MODULE 3

Consolidating Work Plans and Budgets

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REGIONAL GLOBAL FUND GRANT CONSOLIDATION WORKSHOP

DATE

MODULE OVERVIEW

SESSION I: Overview

o Recap on consolidating work plans

o Purpose of annual work plans and budgets

SESSION II: Key budgeting considerations in moving to SSF

o Understanding a Detailed Budget

o Determining funds available and budgeting

o Managing budget efficiency

o Determining the absorption capacity of constituent grants

SESSION III: Addressing general and detailed assumptions

o Group Work

SESSION IV: Key messages

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SESSION I: OVERVIEW RECAP ON CONSOLIDATION OF WORK

PLANS

MATCHING: Similar goals, Objectives, SDA

RE-ORDERING: Alignment of activities

MERGING/CONSOLIDATING: merging similar activities

RESCHEDULING: re-planning the timing of consolidated activities 3

PURPOSE OF ANNUAL WORK PLANS AND BUDGETS

4. Basis for determining funds redistribution during any consolidation exercise

3. Key reference documents during discussions with various stakeholders during the consolidation process.

2. Basis for programming, re-programming, progress review and decisions on the level of funding.

1. Key funding requirement for PRs, basis for preparing the PF, M&E Plans and PSM Plan

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GROUP EXERCISE

Workplan consolidation

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1. UNDERSTANDING A BUDGET

Budget must be supported by a detailed work plan

No standard format for work plans and budget: optional template only

Budget summary shows the Cost Category and SDAs

Budget duration: for proposals still up to maximum of 5 years; otherwise budget should correspond to grant agreement duration

No fixed upper limit on size of budget, but it must relate to a comprehensive gap analysis of the NSP

No fixed thresholds for cost categories or SDAs GF recommends (not mandatory): 5-10% of budget is on M&E activities; up to 5%

on TA6

SESSION II: KEY BUDGET CONSIDERATIONS IN MOVING TO SSF

2. DETERMINING FUNDS AVAILABLE: GRANT AGREEMENT AMOUNT

Grant Agreement amount = SSF budget available - ‘Free’ cash balance

SSF budget available is the maximum of funds under previously signed grant agreements plus amount approved for Phase 1 of any newly approved but unsigned proposal less previously disbursed amounts

Free cash is disbursed grant monies that are not needed to cover pre-SSF activities and which can be rolled over to pay for post-SSF activities

These figures are essential to establish for realistic programming and budgeting of the consolidated grant

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8

ILLUSTRATION: FUNDS AVAILABLE FROM CONSTITUENT GRANTS

Rd 6

Rd 9

Rd 10

10

6 9

5

Round GA amounts/ New funds approved (RD10)

GF Funds disbursed in period

Funding limitation(Board decision)

Free cash. PR and SRs Cash on hand that will be used for SSF (A)

Maximum funds available (B)

Grant AgreementAmountC= B-A

Round 6 10 4 1.2 10-4+1.2=7.2

Round 9 6+9=15 4 =9*10% =0.9

15-4-0.9=10.1

Round 10 5 5

Totals 30 8 0.9 22.3 22.3-1.2=21.1The funds available for commitment may be subject to efficiencies or

limitations based on Boardpolicies

Consolidated grant period

The Board allows grants to also “borrow” up to 12 months of uncommitted funds (from year 3) in order to facilitate SSF

if

these funds are needed in order to align the SSF’s implementation periods to most ideal in-country cycle (e.g. fiscal, planning, etc)

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3.DETERMINING AVAILABLE FUNDS:BORROWING FROM YEAR 3

4. DETERMINING FUNDS AVAILABLE: DETAILED BUDGET CONSIDERATIONS

The detailed budget should: Be within the available funds as determined above.

Be based on the consolidated PF.

Not incorporate material changes or deviation from the original Proposals – any significant changes need to be justified.

Once consolidation date is chosen, try to stick to it: change can require a complete re-budgeting exercise.

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5. MANAGING BUDGET EFFICIANCIES

The GF anticipates that the consolidation process may release efficiency savings, although it is not intended to be a performance review similar to Phase II review.

