Section 1:

Developing a Project Budget

What is a project budget? How is it developed? How do we determine the resources our project will
need?

Introduction to Project Budgets

• Financial management starts with the budget. Your project’s budget is your plan for spending
money. It is the first major financial tool that you will create to request funding.

• Organizations, particularly large ones, may have several types of budgets. You may have a large,
annual operating budget for the whole organization (we explore this type of budget in the
Philanthropy University course Developing an Operating Budget).
 • Your project budget, on the other hand is limited to a single set of time-bound activities or
services. You and your team will develop a project budget as part of the planning process for
your project.

• Budgeting is a major topic, so we will be devoting the rest of this module as well as all of Module
2 to exploring it. Let’s get started!

Creating a Project Budget

In this course, we will use a simple, 5-step process for preparing a project budget:

1. Gather documents

2. Break down project

3. Estimate direct project costs

4. Estimate shared costs

5. Create a summary budget

Gathering Documents
To design a budget, you need to understand your project’s goals, activities and available funding.
The following documents can be useful places to start:

 A project proposal or description

 A Logical Framework (Logframe)

 An activity plan

 Budget guidelines

 Price lists for commonly used items

In addition to what is listed above, if your project is going to

have sub-awardees, you may need information from them.

TOOL:
PROJECT BUDGET

There are many different project budget templates available. Your donor or organization may have a
specific template that they would like to use.

In this course, however, we will practice using a simple budget template that is based on the one
FHI 360 uses with its partners. Click the button below to download the project budget tool.
 Project+Budget
template.xlsx

Breaking down your project

How much money would it cost to save a forest from destruction?

A broad question like this is nearly impossible to answer without more information. Similarly, it’s
nearly impossible to create a budget for a project without understanding what activities a project
will include.

This is why, after you have collected relevant documents, your next task is to break your project
down into small, manageable pieces. Only after you have broken your project down into small
pieces and estimated the cost of each piece can you put it back together and estimate the overall
cost.

Notice how much simpler it is to answer these questions:

 How much would it cost to train and employ forest rangers?

 How much would it cost to provide sustainable jobs for local subsistence farmers?

 How much would it cost to advocate for stricter environmental protection laws?

Each of these objectives can be broken down into even smaller activities. Finally, we can estimate
the resources that we will need for each of the activities.
The project has been broken down into smaller objectives. Each objective has been broken down
into activities. Finally, Activity 1 has been broken down into required resources.

Take a look at the resources needed for Activity 1: Recruiting and Training. While it still might
require some research to figure out how much it costs to print recruitment flyers, it is far simpler
than estimating how much it costs to save a forest! If the team is able to break every part of their
project down into pieces like this, they will be able to create a project budget.

Project+Breakdown+
Worksheet.xlsx

Assignment
INSTRUCTIONS
1. Open the Sokorto Project Description by clicking the blue button below.

2. Read the Project Description. What are the activities that this project team will be performing?

3. Use the Internet to research the resources required for each activity. What kind of resources
would be required? How many? How often?

4. Complete the table below, listing at least ten resources.

5. Complete the peer assessment.

Conclusion
Let us review a few important points from this lesson:

 Proper financial management is immensely important! Messy practices can lead to ineffective

projects.

 Financial management is everyone’s responsibility. Figure out which people on your team will
be responsible for planning, monitoring, or using financial management tools.

 To start your project budget, gather project documents and break the work down into small
pieces. Once you have broken it into small activities, you can estimate the resources that you
will need.

Module 2
DEVELOPING A PROJECT BUDGET

Welcome back. In the last module, we gathered up important project documents and broke the
whole thing down into small pieces that we could more easily budget for. Now, it is time to begin
putting the pieces back together. Let’s check in with Marty from FHI 360 to hear more about what
we will be studying in this lesson.

Last year, I was working with a civil society organization in Mozambique. I had asked them
to submit a budget for the project they were working on, following the standard budget
template that FHI 360 partners use. A few days into their budgeting process I received a
message from the CSO: they had noticed that our standard budget template did not include
space for worker's compensation insurance. However, as they explained, in Mozambique
 organizations are required by law to pay for worker's compensation insurance. Would it be
possible to include this in the project budget?

I was really glad the team had asked. I told them, of course we could include an item in the
budget for worker's compensation insurance. The fact that they had thought carefully about
their expected expenses and had been proactive enough to ask me before the project began
showed that this team was budgeting carefully.

Taking the time to carefully budget is so important. Just think of what could have happened
if this CSO in Mozambique had not budgeted for worker's compensation insurance: they might
have found themselves liable for huge expenses with no way to pay for them. Instead, by
being extra careful during the budgeting phase, they were prepared to pay for this essential
expense.

In this module, we will continue the budgeting process that we started in Module 1. Just
like the CSO in Mozambique, we will think carefully about our expected expenses. And then we
will use this information to create a budget for a project.

We will start by estimating direct project costs. Direct costs are the funds that your team
spends specifically and exclusively on delivering your project: for example, health supplies
and services for your beneficiaries. We will spend a bit of time exploring a few types of
direct costs and how to estimate them accurately.

Next, we will look at a trickier form of project expenses: shared costs. These are the funds
your team will spend on things shared among or across several projects. For example, your
project team might share office space with colleagues who work on different projects.
Expenses like office rent, internet, and electricity will need to be shared among the
projects. Figuring out a clear, consistent, and fair way to split up shared costs can be
tricky, so we will examine a few different approaches.

