Constructing your budget

Passbook Identity by Jonathan O'Donnell on Flickr

As part of my job, I build budgets for people. That is, they tell me that their project needs 15 hours of teaching relief, two trips to China, a research assistant and laptop, and I go away and cost those items.

It is one of the most straightforward parts of my job and I’ve always imagined that people ask me to do it because it saves them time.

Then again, I thought that building a simple Gantt chart was straightforward, too, and that post has turned out to be the most popular one this blog’s ever published!

So, in that same spirit, this post takes you through what I do when I build a budget.

The examples that I use will be Australian, but I think that the techniques are transferable and should be useful to everybody.

Preparation

Not everyone comes to me with clear list of budget items. Occasionally, I get to sit with someone while they map out what they plan to do. I have to do that for my own small projects. Even when researchers do provide a shopping list, it is rarely complete. You need a surprising level of detail to construct an accurate budget. That’s OK – God is in the details, and the hearts and minds of your assessors are there, too, so the more detail the better.

Here are some examples of the level of detail that I will need to build an accurate budget:

• Salary level of each participant. Please don’t tell me that someone is an Associate Professor. I need to know that they are academic level D3 if I am going to accurately work out their appropriate salary, whether that is a cash request or an in-kind contribution.
• Salary level for new positions. ‘Research assistant’ is such a catch-all description that I can’t tell you what level it should be costed at. My best advice is to write a brief job advertisement and then ask your local human resources person to look at it. They often have guidelines for different salary levels. The advertising copy will come in handy when you write your budget justification and, naturally enough, when you advertise the job.
• Length of employment. Adam Golberg, who blogs at Social Science Research Funding, has written an excellent post on  estimating investigator and researcher time on a project. I know that it is difficult, but I need to know for how many hours, weeks, months or years you are going to employ that research assistant if I am going to cost their salary.
• Destination cities, not countries. Don’t just tell me you are travelling to China. Tell me which city. There is a difference between a ticket to Hong Kong, Shanghai or Beijing, and I want to get it right.
• Length of stay in each travel destination. I quite often get a travel request with no details of how long the researcher will be staying. If I’m going to cost hotels, I need to know how many nights.
• Type of laptop. If you are requesting a laptop, please let me know if you want a laptop, a net-book or an iPad / tablet. They each have different advantages and disadvantages. You will need to think about this for your budget justification. I will need to think about it to price it.

Once I have that level of detail, finding reasonable amounts for the budget turns out to be relatively simple.

Personnel

Any personnel position can be costed as:

Salary level by amount of time plus on-costs.

The trickiest part is usually the on-costs. On-costs are the parts of a salary package that are not paid directly as salary (superannuation, for example). Here a couple of things to keep in mind when costing your personnel section:

• Most on-going positions receive an increment every year. Make sure that you add in the increment for each year of the project.
• Check that you are using the right on-cost level. Often there is a lower rate for casual and fixed-term positions.
• Different organisations have different on-costs. If you are working with someone from another organisation, check what level of on-cost their organisation uses. This will save you from a nasty surprise when they invoice you for their time on the project.
• Some funding organisations, such as the Australian Research Council, mandate a set level that they will pay for on-costs. If your actual on-costs are higher, then this becomes a cash contribution by your organisation to the project.
• On-costs are different from overheads. Overheads are the general costs of running an organisation, such as power and lighting, security and the central library. I talk about overheads later.
• If you are paying someone overseas, you will need to work out whether the salary will be pegged to their currency or yours. If it is pegged to your currency, then their pay packet will differ as the exchange rate changes. If it is pegged to their currency, then you will need to make an allowance for currency fluctuations or you may be left out of pocket. See my notes on exchange rates at the end of this article for more information.

Travel

Travel costings generally have three components:

1. transportation (air fares, car hire or petrol allowance);
2. accommodation; and
3. daily living allowance (aka ‘per diem’).

Transportation

I calculate airfares using economy fares with the our national carrier, Qantas. I use their website to quote a standard (not fully flexible) fare. If the researcher is traveling somewhere that Qantas doesn’t fly (internal flights within Brazil, for example), I use the Travel Math or Sky Scanner sites for airfares.