Efficiency savings other than mandated by the Board may be re-invested into the consolidated agreement to support increased targets for “Top 10” Indicators.

Re-investment must be deemed feasible and appropriate by the PR and the GF - a request for re-allocation of funds is required.

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BUDGET EFFICIENCIES: WHERE WILL WE FIND THEM?

Contingences or over- budgeted areas

Budget efficiences / rescheduling /Synergies / Economic of scales (unit costs, targets, etc)

Favorable macro factors

Performance factors

If all else fails??

Reta

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6. ABSORBTION CAPACITY OF CONSTITUENT GRANTS

Absorption capacity should be taken into consideration in determining the right level of funding.

Determining PR absorption capacity : Calculate the budgeted vs. actual expenditure rate for each

constituent grant to check that scheduled expenditure and activities for the consolidated grant seem consistent with its previous absorption capacity.

Assess any material changes to the program environment, or any other contextual issues that could affect ability to spend under the consolidated grant.

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CONSOLIDATING DETAILED BUDGETS: GUIDING PRINCIPLES

Indicate all general and detailed assumptions

General assumptions - mainly of a macroeconomic nature

Detailed assumptions? What are they?

Similar activities and budget items from the separate grants should be amalgamated under appropriate categories to simplify reporting.

If this is not possible, similar activities and budget items should at least be grouped together.

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SESSION III: ADDRESSING GENERAL AND DETAILED ASSUMPTIONS

o The detailed budget should provide general assumptions which may impact planned expenditure, for example, inflation and exchange rates

1. Inflation rate – Any inflation factor should take account of the currency denomination of the budget item

local currency denominated items may require a different rate of inflation to foreign currency denominated items.

The relationship between the two variables, exchange rate and inflation rate, should be described in the general assumptions to the budget.

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SESSION III: ADDRESSING GENERAL AND DETAILED ASSUMPTIONS CONTINUED...

2. Exchange rates – The exchange rate used in the budget should be that which, based on available evidence, reflects the best estimate of the rate at which the PR will exchange its grant currency into local currency over the term of the grant.

The method and/or references used should be fully disclosed in the general budget assumptions.

The exchange rate may be budgeted at different rates over the term of the budget provided the assumptions behind the rates are disclosed.

No exchange rate “contingencies‟ may be included in the budget.

It is acknowledged that there will always be a margin of error when using FX rates in the grant budgeting process due to constraints in predicting the future path of exchange rates

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SESSION III: ADDRESSING GENERAL AND DETAILED ASSUMPTIONS CONTINUED

The detailed budget should provide, among others:

a breakdown of unit costs Any schemes involving the payment of incentives

using GF funds to health workers should involve reasonable unit costs considering the country context and the effort made by health worker, for example,

Time required per day, Expected results, Number of clients served, etc.

Unit costs in the consolidated budget should be harmonized and reflect the updated cost of goods and services.

Detailed assumptions should include a clear trail of assumptions backing: volume, unit cost and total amount);

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Example of a detailed assumption: unit cost of refresher education training in Lesotho (Multi-Yr)

Conduct refresher training for district-level sports officers

Description Unit cost Days# of

PersonsTotal cost

Facilitators per-diem $1,157.63 3 2 $ 1,389.15

Participant re-imbursements $ 114.13 3 20 $ 6,847.92

Hall hire $ 71.33 3 N/A $ 214.00

Stationery $ 17.36 N/A N/A $ 17.36

      Total cost 8,468.43

8,891.86

        Year 1 Year 2

        $ 9,336.45

9,803.27

        Year 3 Year 4

        $ 9,803.27

        Year 5 18

Program or work plan teams must give suitably detailed, up-to-date description of activities to allow good costing and identify possible efficiency savings

SESSION IV: KEY MESSAGES (1)

Budgeting can be one of the most complex aspects of consolidation and is critical for implementation

Budget Annex must show all general and detailed assumptions

Make certain that the consolidated budget merges similar activities from the existing budget/s

Carefully consider inflation and exchange rates and up-to-date unit costs

Ensure scheduling of expenditures and activities for the consolidated grant matches resources to targets adequately and is consistent with absorption capacity

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KEY MESSAGES (2)

Reprogramming may be sought in a wide range of circumstances PRs may need to:

o Liaise closely with the LFA to obtain necessary approvals.

o In some cases, just make changes but inform the CCM

o Seek approval of the Technical Review Panel (TRP) and the Global Fund.