Finally, we will input all of this information together into our project budget. By the time
you complete this lesson, you should be ready to complete the entire budgeting process with
your team. Let's get started

LEARNING OBJECTIVES
 Develop a project budget

 Calculate shared costs

 Distinguish between an award amount and obligated amount

The Budgeting Process

Reviewing the Budgeting Process

As we learned in the last module, a project budget is a plan for spending money.
If you have made it this far into the course, you will have already completed the first two steps: gathering
documents and breaking down the project into smaller pieces. These steps help us understand the
basic costs of our project.

Now it is time to go into more detail. In order to create an accurate budget that can be used for financial
management, we will need to carefully think about all the different costs associated with our project.
Then, we will need to compile these costs into a single budget document. Finally, we will summarize our
budget so that it can be easily understood by any stakeholder.

1. Gather documents  ✓
2. Break down project  ✓
3. Estimate direct project costs

4. Estimate shared costs

5. Create a summary budget

Using the Project Budget

The project budget we will be using in this lesson is based on a format that many FHI 360 projects
have used.
Like most project budgets, it is a simple spreadsheet. Each line of the spreadsheet lists a different
type of expense. In this template, expenses are calculated by year and over the course of the entire
project. However, the template can be adapted to reflect a shorter or longer project period.

The budget categories included in this template include:

 Salaries

 Fringe Benefits

 Consultants

 Travel

 Other Direct Costs (includes activity costs and office expenses)

This is one way of presenting your budget, but there are others, and some donors will share with
you their preferred template.

******

Section 1:
Direct Project Costs
Your direct project costs are the costs that you spend specifically on your project. Unlike shared
project costs, which are used to procure resources which are shared between several projects, direct
project costs are spent specifically—and only—on a single project.

In this section, we will discuss how to estimate several types of direct project costs.

1. Gather documents ✓

2. Break down project ✓

3. Estimate direct project costs

4. Estimate shared costs

5. Create a summary budget

Staffing Costs
Let’s begin at the top of our project budget. The first two categories of costs both have to do
with staffing: the cost of paying team members. These two categories are salaries and fringe
benefits.

SALARIES
Salaries are the fixed, monthly payments that your project pays to team members.

You can budget for salaries by examining your project breakdown. Who are the individuals who
will do the different tasks that you have described?

Now, gather salary information from existing documents in your organization such as salary
policies, employment contracts, or payroll to determine how much each team member will be paid
every month. This is their monthly salary (in the project budget we are using, Monthly Salary is
shortened to Mo. Sal).

In the column labeled # of months (shortened to # mo. in the template) record how many months
each team member will work on the project.

Finally, use the percentage of time (labeled % time in the project budget) column to describe how
much of this person’s effort will be dedicated to the project. Percentage of time is sometimes also
called Level of Effort (LOE). A staff member that spends all their professional time working on this
project would have 100% of their time assigned to this budget. On the other hand, someone who
splits their time between two projects would only have 50% of their time reflected in the budget.

Sokorto Post has many staff members to pay, including 3 full-time newspaper journalists. Each
journalist will be paid a monthly salary of 38,300 rand.

Sokorto Post will also work with one Layout and Production Designer, who will be paid a monthly
salary of 43,000 rand. However, this position is only required for 50% time on this project.
Staffing Costs (continued)
FRINGE BENEFITS
Fringe benefits include mandatory taxes, health insurance, and other benefits. These are typically
calculated as a percentage of total salary, drawn from data about your experience employing staff at
your organization.

For example, the cost of fringe benefits at Sokorto Post is about 15% of the cost of salaries. The
total cost of salaries this year will be 4,836,000 rand. So, they can budget the cost of fringe benefits
for the staff working on this project:

4,836,000 rand X .15 = 725,400 rand per year

Consultants
Consultants are individuals who are hired to advise and assist for a limited amount of time. Unlike
staff members, consultants are paid by the day or the hour. So, you will need to determine the
hourly or daily rate and estimate the amount of time you will work with them.

For example, the Sokorto Post would like to hire a monitoring and evaluation consultant who can
help them set up their data collection systems. They find a local expert who charges 8,000 rand per
day. They estimate that they will need to work with the consultant for 20 days.

Travel/Transportation Costs
The Travel/Transportation budget category is where you budget all travel costs associated with your
project.

Let’s look at an example from the Sokorto Post project. Their team will require 4 plane tickets. If
each plane ticket costs 4,800 rand, the total cost of plane tickets will be 19,200 rand.

4,800 rand/ticket x 4 tickets = 19,200 rand

For other types of costs, you might need to consider both how many of each item you will need and
how many times you will need to purchase said items. For example, to calculate the budget for
lodging, you need the following information:

4 hotel rooms x 3 nights = 12 nights in a hotel room

12 nights in a hotel room x 700 rand per night = 8,400 rand

Other Direct Costs

Finally, our budget should include other direct costs. These are the other expenses that our team
will spend during the project. In this section, we will think about two types of direct costs: activity
costs and office costs.

ACTIVITY COSTS

Let’s begin with activity costs. These are exactly what they sound like: the costs required to do
activities.

We can start with the project breakdown that we started in the last module. What are the expenses
you will need to spend each time you perform one of the activities? For now, ignore costs associated
with maintaining the office. We will determine these later.
This team will need to pay for printing services each time they print their newspaper. They will need
to pay for graphic design services for each episode of TV.

Now, switch over to your project budget document. List all of these costs in the
project budget under the category “Other Direct Costs.” Notice that, just like in
the project breakdown, you can organize your costs by activity. Direct costs that are
not directly linked to activities can be listed in the lines above the activities.
Activity Costs (continued)

Now comes the tricky part: correctly estimating how much you will use and how much it will cost
each time.

Let’s look at one example below: the cost of printing newspapers.

