The major goal of the proposal budget for Horizon 2020 is to show to EC and potential investors how much money a project will cost and if those costs adhere to guidelines. Find out how to do it in the best way, read on this article!
The proposal budget constitutes the cornerstone of the grant application package for EU’s Horizon 2020 funding programme (or the upcoming Horizon Europe), as it outlines the submitted project in fiscal terms and shows to the reviewers how the project will be conducted, from a financial point of view. Budget information about activities planned and personnel provides reviewers with an in-depth picture of how the project will be structured and managed. Budget details usually reveal whether a proposed project has been carefully planned and may ultimately be feasible. The proposed budget must give an accurate assessment of all cost items and cost amounts that are deemed necessary and reasonable. In the current article, we intend to demonstrate a brief, but efficient, guide of how to calculate your project’s budget, along with some tips, aiming to cover both collaborative (e.g. Innovation Fund, Thematic Priorities) and single partner EU projects (e.g. EIC Accelerator).
What kind of costs can be covered by the EU grant (eligible costs)?
Before start calculating the budget, it is crucial to study the categories of eligible costs. Including a non-eligible cost in your budget may significantly harm your projects and the chances to have it funded. Although, the eligible costs may slightly vary between the various funding programmes, the two main categories are:
1. Eligible direct costs
These costs need to satisfy the eligibility criteria of each funding programme. In particular, they split into the following categories:
Personnel or staff costs (PCs)
These costs usually have the largest share of the overall budget. Especially in projects where there is not a physical product development (e.g. mobile applications, IT related projects) PCs can constitute up to 60 or even 70% of the total budget. Even though there is not a specific threshold for the maximum share, it is important to present a realistic and balanced distribution of these costs. To calculate PCs you need to define two specific parameters:
- The total number of Person Months (PMs) the applicant (or each partner for collaborative projects) would need for the project’s execution. One PM means that the applicant will need to have an employee, working full time for one month (or two employees working half time, etc.). This definition may seem redundant, but the misinterpretation of what a PM actually is consists a quite common mistake in such applications. We will explain below why.
The number of PMs that will be needed for each Work Package (WP) of the Work Plan will be defined by the workload of each task and from its respective duration. A very common mistake applicants do is to distribute a very high number of PMs for a task, aiming to achieve a higher budget (for instance, having 50PMs to deal with the project management or with administrative tasks of a 2-year collaborative project, means that the beneficiary will need to have two employees, working full-time for 24 months, for the project management needs of the submitted project ONLY; this is not realistic at all, considering that not only there will be project management gaps in the timeline of the project, but all partners will need to dedicate some PMs for the project management).
Calculation tip: An easy and efficient way to calculate the number of PMs is to add a relevant column in the GANTT diagram (usually a requirement of the Horizon funding programmes). This will allow you to have the overall picture of the personnel effort of you project and avoid overloading tasks with unnecessary PMs. This is quite helpful in collaborative projects.
As such, defining the needed roles of your personnel (e.g. R&D, engineer, developer, administration personnel, sales people, project managers) for each task and connect them for to the relevant WP(s) can lead to a realistic and accurate calculation of the PMs that will be needed from each applicant.
- Salary per person per month. Here we talk for the gross salaries of the employees (including additional charges such as payment to social insurance bodies, among others). These salary costs shall not extensively exceed the rates corresponding to the usual remuneration policies of the applicants, as in case the project is funded, time sheets and payslips need to be provided to justify these costs, among others. An important note here is that the average salary per PM massively depends on the location (country) of each application (the average salary in Benelux and North Europe for instance, is quite higher compared to the Mediterranean countries). As such, high range of PCs costs are quite common in collaborative projects, where multiple entities from all over Europe are involved.
Calculation tip: Create and excel tab and add the following additional parameters next to each employee: dedication (in %), total duration of assigned tasks (in months) – multiplying those two you can get the total number of PMs for each employee for the whole project. By adding another column with the monthly salary cost you can easily calculate the total personnel costs per employee category (e.g. technician, director, sales, etc.)
At this point, it is important to mention that personnel costs only apply to official employees of the applicant companies. Payments to other individuals such as external consultants or advisors apply to subcontracting costs or third linked parties (e.g. employees of the sister/mother companies)
For single partner projects, trips for dissemination purposes (attend exhibitions, exhibit in fairs/conference) need to be included, as this will validate the dissemination strategy of the applicant. Nevertheless, these costs vary depending on the nature of each project (e.g. trips for clinical trials for health related projects or for field tests for agricultural projects). For collaborative projects, at least two to four meetings per year between the consortium members also need to be included.
Tip: Do not forget that we are in the middle of the Covid-19 pandemic. Thus, it is very important to realize that most of these trips (e.g. consortium meetings) will take place telematically. Very high travel costs may not be favoured by the evaluators.
These costs can have a significant share in industrial projects, where machinery needs to be developed, tested and constitute the final product of the project. Although, the cost of buying machinery for the scope of the project is fully eligible, the EU grant justifies this expense ONLY for the duration of the project, thus the calculation of amortization is needed.
Calculation tips: In the excel document, you can create the following columns for each equipment type of expense: (a) cost per item, (b) amortization time (e.g. in years), (c) usage for the project (in %) and (d) use time in project (again in years). With the following simple formula, you can have the real cost for each piece of equipment in your project: (a / b) * c * d
Other costs & services
This includes any other costs related to the project, such as consumables (e.g. online/offline promotion material, packaging, audit certificates, patent management costs, project management software etc.). Splitting this costs into subcategories (e.g. materials, consumables, computing, IPR, services, other costs) is also an option for bigger, more complex project (e.g. project with big consortiums of more than 10-15 partners) to ensure a better cost management.
A very important cost category that needs specific attention as it can severely harm the project’s chances are the subcontracting costs to third entities, not legally bind with the applicant. Here, it is important to note that: (i) the applicant is the sole responsible for carrying out the input a subcontractor will bring into the project; (ii) subcontracting may not cover core tasks of the project. This is a common mistake, especially in single partner projects. The reason that evaluators will not favour (and in most cases the proposal will fail either in the initial evaluation or in the interview process) this parameter is mainly due to the high level of dependency on the project’s success to an external entity; and (iii) it is advisable that the total subcontracting costs do not have a share higher than 15-20% of the overall project’s budget.
2. Eligible indirect costs
Indirect costs function in connection with the eligible direct costs. The percentage of these costs is fixed and it can vary, depending on the programme, but it can reach up to 25% of the aforementioned direct costs. On a good note, detailed justification is not needed and as such, many entities use them to cover expenses that cannot be easily justified (e.g. success fee of consulting companies that undertake the proposal submission process.
A final important point for the budget calculation is related to collaborative projects in general. The nature of these projects is for partners to collaborate with each other; this is something that they need to take into account during the calculation of PMs and budget activities, especially in tasks that other partners are also involved.
The practices and tips mentioned above can constitute the base to start the budget calculation of your project, as well as saving significant time and ensure a more efficient budget distribution among activities and/or partners.
Panos Antonopoulos, Innovation Consultant
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