Overhead costs refer to those expenses that are required by the organization to run its operations and they do not cover any direct expenses of project activities. However, they still form a part of many project budgets.
Overheads can include office rent, telephone expenses, accounting fees, salaries to the organizational staff, repairs, supplies, travel etc. During the recent years, overheads have become an extremely issue for donors. The less you talk about it, the better but for smaller organizations without strong financial background, the overheads are an important issue.
The question is now whether to include overheads or not in your project budget?
You should first refer to the proposal submission guidelines to find out if the donor agency allows you to include overhead or at least administrative expenses in your project. Some donors will only fund activities and will put a condition to grantees that they should not directly propose overheads to them or they should source this type of expenses from elsewhere.
If the donor does allow you to include overheads in the project budget, you can feel a bit relieved. However, now almost all types of donors want NGOs to specify a certain percentage of the overall project budget for overheads. In most cases, it should be 10%-15% but not more than that. Even if you mention it more than 10%, then you need to provide enormous justification.
Suppose your project is located in a very tough geographical landscape such as in remote mountains and you require spending lot of time and resources on traveling, then an overhead expense above 10% is justified. But in most cases, where project conditions are easier, you should not request more than 8% of overheads.
Also, once your project is approved, there may be some scope for revising budgets, you can directly negotiate with the donor for slightly increasing the overhead costs.
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