Researchers often don’t know exactly when they will be flying. If the researcher is traveling to somewhere with a radical difference in high and low season (most places in the South Pacific, for example), I use the Lonely Planet website to find the most expensive time to travel.

For car hire rates, I use the organisation’s preferred rental agency website. If the researcher is using their own car, I use the local automobile association’s vehicle reimbursement rates. I use the trip planning function (“Get directions”) on Google maps to estimate driving distances.

Accommodation and living allowances

For international accommodation, I use Trip Advisor to find a mid-range price for a three-star hotel (if less than a month) or an apartment (if more than a month).

For accommodation within Australia, the Australian Taxation Office provides a handy guide to what it considers to be a reasonable travel allowance expenses for most major cities and all country areas.

The same guidelines provide advice on living allowances for all regions in Australia and countries overseas. The problem with these rates is that they are calculated for people staying a short time, who are dining out for every meal. That means that the amounts can mount up quickly for longer periods. One approach is to use a fraction of the official rate. Or, if the researcher has worked there before, they can provide a reasonable estimate based on past experience.

Equipment, maintenance and consumables

Any asset worth more than $1,000 is a piece of equipment. Anything worth less than $1,000 is a consumable. Your organisation may use a different base-line amount, but the principle is the same. Any cost related to equipment that isn’t the actual purchase prices is generally classed as maintenance.

I don’t deal with applied science and engineering, so the most common piece of equipment that I see on applications is a laptop for fieldwork. Some organisations have a handy list of costs for laptops for staff. If they don’t, look up the retail price from a reputable supplier. This holds true for most other common pieces of equipment.

For uncommon or specialist pieces of equipment, I expect the researcher to provide me with a supplier that I can talk to. If there isn’t a clear retail price (list price), I would send a request for quotation and make it clear that we are applying for funding (that is, we may never purchase). If it is particularly expensive, I would also mention my organisation’s guidelines for tendering for equipment.

Everything else

Software services

Once upon a time, people would sometimes include journal subscription costs in their budgets and I never knew where to put it. These days, the role of where exactly do I put this thing is filled by online software services. Some people use Basecamp to coordinate large international projects. Others use online transcription services. While these services are relatively easy to cost, I’m never sure what heading to put them under. So, they generally end up under ‘Other’.

Overheads

Overheads are different from on-costs. Overheads are the general costs of running an organisation, such as power and lighting, security and the central library. Overheads are sometimes confused with on-costs because they are often calculated as a proportion of the salary component of a project.

Many research funding agencies, particularly government agencies, explicitly state that they will only fund direct costs. That is, they will not fund indirect costs, such as overheads. I think that is short-sighted because it means that research projects can’t break even (but that is a discussion for another day…). If overheads are allowable, your finance department or people who manage tender applications should be able to tell you what your institutional rate is, and how it is calculated.

Exchange rates

You should only have one currency listed in your budget. Don’t include costs in US dollars in an Australian budget. I use the XE currency converter to find the current exchange rate. In your budget justification, quote the original cost and the exchange rate that you have used. This will give you a reasonable estimate for your budget.

If it is a large amount, or an ongoing amount (like a salary), you might need to protect yourself against salary fluctuations. I’m no expert at this, and I suggest that you talk to your finance department. I know that it is possible to buy a type of insurance that can help even out the changes. For salaries, we have used an overseas university as an auspicing agent and transferred funds at the start of each grant period. Once the funds are transferred, both sides know what the amount available is for that period.

As with all items in the budget, exchange rates represent the best estimate that you have at the time of application. Sometimes, this will be based on the researcher’s past experience. Other times, it will be a quote gathered from the Web. The Web has made this process so much simpler.

The irony is that we construct these budgets with so much detail, assessors often comment on some aspects of the budget, then the funding agencies give us some (seemingly random) proportion of the request. They often provide the funding as a lump sum grant to be managed at our discretion.

This means that, in reality, you are putting detail into your budget to demonstrate your skills at planning your research. And good planning is priceless.