1. M ODULE 3 Consolidating Work Plans and Budgets 1 REGIONAL GLOBAL FUND GRANT CONSOLIDATION WORKSHOP DATE

2. 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 2

3. SESSION I: OVERVIEW R ECAP 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

4. 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 4

5. GROUP EXERCISE Workplan consolidation 5

6. 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 TA 6 SESSION II: KEY BUDGET CONSIDERATIONS IN MOVING TO SSF

7. 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 7

8. 8 I LLUSTRATION : F UNDS AVAILABLE FROM CONSTITUENT GRANTS Rd 6 Rd 9 Rd 10 10 6 9 5 RoundGA 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 Agreement Amount C= B-A Round 61041.210-4+1.2=7.2 Round 96+9=154=9*10% =0.915-4-0.9=10.1 Round 1055 Totals3080.922.322.3-1.2=21.1 The funds available for commitment may be subject to efficiencies or limitations based on Boardpolicies Consolidated grant period

9. 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) 9 3.DETERMINING AVAILABLE FUNDS:BORROWING FROM YEAR 3

10. 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. 10

11. 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. 11

12. B UDGET 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?? Retain proposal targets 12

13. 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. 13

14. C ONSOLIDATING DETAILED BUDGETS : G UIDING 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. 14

15. 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. 15

16. SESSION III: ADDRESSING GENERAL AND DETAILED ASSUMPTIONS C ONTINUED... 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 16

17. SESSION III: ADDRESSING GENERAL AND DETAILED ASSUMPTIONS C ONTINUED 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); 17

18. Example of a detailed assumption: unit cost of refresher education training in Lesotho (Multi-Yr) Conduct refresher training for district-level sports officers DescriptionUnit costDays# of PersonsTotal cost Facilitators per-diem $1,157.6332 $ 1,389.15 Participant re-imbursements $ 114.13320 $ 6,847.92 Hall hire $ 71.333N/A $ 214.00 Stationery $ 17.36N/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

19. 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 19

20. 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. 20

21. GROUP EXERCISE Budget consolidation 21

22. U SEFUL R ESOURCES 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.orgARCinbox@theglobalfund.org 22

23. MODULE 3 BACKUP SLIDES 23

24. G ROUP E XERCISE : 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

25. EXAMPLE OF BUDGET SUMMARY BY COST CATEGORY Summary budget by cost category Year 1Year 2Year 3Year 4Year 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 25

26. E XAMPLE OF BUDGET SUMMARY BY SERVICE DELIVERY AREA (SDA) Summary budget by Service Delivery Area (SDA) Year 1Year 2Year 3Year 4Year 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 26

27. D ETERMINING THE MAXIMUM AMOUNT Undisbursed amount from existing grants Plus Board approved amount of new grants Plus “Free” cash from constituent grants Less Efficiencies or limitations as dictated by Board decisions and operational policies Less Expected 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. 27

28. E XAMPLE : D ETERMINING FUNDS AVAILABLE THROUGH C ASH BALANCE Calculate the expected cash balance as of date of consolidation → Use best estimate for PR and SRs 28

29. E XAMPLE : J USTIFY USE OF CASH BALANCE Clearance of past liabilities/Commitments→ Will not be available for SSF activities 29

30. C ASH BALANCES : F UNDING ACTIVITIES UNDER THE NEW SSF GRANT ( SAVINGS ) a.Originally planned activities → Will not be reflected in the budget Budget amount GA amount b.Reinvestment of savings to scale-up activities should be reflected in the budget Savings may only be used to increase top 10 indicators targets and should be within the original scope of activities. 30

31. O THER 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. 31

32. G ENERAL A SSUMPTIONS ’ BUILDING BLOCKS : 1) I NFLATION, E XCHANGE RATES & U NIT COSTS Service and Commodity Costs Descriptio n Unit Cost - 2010 Price inflation calculations Inflation assumption:5.0% Y1 - 2011 Y2 - 2012Y3 - 2013Source notes: ZAR US$ Exchange Rate Rand/Doll ar 0.13 1.00 Standard 6-month review of FX ZAR:US$ rates, Jan-June 2010 Country x costs Training transportation allowance Per trainingR 123.91 $ 16.30 $ 17.12 $ 17.98 $ 18.87MoF Global Fund Coordinating Unit Stationery Per trainingR 123.91 $ 16.30 $ 17.12 $ 17.98 $ 18.87MoF Global Fund Coordinating Unit Hall rental - <=25 peoplePer dayR 516.31 $ 67.94 $ 71.33 $ 74.90 $ 78.64MOHSW Procurement Unit Hall rental - >=25 peoplePer dayR 670.32 $ 88.20 $ 92.61 $ 97.24 $ 102.10MOHSW Procurement Unit Hall rental - >=100 peoplePer dayR 837.90 $ 110.25 $ 115.76 $ 121.55 $ 127.63MOHSW Procurement Unit 32

33. G ENERAL A SSUMPTIONS ’ BUILDING BLOCKS : I NFLATION AND E XCHANGE RATES – N OTES 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. 33

34. G ENERAL A SSUMPTIONS ’ BUILDING BLOCKS : I NFLATION AND E XCHANGE RATES – N OTES 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 34

35. G ENERAL A SSUMPTIONS ’ BUILDING BLOCKS : I NFLATION AND E XCHANGE RATES – N OTES 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 35

36. G ENERAL A SSUMPTIONS ’ BUILDING BLOCKS : 2) C URRENCY 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 36