Costing and pricing a research proposal

Costing and pricing  are the parts of the proposal development process which most often strikes fear into the hearts of principal investigators, with some justification. However all those who have been awarded research funding will have gone through this process, so there is plently of experience and advice to draw on and for most researchers there will be support from the central research or finance office. 

Why costing AND pricing?

There is a clear difference between costing and pricing. 

• The cost of a piece of research is how much it will cost your institution for you to undertake the research in question. In the UK this amount is calculated and described as the full economic cost (fEC). Details of the fEC are provided below
• The price is how much you request (or, rather, eventually get) from your funder.

You may be surprised to know that in almost all cases in the UK the price is lower than the cost. (The reason for this is historical and partly explained by what is known as the dual support system ). So the key issue for a PI is to be sure that the funds awarded will in fact cover the actual costs of the research, and this is a question that  your research office should be able to answer and reassure you about. If you have not yet spoken to your research office then now really is the time! You should find help and internal systems available to make all the necessary calculations for your proposal. If you really do need to know how to do it yourself then there are many guides and training courses available (for example, visit ARMA or BUFDG). Your own institution may offer training or guidance.

Full Economic Costing

All UK Universities are required to use a full economic costing (fEC) methodology that estimates the full cost of undertaking a piece of research; this is then used to inform the amount of money (normally less than the fEC) that will be requested from the funder.

The principles of Full Economic Costing (fEC) in the UK are detailed on the JCPSG website - below is a brief overview.

When costing research activities (ie project proposals) three main cost elements are considered:

• Directly Incurred (DI) costs, i.e. those that can be explicitly identified and recorded against a project. Examples are: a research assistant working full time on the project, equipment bought for exclusive use by the project, travel directly related to the project, materials bought for the project, etc.
• Directly Allocated (DA) costs, i.e. those that are attributable to a project, but are estimated rather than directly recorded. Examples are: the 10% of your time that you expect to spend on the project, a fraction of pool staff that you might draw on, your use of space in the building
• Indirect (Ind) costs, i.e. all the other costs of running your institution that are not directly attributable to the project, but nonetheless need to be paid for. Examples are the library, HR, finance, the vice chancellor's office, IT infrastructure.

The example below shows a simple costing based on these three elements.  Methods for calculating DA and Ind costs in particular are complrex and subject to change from time to time, so not provided here. You should consult within your institution for details of these methods should you be intending to draft your own project costing.

Example

This is a simplified example to give an overview of Full Economic Costing (fEC) and is not meant to reflect accurate costs. You should always consult your research office and use the IT tool(s) that they provide/recommend.

If you are new to full economic costing then you may well be surprised that the cost of a 3 year project with a research assistant plus a half a day a week technician and 1 day a week of the PI's time costs over a quarter of a million pounds.

Please note that the actual costs will need to be calculated to the nearest penny (or pound depending on the proposed funded) and that there are many other items that you may need to consider.

Pricing

Only when the  fEC has been calculated are you in a position to consider the pricing - that is, how much money should you ask for?

Some research funders/schemes stipulate a non-negotiable proportion of the fEC, which is helpful. Examples are:

•  UK Research Councils ( 80% of fEC)
• EC Framework Projects (75% of eligible costs [not of fEC])
• UK Charities (direct costs only)
• UK Government departments (100% of fEC).

However, these proportions can be subject to specific exceptions and rules for the particular funding schemes that you are interested in so you should always check the precise offer.

Other funders (mainly industrial and commercial bodies) will pay what they think the research is worth - this might be above or below the fEC and may depend on issues such as intellectual property rights. You should always consult your research office when pricing for non standard funders.

Before you approach a potential research funder you should consider your internal approval process.