4. Budget Development
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:
- Developing your budget alongside your narrative assures that the
budget items are specifically related to activities described in the
- 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
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.
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
A direct cost must be:
- 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
- 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
- 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
- The goods or services requested reflect actions that a prudent person would take under similar circumstances
- Costs must always be treated similarly under like circumstances
Major Categories of Direct Costs
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.
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
- 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.
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.
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 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
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.
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.
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.
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
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.