4. Budget Development

Introduction

The preparation of a budget is an important part of the proposal preparation process. Ideally, the budget should be considered as you are developing the project itself - not something to be hastily put together the day before the deadline. This is important for two reasons:

1. Developing your budget alongside your narrative assures that the budget items are specifically related to activities described in the proposal.
2. Reviewers often examine the budget in the context of the program narrative, evaluate whether sufficient and appropriate personnel to perform the work have been included, and match the overall budget to the work proposed.

Research expenses can be divided into direct costs, which are specific line items in a budget such as salaries and fringe benefits, equipment and travel, and indirect costs (also called Facilities and Administrative costs), which are broad costs incurred for common or joint objectives, such as building/equipment depreciation and general administrative costs. Indirect costs are paid as a percentage of direct costs, with the amount negotiated by the University and the sponsor.

Direct Costs

Morehead State University abides by the Office of Management and Budget (OMB) Circular A-21, which sets forth basic concepts relating to all direct costs. These concepts are applicable to all sponsored programs, federally funded or not.

A direct cost must be:

ALLOWABLE  

• It serves a University business purpose, including instruction, research and public service

• It is permissible according to both MSU policies and federal regulations

• It is permissible according to the terms and conditions of the sponsored project

ALLOCABLE  

• It is incurred solely to advance the work under the sponsored program

• It benefits both the sponsored program and other work of the institution, in proportions that can be approximated through use of reasonable methods

• It is necessary to overall operation of the institution and, in light of the principles provided in OMB Circular A-21, is deemed to be assignable in part to sponsored projects

REASONABLE  

• The goods or services requested reflect actions that a prudent person would take under similar circumstances

CONSISTENT  

• Costs must always be treated similarly under like circumstances

Major Categories of Direct Costs

PERSONNEL 

The PI should consider who needs to be involved in the project, and how much effort each person will commit. “Effort” refers to the proportion of time spent on a sponsored program and is expressed as a percentage of the individual’s total available time. Morehead State’s personnel policy on faculty workloads is available here. The basic rule to keep in mind is to ensure that you have sufficient time available to fulfill the proposed effort commitment.

Salary - Staff (Administrative, Clerical) 

Per OMB A-21 regulations, salary figures for staff are based on the individual’s annual salary.

However, because staff members are on 12-month appointments, they are generally not allowed to request any supplemental pay from an external agency. Only with explicit justification can supplemental pay be requested. Even then, the effort must be expended beyond the confines of the typical workweek (nights, weekends, holidays, etc.).

Some examples of circumstances where charging of these costs may be appropriate are:

• Large, complex programs (e.g., Program Projects, Center Grants) and other grants and contracts that entail assembling and managing teams of investigators from a number of institutions

• Projects that involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature, and reporting, such as epidemiological studies, clinical trials, and retrospective clinical record studies

• Projects whose principal focus is the preparation and production of manuals and large reports, books, and manuscripts

Salary - Staff (Students) 

Students (both graduate and undergraduate) frequently serve as Research Assistants on sponsored projects and can receive compensation. Typically, full time students are limited to working a maximum of 20 hours per week during the academic year and are paid minimum wage (although the PI can set the pay as he/she sees fit). Additionally, students can also receive tuition remission and other training expenses.

Salary - Faculty 

Per OMB A-21 regulations, salary figures for faculty are based on the individual’s annual salary.

Subject to sponsor and University policy, faculty salary can be covered in a variety of ways:

• Reassigned Time
• Faculty can request that the agency pay for a reduced load in order to engage in sponsored programs. The provision of reassigned time is typically in the form of a course reduction, which will reduce the instructor's teaching load by a certain amount, depending on the needs of the project.

• In some circumstances, when taking a course reduction is unfeasible, a small percentage of a faculty member's time can be requested of the funding source.

• In either case, it is always best to request reassigned time from the funding source. When this is not possible, the University can sometimes cost share a portion or all of the requested effort.

•  Summer Salary
• Summer Salary is available to faculty with nine-month appointments for work on sponsored projects during the summer months. Faculty who receive summer salary must expend the effort associated with the summer salary during the summer period.

• Per University regulations, the maximum amount of summer salary permissible is three-ninths of the faculty's regular academic year salary. In other words, in any year, the faculty member may receive no more than three months of summer salary. However, some agencies impose stricter limits on how much summer salary a PI can request.

• Supplemental Salary
• Aside from summer salary, faculty members can receive supplemental pay during the academic year by being a consultant on another project, but only under strict conditions. According to OMB A-21, faculty who serve as consultants on sponsored programs can only receive supplemental pay when the proposed work is beyond the faculty member's normal scope of duties. University policy limits faculty to four consulting days per month

• Because there is no University policy that addresses staff receiving supplemental pay, MSU adheres to federal guidelines. According to OMB A-21, full time staff can only receive supplemental pay on a sponsored project if the activity can be defined as a "major project." Major projects are projects that require an extensive amount of administrative support significantly greater than the routine level of such services provided by academic departments. Some examples include:
• Large, complex programs such as General Clinical Research Centers, environmental research centers, engineering research centers and other grants and contracts that entail assembling and managing teams of investigators from a number of institutions.