DETERMINING UNIT COST

The Sokorto Post is working with a local printer that charges for each newspaper that is printed. Luckily,
the team has a very good relationship with this printer, and they have established a fair price for printing
the newspaper: 1 rand per newspaper printed.

This is the unit cost for printing a newspaper: 1 rand per newspaper. A unit cost is the cost for a single
unit of something. Other examples of a unit cost include:

 4 USD per meal

  32 RM per hour in the studio

 .16 KSh per gallon of water

The advantage of determining a unit cost, rather than simply estimating the total price of a resource, is
that you can adjust your budget if you decide to use more or fewer units. So, if the Sokorto Post decides
to print 12,000 copies of their newspaper instead of 10,000, they can simply calculate the cost of 2000
more newspapers every week.

Make sure to specify what you mean by “unit!” In this case, the Sokorto Post is listing the cost
per newspaper.

DETERMINING QUANTITY

Next, you need to determine how many units you will purchase over each period of time.

Luckily, this is a simple process for the Sokorto Post team. They have already identified a target
of 2,000 newspaper copies 5 times a week. This means that every week they will print 10,000
copies.

2000 newspapers x 5 times a week = 10,000 newspapers per week

DETERMINING FREQUENCY

Finally, you need to specify how often (or, in other words, the frequency at which) you will spend this
money, to find the true quantity. The Sokorto Post plans to print its newspaper five times every week for
a full year.

There are 52 weeks in a year. This translates into:

10,000 newspapers x 52 weeks = 520,000 newspapers per year

YOUR TURN
Problem (graded)

Besides printing services, the Sokorto Post will need graphics for their TV show. They would like to work
with a graphic design company who charges 1,200 rand per graphic. The team estimates that they will
need 8 graphics for every episode. If they want to produce 2 episodes of TV every week and there
are 52 weeks in a year, what is the total cost for a years’ worth of graphics?

Note: For the problem below, please only write numbers without any commas, periods, or letters.

Office Costs

Another type of costs are office costs. These are the costs of operating your office. They can include
rent, utilities, communications and other costs related to the functioning of an office. These are
typically budgeted under the Other Direct Costs category along with your activity costs.

If your organization has a single project, calculating these costs should be relatively simple. Just like
we did for activity costs, you can simply estimate the cost of each unit, the number of units you
require, and the frequency. For example, for office rent, the unit cost is 10,000 Rand per
month. The frequency is 12 months in a year.

10,000 Rand/month rent x 12 months per year = 120,000 Rand/year.

Notice that, in the example above, the project team is paying the full rent for the office: all 10,000
Rand per month. However, as we will discuss in the next section, office costs are often shared
between two or more projects.

Imagine, for example, that your organization is implementing two projects at the same time. Both
share office space. Both rely on the same information technology (IT) and financial systems. You
cannot charge 100% of these costs to both donors—that would be double-charging. Neither can you
expect the donors of one of the projects to support the costs of the other project. This would be an
ethical and legal violation. So, how do you budget for shared office costs?

The short answer is that you will need to decide what percentage of office costs each project is
responsible for. So, 50% of the rent might be charged to one project budget, while the remaining
50% is charged to the other project budget.

10,000 Rand/month rent x 12 months per year x 50% = 60,000 Rand/year.

Fairly splitting up shared office costs can get complicated. Luckily, we will have lots of time to
discuss shared costs in the next section of this module.
Section 2:
Shared Costs

So far, we have only talked about direct project costs: money

spent specifically and exclusively for a single project.

But what about the costs that are shared between different
projects? Shared resources like rent, utilities, and vehicles are
examples of costs that might be shared across multiple projects.

1. Gather documents✓

2. Break down project✓

3. Estimate direct project costs✓

4. Estimate shared costs

5. Create a summary budget

Methods for calculating

shared costs
If your organization has more than one project, it is likely that there are certain costs shared between
different projects. In this section, we are going to present methods that will enable your organization
to accurately and transparently budget shared costs across your projects. It is important to keep in
mind that regardless of the method your organization chooses to allocate costs, this method must be
used consistently across all projects. Let’s take a closer look at three ways to split up shared costs:

1. By level of effort or number of staff

2. By size of budget
3. By space allocation

Number of staff
One way to share costs is to consider the relative number of staff working on

Here is how it works.

Imagine that you work for an organization with two projects:

 Project A has 8 full-time staff members.

             

Project B has 12 full time staff members.

So, out of a total of 20 staff members, 8 work on Project A (40%). 12 work on

Project B (60%).
The team can use these proportions to allocate shared costs. So, for example, if the cost of electricity
is 240 USD, 40% of this cost will be paid out of the Project A budget (96 USD). 60% of this cost
will be paid out of the Project B budget (144 USD).

40% X 240 USD = 96 USD

60% X 240 USD = 144 USD
Your turn
0.0/10.0 points (graded)

The organization People First is implementing four projects:

 Coronavirus Out! -- 23 staff

 Better Nutrition for Children -- 17 staff

 Fair Markets -- 7 staff

 Rats are not Family! -- 9 staff

The monthly cost of internet service is 200 USD. The team has decided to split up the cost based on the
number staff members on each team. How much should the Fair Markets project budget for internet
monthly?

Note: For the problem below, please only write numbers without any commas, periods, or letters.
 25 $
 USD/$ unanswered 

Size of budget
A second method for allocating shared costs is to base it on the relative size of each project’s
budget.

