Basic definitions and guidance on the project budget preparation process
This guideline provides partners with a common framework to facilitate appropriate preparation of project budgets.
It focuses on defining eligible and ineligible costs, direct and indirect costs (e.g. Programme Support Costs – PSC), shared costs, budget categories and the adequate breakdown of budget lines. This guidance applies to all partners.
Rationale and Basic Principles of the Project Budget
A clear segregation of duties underpins the preparation, review and clearance of the project budget. This is critical to preserve the country-driven nature of CBPFs and necessary to ensure central and internal controls to reduce the risk of approving erroneous or inappropriate project budgets (e.g. miscalculations, inconsistency, and lack of transparency or admission of ineligible costs).
In the budgeting process, partners are expected to:
I. Provide a correct and fair budget breakdown of planned costs that are necessary to implement activities and achieve the objectives of the project.
II. Use and comply with the budget template (Annex 13 a and b: Project Budget and Financial Reporting Tool) and guidance provided by OCHA for the classification and itemization of planned costs.
III. Provide a budget narrative (as an essential component of the budget) that clearly explains the object and the rationale of every budget line. For example, shared costs, expensive assets, and costs/equipment required to support the regular operation of the partner, are clear cases that require a budget narrative.
Direct and Indirect Costs
There are two categories of eligible expenditures: direct costs and indirect costs.
Direct Costs
Direct costs have to be clearly linked to the project activities described in the project proposal and the logical framework. They are defined as actual costs directly related to the implementation of the project to cover the costs of goods and services delivered to beneficiaries, and the costs related to the support activities (even partial, such as a security guard or a logistician partially working for the project), required for the delivery of services and the achievement of the project objectives.
Direct costs include:
I. Staff and related personnel costs, including consultants and other personnel.
II. Supplies, commodities, materials.
III. Equipment.
IV. Contractual services.
V. Travel costs, including transportation, fuel, and daily subsistence allowances for staff, consultants and other personnel linked to the project.
VI. Transfers and grants to counterparts.