Budget Basics

Introduction

The proposal budget should be an as accurate as possible financial expression of the proposed scope of work.  When proposing a budget for a sponsored project, the PI assures Stanford and the sponsor that project finances are represented as accurately as possible. This ensures the sponsor pays its fair share of project costs. 

Sponsor, program and University requirements must be adhered to at the proposal stage, as well as when funds are expended, following the cost principles as defined by federal regulations and consistency requirements imposed by the Cost Accounting Standards (CAS) Board. Estimating methods must also be consistent with Stanford accounting practices and must allow expenditures to be accumulated and reported to at least the same level of detail as the estimate.

Each proposal must contain a budget for each year of support requested (unless a program announcement stipulates otherwise.) The amounts requested for each budget line item should be documented and justified in the budget justification. When proposing administrative salaries that are integral to a project, a justification is required.

Although you can’t foresee how the project will unfold and exactly what the costs will be, you must develop a budget that is as realistic as possible. A budget that fails to request an adequate amount of funds is just as problematic to a proposal as one that requests an unrealistically large amount of funds. The objective is to create an accurate and detailed budget based on the proposal objectives. Always follow Stanford policy and the sponsor's proposal instructions.

The proposal budget is the first opportunity you have to control costs. It becomes a management tool once the project is awarded. It mitigates problems such as:

• shifting costs to a non-benefiting sponsored project (unallowable)
• cost transfers
• cost overruns
• late spending
• overspending to “burn” the balance

Accounting Periods

Budget Methods

There are several methods to arrive at a realistic budget for your proposal, and the most appropriate method will depend on a number of factors, such as prior proposal and award history. Below are two of the most commonly used methods:

Zero Based

 Zero-based budgeting is used in situations where we don’t have prior proposal and award information for the Principal Investigator or the proposal is for a different scientific area or the proposed work that differs from the usual field of research for that particular PI. 

1. Gather data to estimate costs. 
2. Use current data from: PeopleSoft, Vendor Quotes, and Travel Quotes.
3. Break the work down to small increments so you can project costs. 
4. Apply judgment based on the facts and circumstances of this project and the PI’s portfolio. 
5. Discuss your estimates with the PI and make changes.

Historical

Historical budgeting occurs when we have a prior history of successful proposals and awards managed for a PI. 

1. Assess actual costs and spending patterns from a similar project. 
2. Ask yourself
   • Was that project within budget?
   • Was it on time?
   • Were performance specifications met?
   • Was the project free from disallowed cost at closeout?
   • Review burn rates for non-salary expenses
3. Use your assessments to estimate costs for the new project.

Atypical budget components

The following are three budgeting elements that you may need to consider as you prepare your budget because they may be subject to special sponsor mandates.

Salary caps

Some sponsors limit the annual compensation of key personnel; the most common is NIH’s restrictions on full-time effort. Make sure you understand how to handle Salary Caps in the proposal, budget and award management stages.

Cost sharing

Some sponsors require it and others forbid cost sharing so make sure you understand your sponsor’s requirements before submitting a proposal. If your project involves any cost sharing, Stanford’s portion must be tracked and reported separately.

Integral Salary Charges

Typically, administrative salaries should be treated as Indirect (F&A) costs on federally sponsored projects; however, direct charging of administrative and clerical salaries to federally sponsored projects is appropriate only if all of the following conditions are met:

1. Administrative or clerical services are integral to a project or activity (“integral” means the services are essential, vital, or fundamental to the project or activity)
2. Individuals involved can be specifically identified with the project or activity
3. Such costs are explicitly included in the budget and have written approval from the federal awarding agency
4. The costs are not also recovered as indirect costs

For federally-funded sponsored projects, administrative expenses that directly benefit such awards can and should be charged directly to those awards. The costs need to be presented in the proposal and approved in the award documentation by the sponsor. The integral charging regulations also apply if a non-federal sponsor receives federal funding for the project, specifically adopts Uniform Guidance guidelines, or has its own policies restricting administrative charges.

Program Income

Program income is gross income earned by an awardee that is directly generated by a federally supported activity or earned as a result of a Federal award. Program income may be earned in research, education, or conference awards.

Examples of program income include: 

1. Registration fees for conferences supported by conference awards; 
2. Fees for services performed; 
3. The use or rental of real or personal property acquired under the award; 
4. The sale of commodities or items produced using award funds; 
5. License fees and royalties on patents and copyrights; or 
6. Interest on loans made with award funds. Program income does not include income from: 
7.  Interest earned on advances of Federal funds; 
8. The receipt of principal on loans; or 
9. Rebates, credits, or other discounts.

Budget Support

Visit the ORA Budget and Budget Justifications webpage for the Stanford Detailed Budget and Budget Justification templates and resource links to help you build successful budgets and budget justifications. 

Additionally, please note the budgeting process is nuanced and differs slightly by School. Please make sure that you familiarize yourself with the budget workflow for your particular department/School. 

Here is a brief summary of the budgeting process by School as well as its contact information.

School of Medicine

The budget is developed in collaboration between the PI/department administrator and the Research Process Manager.  The RPM generates the internal budget and enters it in the SeRA system. RMG provides a useful chart distinguishing roles and responsibilities with respect to the RMG Budget Development process.

School of Engineering

The budget is developed by an Engineering Research Administrator in collaboration with the PI. 

Other Schools, Independent Labs, Institutes and Centers, Stanford Libraries

For all other units, the department research administrator works with the PI to develop the budget. The budget may require approval from the School and/or the Dean of Research Office. If you have questions about your budget and proposal, following is a link to each unit’s contact information.

• Doerr School of Sustainability
• Graduate School of Business:  Anita Degero
• Graduate School of Education
• Independent Labs, Institutes  and Centers : Center Directors and/or VPDoR
• Law School:  Joel Greene
• Libraries: Gabrielle Karampelas
• School of Humanities and Sciences

Do you have any other sponsored project budgeting questions?  Contact the ORA Client Advocacy & Education Team.  No question is too big or too small.  We're here to help!