This can be a good method for splitting shared costs between large, established, and well-funded
projects and small, pilot-stage, poorly-funded projects who might not be able to afford shared costs
otherwise. Here is how it works:

 Project A has an annual budget of 240,000 USD. $$$$$$$$$$$$$$$$$$$$$$$$

 Project B has an annual budget of 560,000 USD. $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

$$$$$$$$$$$$$$$$$$$$$$$$$

So, out of a total budget of 800,000 USD, 240,000 USD comes from the Project A Budget
(30%). 560,000 USD comes from the Project B Budget (70%).
The team can use these proportions to allocate shared costs. If, for example, the organization decided
to split the cost of electricity (240 USD) using budget size, Project A would pay 30% (72 USD) and
Project B would pay 70% (168 USD).

30% X 240 USD = 72 USD

70% X 240 USD = 168 USD
Your turn
0.0/10.0 points (graded)

The organization People First is implementing four projects:

 Coronavirus Out! -- 255,000 USD budget

 Better Nutrition for Children -- 392,000 USD budget

 Fair Markets -- 114,000 USD budget

 Rats are not Family! -- 89,000 USD budget

The monthly cost of vehicle insurance is 800 USD. If the team uses budget size to allocate shared
costs, how much should the Coronavirus Out! Project budget for vehicle insurance?
Note: For the problem below, please only write numbers without any commas, periods, or letters.

240 $
 USD/$ unanswered 

Space Allocation

Finally, you may choose to allocate space based on the relative amount of office space allocated
to each project.

Here is how it works.

 Project A uses 50 sq meters of office.


Project B uses 200 sq meters of office
So, out of a total office area of 250 square meters, 50 sq meters is used by
Project A (20%). 200 sq meters are used by Project B (80%).
The team can use these proportions to allocate shared costs. If, for example, the organization
decided to split the cost of electricity (240 USD) using space allocation Project A would pay 20%
(48 USD) and Project B would pay 80% (192 USD).

20% X 240 USD = 48 USD

80% X 240 USD = 192 USD
Your turn
0.0/10.0 points (graded)

The organization People First is implementing four projects:

 Coronavirus Out! -- 45 square metres

 Better Nutrition for Children -- 40 square metres

 Fair Markets -- 45 square metres

 Rats are not Family! -- 30 square metres

The monthly cost of rent is 3000 USD. If the team uses space allocation to share costs, how much
should the Better Nutrition for Children project budget for rent?
Solution

40/160 = 0.25

0.25 X 3000 = 750

Note: For the problem below, please only write numbers without any commas, periods, or letters.

750$
 USD/$ unanswered 

Cost Allocation Plans

Since shared costs affect all project budgets, it is helpful (and often required by donors) to have a
cost allocation plan that explains how you will share costs across projects. While this is not a part of
your project budget, it is an important financial management tool that your organization will use to
help prepare your project budget.

A cost allocation plan should describe:

 Which costs are shared among projects

 How each cost will be shared (number of staff, space allocation or size of budget)

 The proportion of each shared cost that is allocated to each project

 The amount of each shared cost that is allocated to each project

For example, the organization People First might have a cost allocation plan that looks like this:

Cost Allocation Plan for People First Projects

Internet Service
Allocated based on staffing. The total monthly cost of Internet Service for the organization is $200
USD.

Project # of staff Proportion of total Monthly cost

Coronavirus Out! 23 41% 82 USD

 Better Nutrition for Children 17 30.5% 61 USD

Fair Markets 7 12.5% 25 USD

Rats are not family! 9 16% 32 USD

Security Guard
Allocated based on budget. The total monthly salary of a Security Guard for the organization is
$1,500 USD.

Project Budget Proportion of total Monthly cost

Coronavirus Out! 255,000 USD 30% 450 USD

Better Nutrition for Children 392,000 USD 46% 690 USD

Fair Markets 114,000 USD 13.5% 202.50 USD

Rats are not family! 89,000 USD 10.5% 157.50 USD

Rent
Allocated based on office space. The total monthly rent for the organization is $3,000 USD.
 Project Office space Proportion of total Monthly cost

Coronavirus Out! 45 sq m 28% 840 USD

Better Nutrition for Children 40 sq m 25% 750 USD

Fair Markets 45 sq m 28% 840 USD

Rats are not family! 30 sq m 19% 570 USD

Challenges with Shared Costs

Shared costs are one of the most common sources of confusion for managers of project finances.
Before we move on, let’s examine a few potential issues that might occur:

What do I do if my donor does not contribute to shared costs?

Unfortunately, this sometimes happens. In this case, you will want to discuss the situation with your
other donors and negotiate. There are donors, for example, that contribute to Other Direct Costs but
do not contribute to salaries. In this case, you could negotiate for that donor to contribute a higher
percentage to ODC. The most important thing is to disclose the situation and document it.

What do I do if one project ends earlier than the rest?

Whenever a new project begins or an existing project ends, you will need to reallocate shared costs.
Try to plan ahead for this: if you know a project will be ending or beginning next June, schedule
some time to re-allocate shared costs and discuss the changes with your stakeholders. Share this
information with your donors ahead of time so that you can negotiate changes that may result from
the addition of a project or completion of a project.
Section 3:
Summary Budgets
In the last two sections, we learned how to make a detailed budget that estimates every single shared
and direct project cost.

Now, let’s shift our attention a bit. How will we share the most important facts about our budget with our
stakeholders? A Summary Budget provides a snapshot of all costs in the major budget categories of
your project budget. The Summary Budget can be a helpful tool for communicating with internal
stakeholders and the donor.

1. Gather documents✓

2. Break down project✓

3. Estimate direct project costs✓

4. Estimate shared costs ✓

5. Create a summary budget

Summary Budgets
It is important to have a detailed budget that estimates your expenses, such as the project budget we
have been preparing in this module. In addition, a summary budget is typically developed to
present the total amounts for each budget category.

