Lecture 3. Honing a budget
Preparing a budget is one thing, honing it so that it is as accurate as possible is a second activity!

 1. Estimating with accuracy

You can’t predict the future with 100% accuracy but you can share the risk and you can have a contingency plan.

A budget is an estimation of future costs. As with any forward planning it is impossible to do this with 100% accuracy. However there are ways of minimising mistakes so that any changes between budget and reality impact the project as little as possible. Here are some top tips.


  • Work out what the minimum is you need to cover the costs of the project.

  • Agree with your colleagues as to whether all this money will come from your organisation or whether some will come from partners; whether all the money will come from a single funder or from a mixture of funders; whether all the money will come from a grant or whether you expect to have earned income as well e.g. ticket sales

  • Compare the mix of grant funding versus earned income to similar past projects or similar organisations to double check that your goals are realistic. For example if the average percentage of a projects total cost that can be achieved from private donations is in the region of 5-10% of project cost it would be risky if you budgeted for a figure of say 30% of project cost.

  • Work out when the income will come in to the project and whether you can bring in any of the money before you start spending it on the project e.g. if you are winning grant funding you should secure this before starting a project, if you are paying for the project by selling tickets can you sell tickets in advance rather than wait until if launches e.g. are taking pledges of money in advance and only publish the book once a minimum level of commitment has been reached.

  • If several parties are responsible for bringing in the project income is it clear who has responsibility for each type of income source? Does each partner have a target? How will you keep track of progress by each partner in achieving this income?


  • Establish whether there are any costs you need to incur in order to win the funding of the project and determine how these will be paid for and whether the project budget needs to include money to pay them back to the organisation

  • When working with people who are not employed by your organisation (e.g. artists) discuss how many days work are involved and what the daily rate is that you are willing to pay and they are willing to accept. Formalise this in a written document so that all parties know what is expected of them. Agree what costs on top of the time commitment will be covered by a project budget and whether the organisation or the artist will book them e.g. travel, accommodation, materials, fabrication, insurance. Where possible turn this into a contract that both parties sign. Also agree when payments will be made to externals as this impacts your cashflow and enables you to ensure that deliverables are achieved.

  • When working with partners again agree in advance which organisation is responsible for each of the project objectives and who is liable for the costs involved.

  • When contracting external services e.g. equipment hire obtain quotes from three different providers so that you can demonstrate that you have awarded the work to an external who provides the right mix of quality and cost efficiency.

  • Decide whether your contracts need a clause in which recovers money which has been paid to a supplier if they fail to deliver to the agreed standard or by the agreed date. Who would be liable if you couldn’t recover the monies and had to pay a second supplier or a funder refused to pay for elements that were not delivered to the agreed standard?

  • Look at past projects and see where there are comparable costs and use this as your starting point.

  • Make sure you have included all the necessary indirect costs. What contribution to the running costs of the organisation to cover things like electricity, insurance and cleaning do you need to add?

  • Put in a contingency figure of 3-7% of total project costs. There are bound to be unexpected changes as the project progresses which you simply can’t foresee at the start so put money aside to cover these.

2. Budgeting when another organisation is involved

Not all projects are run and delivered by a single organisation; indeed there may be several partners.

In these circumstances there are a couple of things you want to clarify early on. Firstly you need to agree who is the ‘lead’ organisation and how do their responsibilities differ? Usually the lead organisation holds ultimate responsibility for the budget and the deliverables. This means that the core funding from the main source will usually be channelled through the lead partner and it is often the lead partner who provides any systems required for financial management for the project overall and ticketing systems to manage sales.

If individual partners are responsible for finding ‘match’ funding then this might be brought straight into the project budget of a single partner.

If you are the lead partner you need to ensure that not only is there sufficient budget to cover the ‘direct’ costs of the activities you are responsible for but also for the ‘indirect’ costs such as marketing, admin, financial management, insurance etc.

Irrespective of how a project is cash-flowed you should agree in advance the timings of payment against deliverables. This is particularly critical when dealing with small organisations where cashflow is often fragile.

As a lead organisation you will be responsible for compiling the budgets provided to you by all the partners and ensuring that you meet the terms of the core funder. It is also likely that you’ll be responsible for the compiling of the paper trail for audit purposes.

3. What are ‘in-kind’ costs and how do you take account of them in a budget?

You may hear colleagues and funders talking about ‘in-kind’ costs so lets go over what these are and how to handle them.

When goods or services are provided as in-kind it means that you are not paying cash for them at the point at which the transaction occurs. For example an arts organisation might make an in-kind contribution of time from its volunteers – nobody is being paid cash but the time has a value which should not be ignored. Other examples of in-kind include:

  • Rooms and spaces given to the project but with no rental charge being made by the organisation that owns them

  • Provision of admin and finance capability to run the project by a larger organisation who doesn't make a charge for doing so

  • Gifting of materials by a supplier

How then do you ascribe a value to this sort of contribution?

Some funders will have what is essentially a ‘rate card’ which describes the skill level of the work and puts a price to it that you can use for accounting purposes. In other circumstances you can value the contribution at what it would have cost if you had had to pay for it – venues that you are gifted based on goodwill but which would otherwise charge a fee per hour or per day.

Some types of funding will allow you to ‘match’ the cash they provide with ‘in-kind’ from your side. This is useful if you only have limited cash match funds to offer.

The key question to ask is ‘is there a role for in-kind in my budget and if so where are the areas where it is applicable?’

It is worth keeping in-kind separate from cash when preparing a budget. It is also worth agreeing a process for demonstrating that the in-kind contribution happened. For example if you are running a workshop or conference where the tickets are free you might want to claim the participant time as an in-kind contribution. You might also claim the speaker time contribution if you are not paying them a fee.

So now you can:

  • Estimate costs more accurately

  • Have a good idea of where the contingency might be needed

  • Compare your approach to previous similar projects and their budgets

  • Obtain quotes from competitive suppliers

  • Agree costs in a contract

  • Partner with other organisations on joint projects

  • Account for in-kind costs and add them to your budget as ‘match’ funding

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