hospital) excluding the human capital (e.g. workers. engineers, etc.) and its 20 equipment (e.g. desks, computers) 10  08/04/2024 ACTIVITY BASED BUDGET : CATEGORIES (2) EQUIPMENT and SUPPLIES. Equipment is considered more permanent and longer lasting (e.g. machinery, furniture, fixtures, vehicles, computers, electronic devices, and office machines) than supplies which are used up quickly (e.g. paper, toner). OTHER COSTS. This item refers to costs that that cannot be included in the other categories (e.g. “launches delivered to the participants during a project training”) 21 ACTIVITY BASED BUDGET : CATEGORIES (3) Additional categories could be proposed (e.g. “TRAVEL”), other times the budget categories reflect tender procurement procedures by the founding agency, thus they are disaggregated into : SERVICES (human resources, technical assistance) SUPPLIES (equipment and supplies) WORKS (infrastructures) 22 11  08/04/2024 ACTIVITY BASED BUDGET: OPERATING COST (1) Operating cost may vary depending of the founding agency. Thus the list presented below cannot be considered exhaustive Project staff. This item includes only staff that will be working in all project areas, staff whose contribution will be cross-cutting and not connected with any specific activity. Usually the manager, logistician, secretaries, accountants, drivers, watchmen and possibly other staff members whose work is aimed at operating the project machine in general, are included in this category. Project management office. This item includes fixed and variable costs of the location (e.g. rent, water, electricity, cleaning services, publications, internet connection, etc..) and the equipment that is necessary for operating (e.g. computers, 23 furniture, air conditioner, printers..) ACTIVITY BASED BUDGET: OPERATING COST (2) Support equipment. The equipment included in this category is purchased for general project functioning and it can’t be connected to any activity in particular. (e.g. “costs of buying, insuring and maintaining a car “) Other costs. This item refers to cross- cutting costs that cannot be included in the other categories (e.g. travel costs) (do not mix up these “other costs” with the “other costs” of the cost categories) 24 12  08/04/2024 ACTIVITY BASED BUDGET : FORMULATION a) The cost of each activity is normally disaggregated into key categories (e.g. Human Resources, Equipment and Supplies, Infrastructure and Other costs) b) CALCULATING BUDGET c) ACTIVITY BASED BUDGET Internal document (not Final Version of the budget where presented in the Project all activities are costed and Proposal). It is used for grouped by output (and eventually calculating the total cost of intermediate outcome). It each activity according to the eventually includes administrative key categories costs + contingency Instead of using Excel software for steps b and c is also possible to use «Cost estimator software» (see slide at the end) 25 « CALCULATING BUDGET » USING ACTIVITY BASED APPROACH : FORMAT INTERVENTION LOGIC BUDGET SOURCES ACTIVITY: 1.5.1 UNIT TOTAL OF FINANCE 1.5 “Establish a data base to record QTY COST COST ACTIVITY (donor A, donor B, private sector companies’ and graduate students’ contacts” beneficiary, etc.)( if applicable) Human Resources? Equipment and supplies? Infrastructures? Other costs? 1.5 ACTIVITY: 1.5.2 TOT 13  08/04/2024 ACTIVITY BASED BUDGET : FINAL FORMAT INTERVENTION LOGIC BUDGET UNIT TOT. COST SOURCES OUTPUT ACTIVITY: QTY COST ACTIVITY OF FINANCE 1.1 Activity 1.1.n 1.2 Activity 1.2.n Sub-Total OUTPUT 1 2.1 Activity 2.1.n 2.2 Activity 2.2.n 2.3 Activity 2.3.n Sub-Total OUTPUT 2 n.1 Activity n.1.n n.2 Activity n.2.n n.3 Activity n.3.n Sub-Total OUTPUT 2 Crosscutting activities & Operating Costs (Contingency) (Administrative Costs) TOTAL COST COST CATEGORY BUDGET : FORMULATION (2) a) The cost of each activity is disaggregated into key cost categories proposed by the funding agency, for instance:. 1) Human Resources 2) Travel 3) Equipment and supplies 4) Local offices 5) Other activity costs c) COST CATEGORY BUDGET b) CALCULATING BUDGET Budget where all cost categories are Internal document not to be presented based on the cost presented in the Project categories for each activity. Thus that Proposal. It is used for it is not possible to cost each output. calculating the cost of each It includes cross-cutting activities and cost category according to eventually contingency + activities administrative costs Instead of using Excel software for steps b and c is possible to use «Cost 28 estimator software» (see slide at the end) 14  08/04/2024 « CALCULATING BUDGET » USING « COST CATEGORY APPROACH » : FORMAT INTERVENTION BUDGET LOGIC COST CATEGORIES Equipment Additional Human Other Travel Cost Resources & Supplies costs Category “Y” ACTIVITY: UNIT UNIT RATE COST U UR C U UR C U UR C U UR C 1.5.1 “Establish a data base to record private sector companies’ and graduate students’ contacts” 1.5.2 COST CATEGORY BUDGET : FINAL FORMAT INTERVENTION LOGIC BUDGET UNIT EXPENSES UNIT RATE COST 1. Human Resources 1.1 Project staff 1.2 Short term experts 2. Travel 2.1 National Travel 2.2 International travel 3. Equipment and Supplies 3.1 equipment A 3.2 supply “X” 4. Local Office 4.1 e.g. Vehicle cost 5. Other costs 5.1 Cost “x” 6. (Contingency) 7. (Administrative costs ) 15  08/04/2024 ADMINISTRATIVE COSTS AND CONTINGENCY Administrative costs. These are costs related to the overall management of the project. Normally they do not exceed 7 % of the direct costs of the project e.g. “HQ staff technically backstopping project staff based abroad”, Contingency. It is a planned provision for an unforeseen project event or circumstance. Normally this does not exceed 5% of the direct costs of the project e.g. to “cost to internalize a training which originally was a contribution from a 31 project stakeholder” BUDGET: NON - eligible costs debts and provisions for losses or debts; interest owed; items already financed in another framework; purchases of land; currency exchange losses; taxes; credits to third parties 32 16  08/04/2024 COST ESTIMATOR SOFTWARES There aren’t many pure-play cost estimator tools, but here’s some software that includes tools for projects cost estimation, such as time- and budget- tracking functionality that makes for more accurate project estimates. Microsoft Excel– Widely used project cost estimator with plenty of project estimate templates. Google Sheets – Free project cost estimation tool, alternative to Excel. Price&Cost– SaaS estimating and cost management tool to manage project financials. BrainLeaf – Project scoping tool that helps to accurately estimate project costs. Eastimate – Free SaaS estimation tool to create estimates and timelines collaboratively. Simplestimate – Free project cost estimator SaaS tool with three-point cost estimation and easy sharing. Web Development Project Estimator – Simple project cost estimator to estimate time and materials for web projects. CMAP Software – Estimation software with a clean interface; produces estimates for complex projects. 33 17