A summary budget is helpful for answering questions like:

 Under which budget category are we going to spend the most money?

 Do the totals in the budget categories align with our project description?
For this reason, a summary budget is a great tool for sharing information with stakeholders who are
not on the financial management team.

You will find a tab in your project budget for summary budgets. Click through the slides below to
learn more about how this tool works.
Obligated & Award Amounts
You might have noticed a column in the summary budget titled “current obligation.”
To explain how to use this column, we will need to understand how projects are usually funded.

The amount that a donor states it will provide over the life of a project is called the total award
amount.

There is an important difference, though, between the total award amount and the amount the
donor will provide right now to cover costs for a specific time. This is called the obligated amount.
After a period of time, an additional obligation may be provided, based on your need and
performance.

Let’s take a look at an example.

Better Nutrition for Children estimates that they will need to spend $400,000 over two years to
reach their project goals. Their donor agrees, and approves a $400,000 total award amount for the
lifetime of the project. For the first year, their donor gives them half of this amount: $200,000. This
is their obligated amount.

If the project performs as well as expected, the team might receive another obligated amount the
next year. However, this is not guaranteed.

The obligated amount of $200,000 is the money that Better Nutrition for Children has available to
spend. The total award amount of $400,000 may or may not ever be provided. If they overspend
their obligated amount, they will be in trouble.

Make sure that you and your team understand this difference. Calculate the obligated amount of
funding available for each category of expense in your summary budget. This way, your
organization can focus on tracking expenditures against the actual funding you have available. We
will talk about this more in the next modules of this course.

Using the Project Budget

Let’s take a look at how a few different individuals on a team might use the
information in the project budgets.

Executive Director

“As an executive director, it is critical for me to understand the total amount of each project budget, how
shared costs have been allocated, and how each project budget affects overall staffing at the
organization. This information feeds into my annual budgeting processes for the organization. It helps
me communicate the organization’s financial health to our board of directors. It also helps me negotiate
shared costs and other budget considerations with new and existing donors.”
Finance Manager
“As a finance manager, I have a responsibility to use the project budget tool to explain my
project’s projected expenditures, shared costs, and obligation and award amounts so that the
executive director can do her job.”

Program Manager
“I’m responsible for leading all of the new project’s activities. So, I need to understand how much
is budgeted for activities. I need to understand what my travel budget is so that I can plan field
visits. I need to know what staffing is included in the budget so that I can identify any recruitment
needs.”
Conclusion
Well done! You have completed module 2 of this course. In this module, we completed the
budgeting phase of financial management. Here are a few important points that we learned:

 Direct project costs are project expenditures that are not shared by any other project. These
can include supplies, activity costs and travel.

 Shared project costs are expenditures that are shared between several projects. Your team
needs to decide a fair way to split these costs between your projects.

 A summary budget contains only the most important information: how much you expect to
spend under each budget category over the life of the project. This is a great tool to share with
stakeholders outside of the finance team.

Now that we have finished our review of the budgeting phase, it is time to shift our attention from
planning to implementation. In the next module, we will explore the question: how are we actually
using project resources?

OPTIONAL HOMEWORK

Investigate how your organization currently calculates shared costs. For example, how is rent split
among project budgets?

CITATIONS

Dropkin, M., Halpin, J., & Touche, B. L. (2007). The budget-building book for nonprofits: A step-
by-step guide for managers and boards. San Francisco, CA, CA: John Wiley & Sons.

Module 3
TRACKING EXPENDITURES

Congratulations! We have our project budget—our plan for spending money—ready to go. Now, it
is time to switch our focus over to what happens after the project starts. Welcome to the project
implementation phase, where we track and analyze our expenditures.

Let's imagine that your organization is holding a large in-person training event. In the
past, these events have been poorly attended, so you invite 40 participants, expecting that
only about half of them will show up. However, a few days before the training, you learn
that every single person you invited will be participating.

As a result, you scramble to buy extra food and supplies for your event. In the end, your
expenses for the training event are significantly higher than you had budgeted for.

Now imagine that your organization has another event planned for later this month. If you
are doing a good job tracking, analyzing and communicating about expenses, everyone on the
project team will know that the last event went over budget. They will know exactly how much
money is left in the budget for events. They will know they need to cut costs for the next
event, and maybe learn a few lessons from the first event to improve how events are managed
in the future.

However, if you are not carefully tracking expenses, you might repeat the same mistakes.
Your organization might spend more money than is left in the budget category for training
events.

This is the reason why project teams with strong financial management skills are careful to
track their expenses, analyze their expenses regularly, and communicate across the team.

In the last two modules, we learned how to prepare a project budget: a plan for spending
money. Now, it is time to use that plan.

During the project implementation phase, the nature of financial management changes. Instead
of spending most of our time thinking about the future, we take a close look at the present
and the recent past. We ask ourselves: what are we spending our project funds on? How
quickly are we spending funds in different budget categories? Do our expenses match what our
budget predicted, or are there important differences?

In this module, you will learn how to use two new tools:
The first is the Financial Tracking & Reporting Tool. This is a tool that your team will use
daily. It is where all of your expenses are recorded and tracked.

The second tool is the Monthly Expenditure Tracker. Our CSO partners use this tool to
analyze how they have spent money over the life of the project. It's a simple but powerful
tool for understanding your project finances.

By the time you finish this lesson, you will have the tools and skills you need to manage
and analyze your project expenditures.
[outro music]
LEARNING OBJECTIVES
 Track expenditures against your project budget

 Create a summary of project expenditures across the duration of your project.

 Analyze the financial health of your project.

