1.5.3.3 Estimation of Project Budget -

Determination of Funding Sources

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The Project Budget includes a reasonable estimate of the financial support required to conduct the project, including justification of budget expenses. How much will have been spent for a project until it is completed depends on various direct and indirect costs occurring in all phases of project lifecycle.

The common categories of direct costs (expenses which can be specifically identified for a particular project) are:

personnel (salaries, wages, allowances & fringe benefits)
materials & equipment (premises, furniture, office equipment, machines, tools, vehicles, etc)
travel (transportation, accommodation, per diems, etc)
external advisors/ consultants (providing expertise and technical support such as elaboration of feasibility studies, etc)
maintenance costs, if it is included in the scope of the project (regular and irregular maintenance/ service of infrastructure, equipment, vehicles, etc)
training, if required (training material, lecturers, rent of venues, per diems)
cost for acquiring goods, services or works (procurement costs, contracting fees)
contingencies (cost to cover risks and related unforeseeable expenditures; high risks identified in the risk assessment may entail substantial allocation for this line item)

The indirect costs are those incurred through common activity and, therefore, cannot be specifically identified for a particular project. The most typical example of indirect costs is the overhead costs of the implementing agency (e.g electricity, water, heating, telecommunications, office rental and maintenance, administration support).

Taking all considerable cost elements together, the project designers shall develop a provisional project budget, including estimations and forecasts on the most relevant expenditures to be expected. In addition they should identify the sources from which the project will be funded and the contribution of each source to the financing of the project. Attention should be paid in case of EU co-funded projects, where the costs which are not eligible for funding (e.g. salaries and wages of public servants are not eligible expenses) should be excluded from the project budget.

A simple form, which can help project designers to calculate the provisional project budget and determine the funding sources, is presented below:

Tool 1-6: Calculating the Provisional Project Budget & Determining the Funding Sources

COST ANALYSIS

UNITS

COST/UNIT (€)

TOTAL COST (€)

1. Project Initiation Costs

1.1 Personnel (involved in the project design i.e. Project Fiche, Technical Drawings, CBA, Feasibility Studies, etc.)

 

 

 

1.2 Material & Equipment (e.g. stationary, other consumables)

 

 

 

1.3 Travel (e.g. for market research, interviews, site visits)

 

 

 

1.4 External advisors/ consultants (e.g. Project Fiche, Technical Drawings, CBA, Feasibility Studies, etc.)

 

 

 

1.5 Contingencies

 

 

 

1.6 Overheads/ Administration costs

 

 

 

1.7 Other (e.g. surveys, pilot projects, prototypes, etc.)

 

 

 

 

SUBTOTAL 1:

 

2. Procurement Costs10 [ Costs associated with the tendering process i.e. procurement planning/strategy, preparation of tender documents, tender announcement, tender evaluation, contract award. For more details refer to subchapter 1.8.3 "Procurement Costs". ]

2.1 Personnel (involved in the procurement process e.g. preparation of Tender Documents, participation in Evaluation Committees, etc.)

 

 

 

2.2 Material & Equipment (e.g. stationary, other consumables)

 

 

 

2.3 Travel (e.g. market research, interviews, site visits)

 

 

 

2.4 External advisors/ consultants (e.g. Preparation of Tender Documents, legal advice etc.)

 

 

 

2.5 Contingencies

 

 

 

2.6 Overheads/ Administration costs

 

 

 

2.7 Other (e.g. publication expenses)

 

 

 

 

SUBTOTAL 2:

 

3. Project Execution & Control11 [ Costs associated with the production of deliverables (e.g. supply of goods, delivery of services, performance of works, etc.) and project & contract management. The cost estimation should be made separately for each activity/ component (refer to subchapter 1.5.3.1 "Determination of Project Approach"). The total cost for project execution and control is given by adding up the estimated cost of each activity. ]

3.1 Activity/ Component 1

 

3.1.1 Personnel (involved in the project & contract management or/and in the production of deliverables)

 

 

 

3.1.2 Material & Equipment (e.g. construction material, usage of machinery, consumables, software licenses, etc)

 

 

 

3.1.3 Travel (e.g. site visits & inspections, meetings, etc.)

 

 

 

3.1.4 External advisors/ consultants (involved in the project & contract management or/and in the production of deliverables)

 

 

 

3.1.5 Contingencies

 

 

 

3.1.6 Overheads/ Administration costs

 

 

 

3.1.7 Other costs (e.g. communications, publicity actions, cost of capital, tax, etc.)

 

 

 

3.2 Activity/ Component 2

 

3.2.1 Personnel

 

 

 

3.2.2 Material & Equipment

 

 

 

3.2.3 Travel

 

 

 

3.2.4 External advisors/ consultants

 

 

 

3.2.5 Contingencies

 

 

 

3.2.6 Overheads/ Administration costs

 

 

 

3.2.7 Other costs

 

 

 

3.3 Activity/ Component 3

 

3.3.1 Personnel

 

 

 

3.3.2 Material & Equipment

 

 

 

3.3.3 Travel

 

 

 

3.3.4 External advisors/ consultants

 

 

 

3.3.5 Contingencies

 

 

 

3.3.6 Overheads/ Administration costs

 

 

 

3.3.7 Other costs

 

 

 

3.x Activity/ Component ………..

 

 

SUBTOTAL 3:

 

4. Project Closure

 

 

4.1 Personnel (involved in the closure of the contracts, the evaluation of project performance, etc.)

 

 

 

4.2 Material & Equipment (e.g. stationary, other consumables)

 

 

 

4.3 Travel (e.g. site visits & inspections, meetings, etc.)

 

 

 

4.4 External advisors/ consultants (e.g. technical support for project & contract closure, legal advice, evaluation of project performance etc.)

 

 

 

4.5 Contingencies

 

 

 

4.6 Overheads/ Administration costs

 

 

 

4.7 Other costs (e.g. communications, publicity actions, etc.)

 

 

 

 

SUBTOTAL 4:

 

 

TOTAL BUDGET:

 

 

FUNDING SOURCES

% CONTRIBUTION

AMOUNT (€)

Funding Agency (own budget resources)

 

 

EU Funds

 

 

Grants/Loans

 

 

Other contributions (e.g. Private Funds)

 

 

 

TOTAL FUNDS:

 

Note: The Total Budget must be covered by the Total Funds.

You should not lie when calculating necessary project budget. Some project owners show an irresponsible optimism (or shall we say: they are lying) when estimating lifetime and/or initial cost of some prestigious project just to have it approved. It is true: once an important project has started it is almost impossible to stop it.  But such light-hearted optimism doesnt pay off. It is not worth the experience, because heavy cost overrun is bad for the reputation and for more important investment in the future.

What is important in this regard is the need to plan and control the project related costs sometimes over several financial (budget) years. Some projects are co-financed and funded from several budgets. This may limit the possibility for budget revisions, i.e. shifting funds between budget lines. It is worth mentioning that funding may influence the applicable procedures to incur expenditures.


© 2007 Republic of Cyprus, Treasury of the Republic, Public Procurement Directorate
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