The LFA may need to provide early guarantees that Board-mandated efficiency savings have been achieved BEFORE the consolidated budget is prepared.

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GROUP EXERCISE

Budget consolidation

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USEFUL RESOURCES

GF Operating Manual : Chapter 5 Guidelines on Consolidating Budget and Workplans.pdf

GF Budget Efficiency checklist.xls LFA Consolidation Assessment Report

Further information available from: Architecture webpage:

For communications, guidance materials & more

www.theglobalfund.org/en/grantarchitecture

For further questions: FPMs Architecture inbox: ARCinbox@theglobalfund.org

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MODULE 3 BACKUP SLIDES

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GROUP EXERCISE: CONSOLIDATING BUDGETS

Objective:

At the end of the Group exercise the participants will:

Have clearly identified general assumptions which may impact on planned expenditures, e.g. inflation and exchange rates.

Be able to explain the following: Organising budget items under objectives, SDAs and cost categories per quarter and per year A description of the activity, a breakdown of unit costs, a

description of detailed assumptions and quantities. 24

DRAFT

EXAMPLE OF BUDGET SUMMARY BY COST CATEGORY

Summary budget by cost categoryYear 1 Year 2 Year 3 Year 4 Year 5

Total 5 year

Human Resources

Technical and Management Assistance

Training

Health Products and Health Equipment

Pharmaceutical Products (Medicines)

Procurement and Supply Management Costs (PSM)

Infrastructure and Other Equipment

Communication Materials

Monitoring and Evaluation (M&E)

Living Support to Clients/Target Population

Planning and Administration

Overheads

Other

TOTAL

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DRAFT

EXAMPLE OF BUDGET SUMMARY BY SERVICE DELIVERY AREA (SDA)

Summary budget by Service Delivery Area (SDA)Year 1 Year 2 Year 3 Year 4 Year 5

Total 5 year

BCC - community outreach and schools            

Prevention with Positives            

BCC - Mass Media            

PMTCT            

Testing and Counseling            

Post-exposure prophylaxis (PEP)            

Condom            

Sexual and Reproductive Health            

CSS: Building community linkages, collaboration and coordination            

CSS: Advocacy, communication and social mobilization            

CSS: Monitoring & evaluation, evidence-building            

CSS: Community based activities and services - delivery, use and quality            

….            

TOTAL            

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DETERMINING THE MAXIMUM AMOUNT

Undisbursed amount from existing grantsPlusBoard approved amount of new grantsPlus“Free” cash from constituent grantsLessEfficiencies or limitations as dictated by Board decisions and operational policiesLessExpected disbursements before SSF start date

Maximum amount available for SSF grants

The budget for the remaining period does not reflect the actual funds available. Thus the calculation should be based on undisbursed funds and cash estimate.

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EXAMPLE: DETERMINING FUNDS AVAILABLE THROUGH CASH BALANCE

• Calculate the expected cash balance as of date of consolidation → Use best estimate for PR and SRs

SSF start date: 01/07/20XX

Cut-off date: 30/04/20XX

MillionCash position at cut off-date 8Less Liabilities 3Less Cash need for the activties in the period 01/05 to 30/06 1

Cash estimate at 30/06/20XX 4

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EXAMPLE: JUSTIFY USE OF CASH BALANCE

Clearance of past liabilities/Commitments→ Will not be available for SSF activities

SSF start date: 01/07/20XX

Cut-off date: 30/04/20XX

MillionCash position at cut off-date 8Less Liabilities 6Less Cash need for the activties in the period after cut-off but before SSF start date: 01/05 to 30/06 2

Cash estimate at 30/06/20XX 0

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CASH BALANCES: FUNDING ACTIVITIES UNDER THE NEW SSF GRANT (SAVINGS)

a. Originally planned activities → Will not be reflected in the budget

MillionCost of approved SSF activities 25Less Cash in hand 4Incremental amount 21

Budget amount

GA amount

b. Reinvestment of savings to scale-up activities should be reflected in the budgetCost of approved SSF activties 25Plus Cash in hand to be reinvested under SSF 4Total SSF budget 29Less Cash in hand 4Incremental amount 25

Savings may only be used to increase top 10 indicators targets and should be within the original scope of activities.