• Projects that involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature, and reporting.

• Projects whose principal focus is the preparation and production of manuals and large reports, books and monographs (excluding routine progress and technical reports).

• Projects that are geographically inaccessible to normal departmental administrative services, such as research vessels, radio astronomy projects, and other research field sites that are remote from campus.

• In addition, even when a project meets these criteria, the work must be conducted outside of the staff member's normal 40 hour work week (evenings, weekends, holidays or vacation days) in order for that person to receive the supplemental pay.

For more information on reassigned time and supplemental pay, please refer to the official regulation, located here.

The official University policy on consulting is available here.

FRINGE BENEFITS 

Fringe benefit charges are assessed to cover costs such as retirement benefits, health insurance, FICA and Medicare taxes and unemployment compensation. Fringe benefits are calculated by multiplying the fringe benefit rate by the salary requested for each individual. When developing a budget that includes personnel, make sure to include the appropriate fringe benefit rate. The current University fringe benefit rate chart is available here.

EQUIPMENT 

According to OMB Circular A-110, which sets forth uniform administrative requirements for federal grants and agreements with institutions of higher education, the term “equipment” refers to “tangible personal property having a useful life of more than one year and a unit acquisition cost of $5,000 or more per unit.” Even though the University has different definitions for equipment (click here), it is important to adhere to the federal definition when preparing a budget. All federal agencies (and many private ones) do not allow indirect costs to be charged on equipment.

TRAVEL 

Travel costs related to the sponsored program for the PI and project staff are allowable expenses. Refer to the University’s Travel Policies and Procedures Manual for specific information.

OTHER DIRECT COSTS 

Materials and Supplies 

Materials and supplies include variety of consumable items such as chemicals, glassware, small electronic components, computer software and more. General office supplies are considered to be part of the indirect costs of conducting a project, so they should not be charged as a direct cost on a federal award. However, just as in paying supplemental salary to staff, some extenuating circumstances would include:

• If the purchase of these and similar products relate specifically to the technical substance of the project

• If the nature of the work performed under a particular project requires an unusually high level of such costs

Publication/Dissemination  

Any cost(s) associated with the publication of a research article based on your funded project, or dissemination of any results gained from the project.

Consultants  

Many sponsored projects necessitate the use of an external consultant for a variety of services. The University does not have a standard consultant rate. An individual may be paid according to the customary scale for a particular field and level of expertise. It is important to specifically name your consultant in the budget – doing so will simplify the process of paying the consultant should the proposal be funded.

Subawards  

Proposals may include work to be done at one or more other institutions. In these cases, the other participating institutions will be subrecipients under the University’s award. When a subaward has been prepared as part of a larger proposal, the total yearly cost for the subaward is included as a line item in MSU’s budget.

FACILITIES AND ADMINISTRATIVE COSTS (INDIRECT COSTS) 

Similar to the overhead costs of a business, facilities and administrative costs (or “F&A,” as it is commonly called) are the basic expenses associated with carrying out sponsored projects but are difficult to quantify with respect to any given project. For example, heat, maintenance, building depreciation, administrative expenses and library use are all F&A costs.

F&A is recovered on proposals by multiplying the sponsor’s indirect cost rate by the appropriate direct cost base and including that figure in the total cost of the budget. Unless the potential funder has its own specific guidelines for F&A, all budgets will request the University’s federally-negotiated F&A rate, which is currently 24% of Modified Total Direct Costs (MTDC), which excludes equipment, tuition, and subcontracts beyond the first $25,000 of each individual contract from the base. MSU’s official regulations on F&A Costs are available here.

Funds accumulated through F&A are distributed according to a distribution plan developed cooperatively between the Office of Research and Sponsored Programs, the Office of the Provost and Executive Vice President for Academic Affairs, and the Office of the Vice President for Planning, Budgets and Technology. A copy of the distribution plan is available here.

BUDGET JUSTIFICATION 

Not to be overlooked is the budget justification (sometimes referred to as the budget narrative). The budget justification is the narrative in a proposal that provides additional detail on line items in the budget. Sections should be included for Personnel, Equipment, Travel and any other budget categories that may require explanation. If the budget includes costs of normally unallowable items, these must be justified explicitly. Equipment expenses also require careful delineation, since the sponsor approves individual line items in this category.

It is important to approach the budget justification in the same manner you would your proposal narrative – be clear, concise and provide rationale where needed.