Budget Basics

A budget is a detailed statement outlining estimated project costs to support a sponsored project. An effective budget outlines a proposed project in fiscal terms and helps reviewers to determine how the project will be conducted.

A budget will typically consist of two main categories of cost:

1. Direct costs
2. Indirect costs — also known as Facilities & Administrative (F&A) to the federal government; and generally known as “overhead”.

A budget should include all the Direct Costs and Facilities and Administrative (F&A) (or overhead) costs required to carry out the project objectives. Specific requirements, including cost principles as defined by the federal government in the Office of Management & Budget (OMB)'s Uniform Guidance, must be adhered to at the proposal stage and when the funds are expended. Proposals to non-federal sponsors requesting approval of direct costs which are unallowable for federal reimbursement should clearly include and justify those costs in the budget.

Budgets should be planned ahead of time, and all needs of the project budgeted for. Budgets must be final five days before the proposal deadline, and budget changes within the five days may only be made at the Office of Pre-Award Service's (OPAS) request. If a budget includes subrecipients, those should be included in Kuali and in the proposal package that will be submitted to the sponsor. If a final budget including the required subrecipient information is not included at the time of submission, the proposal will be considered non-compliant to the sponsored project proposal submission requirements and procedures, and will need to go through the late proposal process.

Please follow any budgetary guidelines that may be found in the Request for Proposals (RFP), Notice of Funding Opportunity (NOFO), or other posted sponsor guidelines. Sponsors may limit indirect costs, PI or other salary costs, or require cost share to be responsive to the RFP.

It is also important to understand the Foundational Basis for Costing:

Costs must be 1) Reasonable, 2) Allocable 3) and Allowable, and 4) Consistently treated

Reasonable: The “prudent person” test is employed – would a prudent person purchase the item at this cost? The cost is necessary for the performance of the activity.

Allocable: Costs must be directly related to the sponsored project activity. Costs accrue to the project based on the proportional benefit to the project.

Examples of un-allocable costs:

• Charging 100% of a maintenance contract to one project although the covered piece of equipment is only utilized 50% of the time on that project.
• Including personnel costs for a temporary replacement lecturer to cover a professor’s time while that professor is out of the classroom conducting research for the sponsored project activity.

Allocable solutions to the above:

• Charge the allocable portion (50%) of the maintenance contract.
• Include academic year salary commensurate with the percentage of effort the faculty member anticipates working on the project. The faculty members’ department will not have to lay out funds to cover the sponsor funded academic salary, thus the lecturer can be paid from those cost savings. This arrangement should not be noted in the sponsor proposal. The faculty member’s effort would simply be referred to as “academic year effort” and not “replacement salary” or “course buyout.”

Allowable: Costs must be allowable according to the governing cost principles, the policies of the sponsor, and UMass policies and procedures. For federally supported projects, The Office of Management and Budget’s (OMB) Uniform Guidance is the document, other than sponsor guidelines, that determines allowability of cost. OMB’s Uniform Guidance is not applicable to non-federal projects unless federal terms and conditions flow-through from the prime funder.

Consistent: The cost is consistent with established university policies and procedures.

Policies and resources affecting the determination of RAAC (Reasonableness, Allocability, Allowability, and Consistency):

Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR Part 200)

Cost Accounting Standards: Administrative Costs; Cost Sharing Requirements & Procedures; Cost Transfer Policy; University Business and Travel Expense Policy & Standards