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OTHER AREAS FOR CONSIDERATION ON CONSOLIDATION

Review of consolidated budget by LFA for: Reasonableness Consistency with the proposal Guarantees that Board-mandated efficiency savings have been

achieved, BEFORE the consolidated budget is prepared - This avoids loss of budget trail on the new proposal budget before the consolidation is complete.

The consolidated budget should then clearly demonstrate the make up of all figures from the component parts.

A clear demonstration that the targets in the consolidated Performance Framework reconcile with the separate Performance Frameworks of the constituent grants.

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GENERAL ASSUMPTIONS’ BUILDING BLOCKS:

1) INFLATION, EXCHANGE RATES & UNIT COSTS

Service and Commodity CostsDescription Unit Cost - 2010 Price inflation calculations

Inflation assumption: 5.0%

Y1 - 2011 Y2 - 2012 Y3 - 2013 Source notes: ZAR US$ US$ US$ US$

Exchange RateRand/Dollar

0.13 1.00

Standard 6-month review of FX ZAR:US$ rates, Jan-June 2010

Country x costs

Training transportation allowancePer training R 123.91 $ 16.30 $ 17.12 $ 17.98 $ 18.87 MoF Global Fund Coordinating Unit

StationeryPer training R 123.91 $ 16.30 $ 17.12 $ 17.98 $ 18.87 MoF Global Fund Coordinating Unit

Hall rental - <=25 people Per day R 516.31 $ 67.94 $ 71.33 $ 74.90 $ 78.64 MOHSW Procurement Unit Hall rental - >=25 people Per day R 670.32 $ 88.20 $ 92.61 $ 97.24 $ 102.10 MOHSW Procurement Unit Hall rental - >=100 people Per day R 837.90 $ 110.25 $ 115.76 $ 121.55 $ 127.63 MOHSW Procurement Unit

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GENERAL ASSUMPTIONS’ BUILDING BLOCKS: INFLATION AND EXCHANGE RATES – NOTES

1• Any inflation factor should take account of the currency

denomination of the budget item

2• Illustrate the relationship between the exchange rate and the

inflation rate

3

• Exchange rate used should be based on available evidence, and reflect the best estimate of the rate at which the PR will exchange its grant currency into local currency over the term of the grant.

4• The method and/or references used in the general budget

assumptions should be fully disclosed.

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GENERAL ASSUMPTIONS’ BUILDING BLOCKS: INFLATION AND EXCHANGE RATES – NOTES

5• Provision for the exchange rate to be budgeted at different

rates over the term of the budget

6• Potential for margin of error when using FX

7• 200-day exponential moving average (EMA)

8• Alignment of FX rate used with GF recommended rate

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GENERAL ASSUMPTIONS’ BUILDING BLOCKS: INFLATION AND EXCHANGE RATES – NOTES

9 &10

• Possibility of exogenous event• Where country’s exchange rate is fixed or managed by the

domestic authorities

11 &12

• Exchange rate management during grant implementation• Where local regulations preclude the opening of a FX-

based account to hold grant funds

13&14

• Occurrence of FX losses• Changes to grant currency denomination

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GENERAL ASSUMPTIONS’ BUILDING BLOCKS: 2) CURRENCY DENOMINATIONS

1. Budgets finalized in USD or Euros

3. Items should not be budgeted for directly in the currency of the

grant if the underlying

transaction will be in local currency.

e.g. local currency based salaries

2. Requirement for use of currency

denominations for each grant

budget

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