Tracking Expenditures

In the first two modules, we thought a lot about how we would spend money in the future. Now, as
we shift our attention from project planning to project implementation, we will need to track and
analyze how we are spending project funds.
At a minimum, during the project implementation phase, you and your team should always be able
to answer these simple questions:

 How much have we spent to date in each budget category?

 How does our spending to date compare to our original projections in each budget
category?

 Are there any concerns that need to be addressed?

Answering the questions above requires a system for tracking project expenditures.

In this module, we will show you the system that our CSO partners use to track their expenditures
and which allows them to answer simple financial management questions. You might have your
own system already or need to modify our system to fit your project. Whatever the case may be, the
goal is to have a system for accurately tracking and analyzing expenditures.

Who is involved
To manage a project’s finances during the implementation phase, your whole team will need to be
involved. Project staff will need to submit information about expenses. The finance team will
need to record and analyze these expenses. The project leaders will need to use this information to
make project management decisions.
Project Staff
Occasionally, project staff may make purchases using their own money for which they expect to be
reimbursed. Often, these purchases relate to travel for the project. Ask your project staff to submit a
paper or digital receipt and the following information every time they make a purchase that will be
reimbursed:

 What the expense was

 Which category of expenditure they believe this falls under (travel, activity costs, etc.)

 When the purchase was made

 The vendor or merchant

In return, project staff should be kept up-to-date on how the project budget is being spent. Are there
any areas where the team is overspending or underspending?

Finance Team
The finance team is responsible for organizing all the project expenses in a single place. Using this
information, the finance team can identify areas where the team might be overspending or
underspending and let the staff and leadership know.

Project Leaders
The project leadership team relies on information that the finance team provides to make decisions
about project management. They also are often responsible for sharing information about project
finances with donors or other external stakeholders.

Section 1:
Tracking Expenditures
To manage your finances, you need a single place where all your expenses are recorded.
In this lesson, we will learn how to use a versatile tool: the Financial Tracking and Reporting Tool. This
is a spreadsheet that FHI 360 grantees use to track, analyze, and present information about project
expenditures.
Even if you will use a different system for tracking expenditures, we recommend completing the work in
this section because it will show you how to track and analyze expenditures, regardless of the tool you
use.

Tool: Financial Tracking & Reporting Tool

Let’s take a close look at an important tool: the Financial Tracking & Reporting Tool.
This tool gathers information about all of your project’s expenditures in a single place. This allows
you to spot issues, understand patterns and answer questions.
Download the tool by clicking the button below. Note that there are multiple tabs in this tool. Open
it up and spend at least 5 minutes exploring it on your own. What kind of information is gathered on
each tab of the spreadsheet? How might your team use this tool? After you have explored the tool
on your own, return to this lesson, where we will explore it together.

Financial_Tracking_an
d_Reporting_Tool.xlsx

Using the Financial Tracking & Reporting

Tool
Let’s take a closer look at this versatile tool: the Financial Tracking and Reporting Tool. Click
through the slides below for a step-by-step guide to using the tool.
HOW OFTEN SHOULD I UPDATE THE FINANCIAL TRACKING &
REPORTING TOOL?

This tool is designed for you to use monthly. This means that at the end of every month your team
should update the tool with that month’s project expenditures, archive it in a place where it can be
easily retrieved, and start a new copy.
Analyzing Monthly Expenditures
By inputting your project’s budget and expenditures into the Financial Tracking & Reporting Tool,
you can answer some of the most important questions about your project finances. For example:

What is our remaining budget balance?

This is one of the simplest but most important questions that you can (and should) ask. Luckily, the
template we are using makes it easy to answer this question: simply look at column 6 of Form A.

The Sokorto Post team, for example, is wondering how much money they have available for travel.
They can answer this question by looking at column 6 of the Travel and Transportation row.
As you compare your remaining budget balance to the approved budget in each budget
category, do you see any red flags?

Your Financial Tracking & Reporting Tool is an excellent place to spot potential financial concerns.
Once again, column 6 of Form A shows your remaining budget for each category. If the remaining
balance in a category shows that the project is spending faster or slower than anticipated, you need
to consider whether any changes to the budget or spending are necessary to remain on track.

The Sokorto Post team realizes that they might be running out of funds for consultants. However,
there may be good reasons why spending is ahead. For example, it may be that the first half of the
project required more support from consultants than the second half of the project. In this case, we
would expect to see a low budget balance early in the project.
Conclusion
Congratulations. You have reached the end of module 3! In this lesson, we learned how to track
expenses and how to use simple tools to answer questions about our project finances. Here are a few
of the main points:

 While the project is being implemented, every team member should participate in financial
management. Project staff should record and share all of their project expenses with the
finance team. The finance team should collect, organize and analyze financial records.
Information about project finances should be shared with both project staff and leadership.

 Every month, all of your project’s expenses should be documented in a single place. For
example, FHI 360’s partner CSOs use the Financial Tracking & Reporting Tool.

 In addition, you should have a central document for tracking expenses across the lifetime of
the budget.We used the Monthly Expenditure Tracker for this task.

 You can use these simple tools to monitor your budget and spot issues before they become
serious.
In the next lesson, we will shift our attention again and think about the future: based on what we
know, how much do we expect to spend in the next few months?

OPTIONAL HOMEWORK

Investigate your organization’s accounting system. How are expenses recorded? What are the
central tools that your team uses to track expenses over time?

Module 4
ANALYZING SPENDING PATTERNS

Have you ever wished you could predict the future?

While financial managers are not magicians, by using financial data from the past they can make
predictions about the future.

In this module, we will learn a few techniques for understanding our expenses. First, in section 1,
we will use simple calculations to make a rough prediction about our future spending.

Next, we will look a little deeper. How can we use all the information available to make an even
stronger prediction?

