Budgets
This is a subsection of the fundraising lexicon developed as part of the GFMD MediaDev fundraising guide.
The term “margin” is most often used in relation to fee-based contracts and is effectively the difference between the actual costs of a deployment and the agreed rate.
For example, if the daily rate for an expert is €800 but the expert charges €500 per day, then the margin would be €300. Contractors use the margin or “profit” to cover their management and operating expenses.
Overheads are generally management costs which include the fixed costs incurred by organisations at their base of operations as well as project-specific expenses related to personnel in management, logistical or administrative positions.
Covering overheads from project income remains a major challenge, particularly for organisations which do not have unrestricted core funding, endowments or institutional support.
For the most part, overheads are covered partly from indirect cost allowances (see “indirect costs”) and partly from contributions to salaries which are presented as direct costs incurred by an action.
All costs relating to project-specific human resources, travel and subsistence, equipment, office expenditure, events, research, financial services etc are considered to be “direct costs”.
In other words, they are directly incurred by project activities and implementation. In most budget templates, direct costs are grouped under generic headings (personnel, travel, equipment etc) and include sub-contracts, sub-grants and partner allocations.
Supporting documentation is required for all direct costs in the form of payroll slips, receipts, invoices, itemised bills and direct debit payments. Where the input of salaried personnel is concerned, donors may require timesheets detailing days worked on the project.
In acknowledgement of the fact that it is not possible to itemise all costs incurred by an implementing organisation, most donors provide an allowance for “indirect costs”.
In general, “indirect costs” are fixed operating costs including contributions to rent, communications, legal services, senior management, IT support etc.
This allowance is usually calculated as a percentage of the direct costs (EU grant contracts, for example, offer up to 7% while US government contracts allow applicants to use a Negotiated Indirect Cost Rate Agreement - NICRA).
Note that this is directly linked to project expenditure so, in order to receive the full value of the indirect costs, an implementing agency will need to disburse the totality of the direct costs.
Terms of Reference will often provide explicit information on the nature of costs which are eligible for project funding.
Generally, these are determined by the generic headings presented in budget templates but further guidance may be provided for the avoidance of doubt.
In most contracts, eligible costs will cover all deployments, production overheads, research costs etc but there is often a grey area around contributions to the salaries of full-time staff (see “Direct costs