Grant Writing Budgets: Direct vs. Indirect Expenses

This is a post from May 2009. After a few fundamental questions from peers and clients, I thoughts I'd share it again with Grant Savvy readers.

When creating a project budget you will need to determine your costs to support the entire program. This includes staff, supplies, building and transportation costs. It can seem scary or overwhelming to create a budget that supports an entire program, but if you break it down into your line items and approach it like you would a personal budget, you will save yourself some sweat and tears.

Usually, your costs will fall into two different categories, direct and indirect expenses.

Direct Expenses are costs that come from the purchasing of goods or services to support or start your program.

• Personnel costs (sometimes called personnel services)
• Supplies (office supplies, paper, pencils, rubber bands, printing, etc.)
• Travel (air travel, bus, car, train, room & board accommodations)
• Equipment (office furniture, cameras, printers, radios, shelves, scanners, etc)

Indirect Expenses are costs that are required to run your organization regardless of the program you want to create or support. It is best to work with your finance department to determine these costs because they can often be tricky to understand and interpret. In the simplest terms, they are usually the administrative and/or overhead costs and can be calculated in one of two ways:

• As a percentage of total direct costs (in my experience, this is most common)
• As a percentage of total personnel costs

Understanding direct vs. indirect costs is important not only because some funders don’t fund indirect expenses. Your budget reflects the financial viability of your program and you must be able to accurately display all costs associated with the life of the project. Yes, ALL costs. Don’t ever attempt to hide any of the costs you will need for your program, no matter how small.

~Cheers!