Finally, we will close out this module (and this course!) with a discussion about communication
methods. How can you make sure that your team understands the most important information about
project finances?

I once worked with an organization that did not monitor how much obligated funding it had
left on a large project.
When it was time to submit a financial report to their donor, they discovered that they
didn't even have enough funds remaining to pay staff salaries for the coming month, much
less implement any activities. The organization sent an urgent plea to their donor for
additional funding, but the donor reminded them that they were required to submit a formal
request, with a revised budget, and it might take 2-4 weeks to process.

In the meantime, the project leadership had to explain to the staff why their salaries would
be late and negotiate with their vendors and landlord to send late payments. The situation
was very stressful for the entire project team.

We occasionally hear from very talented teams who have overspent their obligated award
amount. It is unfortunate because, even though projects can be unpredictable, most of these
teams could have foreseen this situation if they had taken the time to analyze their project
expenses.

In the final module of Managing Project Finances, we will take a look at a few simple
techniques that your team can use to understand your funding. what the future will look
like. Is your team running out of obligated funding? If so, how long until the funds run
out? And, how can you spot issues before they become problematic?

To help us think about what might happen in the future, we will use a simple tool: the
Pipeline Template. This is a spreadsheet that uses information about your past and present
spending habits to help you notice patterns.

Finally, to close out this course, we will return to a topic that we have discussed many
times: communication. By now, we have a set of tools for planning, monitoring and predicting
our project finances. However, unless we're clever, persuasive and persistent, the
information in these tools won't reach the right people. So, before we finish, we will spend
some time reflecting on how our team's will communicate about project finances.

You are almost finished with this introductory course in financial management! Let's power
through this final lesson; I will see you at the end.
LEARNING OBJECTIVES

By the end of this module, you will be able to:

 Calculate your spending rate to date.

 Project future expenses.

 Analyze the data presented in the Pipeline Tool to make decisions about the budget and
communicate with others.
Section 1:
Pipelines & Burn Rates
In this section, we will learn how to make a simple, rough prediction about the future of your
project’s finances. To do this, we will need to understand two important numbers:
your pipeline (how much obligated funding remains) and your burn rate (how quickly your
team has been spending your obligated funding).

Defining Terms
To analyze our past spending and to understand our future spending, we will use two concepts:
pipelines and burn rates.

Pipeline: The amount of obligated funds you have not spent yet. You can calculate your pipeline
by subtracting the amount of obligated funding that your team has already spent from the total
obligated funding.
Example: The project team at Coronavirus Out! has a total obligated amount of 255,000 USD. So
far, they have spent 145,000 USD. They calculate that their pipeline is 110,000 USD.
255,000 - 145,000 = 110,000

Burn Rate: The rate at which an organization spends its award funds. You can calculate your burn
rate by dividing the amount of obligated funding that your team has already spent by the number of
months over which those funds were spent.
Example: The Coronavirus Out! Team spent 145,000 over 5 months. This means that, on average,
they have a burn rate of 29,000 USD per month.

145,000 ÷ 5 = 29,000
YOUR TURN

The Fair Markets project has a 114,000 USD obligated award. So far, they have spent 64,000 USD
over eight months.

1.
0.0/10.0 points (graded)

What is the Fair Market team’s pipeline?

50000
 USD/$

2.
0.0/10.0 points (graded)

What is the Fair Market team’s burn rate?

8000
 USD/$ unanswered  

Using Pipelines and Burn Rates

Now that we understand our pipeline and burn rate, we can make a simple prediction about the future.

To calculate how many months we have left before our obligated funding will run out, we simply
divide the pipeline by the burn rate.

Pipeline ÷ Burn rate = Number of months until the obligated

amount runs out
For example, the team at Coronavirus Out! had a pipeline of 110,000 USD and a burn rate of 29,000
USD per month. They calculate that, if their burn rate stays the same, they will run out of obligated
funds in about 3.8 months.

110,000 ÷ 29,000 = 3.8
By tracking your pipeline and burn rate, you can monitor your spending to make sure that you are
neither spending too quickly nor too slowly. Most important is that by watching these figures, you
will know when you need to request an additional obligation from your funder. For example, if the
Coronavirus Out! project’s current obligation is intended to last an additional 5 months, they are not
going to make it!
YOUR TURN
1.
0.0/10.0 points (graded)

The Fair Markets team has a pipeline of 50,000 USD and a burn rate of 8,000 USD per
month. If their burn rate stays the same, how many months will it take before their team
runs out of obligated funding?

6.3
  unanswered 

Submit

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These options follow the Submit button.

SaveSave Your Answer

2.
0.0/10.0 points (graded)

The Fair Markets team will receive their next round of funding in seven months. Based on their pipeline
and burn rate, will this team have enough funding?

Yes

No

unanswered

Tool: Pipeline Template

Time to explore one more tool! The Pipeline Template is a simple tool for predicting future
expenditures.

Click the button below to download the template. Open it up and spend at least 5 minutes exploring
it on your own. What kind of information is gathered in this spreadsheet? How might your team use
this tool? After you have explored the tool on your own, return to this lesson, where we will explore
it together.

Pipeline_Template_Up
dated.xlsx

Using the Pipeline Template

Let’s take a closer look at the Pipeline Template. Click through the slides below to explore the
different parts of this tool.
Quick Quiz

A project team has been implementing its award for three months. They would like to use the
information in their Monthly Expenditure Tracker to understand their future financial situation.

Take a look at the Monthly Expenditure Tracker below. Use the information in the tracker to answer the
questions below.
1.
0.0/10.0 points (graded)

What is this project’s pipeline?

1,087,000

344,000

260,000

28,000

unanswered

Submit
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options follow the Submit button.

SaveSave Your Answer

2.
0.0/10.0 points (graded)

What is this project’s burn rate?

84,000 per month

29,000 per month

28,000 per month

 26,000 per month

unanswered

Submit
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options follow the Submit button.

SaveSave Your Answer

3.
0.0/10.0 points (graded)

If this project continues to have the same burn rate, how many months remain before they run out of
obligated funding?

About 12 months

About 9 months

About 6 months

Not enough information

unanswered

Submit
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options follow the Submit button.

SaveSave Your Answer

Reflection (ungraded)
0 points possible (ungraded)

In this section, you learned a very simple way to project future expenses using a pipeline and burn rate.
What is one limitation of this approach? How might it lead to inaccurate predictions?

If s ome thing come up une xpe cte d ly tha t will re quire more s p e nding fro m the curre nt ob lig a te d a mo unt it will a ffe ct the pre d e ctio n.
  unans
wered 

Submit
Section 2:
More Detailed Projections
In the last section, you learned a very simple method for predicting when your project would run out of
obligated funding.

Unfortunately, predicting the future is not usually this simple. Expenses change month to month. So, if
we want to be more accurate about our predictions, we need to think about how expenses may differ
month to month based on the project workplan.

Projecting Expenses
As we learned in the first section, you can project expenses by dividing the remaining funds in each
budget category by the number of months left. Some expenses, such as salaries and fringe, may not
change much month to month, assuming your staffing stays the same.

However, these expenses might change sometimes, and it is important to consider any possible
upcoming changes.
More Detailed Projections

Unfortunately, not all expenses are as simple to predict as salaries. The best way to predict expenses
for items that may change month to month is to carefully review what is described in the project
workplan.
You and your team should periodically review the workplan and identify anticipated changes to
expenses for the months you are currently projecting. For example:

 Are we anticipating hosting any trainings that will require participant notebooks to be printed?

 Will our travel be affected by seasonal rains?

Reflection (ungraded)
0 points possible (ungraded)

What is a category of expenses that will differ month-to-month? How might you predict if this expense
will change? Who would you talk to?

  unans
wered 

Submit
Some problems have options such as save, reset, hints, or show answer. These options follow the Submit
button.

Section 3:
Communicating about project finances
Throughout this course, we have discussed the importance of communicating with all project
stakeholders.

Now that you have acquired a few tools and methods, let’s revisit this topic. What information will you
share with your team? How can you ensure that they understand the information and put it to good
use?
Putting it together:
Holding conversations about project finances
Let’s take a look at a few examples of conversations that you might have.

CONVERSATION 1: THE MYSTERY OF THE VENUE

Project manager: Hey, I was

wondering about one of the spreadsheets
we looked at during our weekly check-in
last Monday. I believe it was called the
Financial Tracking and Reporting Tool? I
noticed that we were nearly out of funds
for venue rentals. I’d like to understand
why. We have a lot more events planned
and I don’t want to run out of funds!

Financial manager: 

Let’s take a look. This tab shows all of the

information we have on activity expenses. It
looks like there were several unusually large
payments earlier this month to this venue....
Project Manager: 

Oh, interesting. That is where we will be

holding our summer workshops. We must have
paid them ahead of time. It looks like we will
have to be especially careful about activity
expenses this quarter.

Who is involved in this conversation? Why are they having this conversation? How often
do you think they have this type of conversation?

  

Putting it together:
Holding conversations about project finances
CONVERSATION 2: A FRIENDLY REMINDER

Hi team,

I wanted to remind you all to please send receipts of your reimbursable travel expenses to me by the
end of the month.

That way you can all get reimbursed on your paycheck next month. Additionally, I will be able to see
how much we have left for travel. I know that there are a few people who are still waiting to see if their
trips will be approved.

Thanks in advance,

Matías
Financial manager
Discussion
In the discussion space below, describe one way that your team will communicate about project
finances. This may be a regular meeting, a tool or dashboard that several people have access to, or
any other way that your team will share information.

Communicating about project finances

Example: Every month, the project manager and the field managers will discuss activity costs from the
previous month using information from the Financial Tracking and Reporting Tool. The purpose of this
meeting is to reflect on spending to date to inform future decision-making

Every month, as a project manager together with financial manager, we will hold a staff meeting to explain the
last month project expenditures. At the same time, the information about remaining obligated funds will be
shared with the project staff. In spite of this, I will be giving out weekly updates about project finances via
email to all project staffs

Every month, the financial manager and the project manager, including the whole team will have a meeting
usually on the first monday to discuss about the previous expenditures and reimbursements due, and then
subsequently the budget for the next month and the tracking of expenses will be shared on google drive to the
rest of the team for updates.

There is no need to include the entire team in these communications. Monthly meeting with the project
manager and field manager are sufficient to review the current financial situation and discuss future trends so
that spending can be adjusted or a request to increase the obligation can be sent to the funder, if applicable.

Conclusion
Well done! You have reached the end of this course on managing project finances! Let’s review a
few of the main points from module 4.

 If you understand how much obligated funding is left (pipeline) and the rate at which you
have been spending your obligated funding (burn rate), you can roughly estimate how much
longer your obligation will last. 

 However, to accurately predict your expenses for a future period of time, you should also
consider how expenses might differ from month to month based on the project’s work plan
and anticipated activities. Activity costs can vary dramatically from month to month, so review
your work plan with the project team.
 Managing project finances requires thoughtful, regular communication with the rest of the
team. Consider the tools you will use, your communication channel (example: in person or over
email) and the frequency of your communications (example: weekly or monthly).