Research Common

In accordance with the Red Deer Polytechnic Research Grant Management Procedure (General Fund Administration, item 4), all research grant project budgets must include indirect costs of research unless these costs are specifically prohibited by the funding sponsor.

Indirect costs of research, also referred to as overhead, are real costs that Red Deer Polytechnic incurs in support of research. These costs are operational in nature and institutionally based. That is, indirect costs are not the result of any one research project or grant but are necessary for research to occur at RDP. Indirect costs include, but are not limited to:

• facility operations such as contracted services (janitorial, security, etc.), utilities, and space/equipment maintenance;
• institutional support services such as Financial Services, Office of Research & Scholarship, IT Services, and People & Culture;
• academic support services such as library resources and school administration staff;
• amortization of capital assets;
• insurance;
• ongoing certification and regulatory requirements (e.g., human ethics, animal care, biosafety);
• environmental, health, and safety monitoring; and
• hazardous waste disposal.

Direct costs of research are the expenditures required to meet the needs of a specific research project or research activity. These costs would not be incurred if the project or activity were not undertaken. Direct costs can include, but are not limited to, the following categories:

• salaries and benefits (students, research assistants, technical/professional staff, etc.);
• operating and equipment (e.g., computers, software, research equipment, training staff to use equipment);
• materials and supplies (e.g., consumables necessary for the research);
• knowledge dissemination/translation and knowledge mobilization (e.g., publications, conference attendance); and
• research and technology transfer support (e.g., commercialization, protections for intellectual property).

When the funding sponsor permits indirect costs (overhead), use the maximum rate permitted for the grant. If the sponsor permits indirect costs but does not specify a rate, use a rate of 20%.

Note: The Tri-Agencies (SSHRC, NSERC, CIHR) generally do not allow the inclusion of indirect costs in a budget because indirect cost recovery is available through the federal Research Support Fund (RSF). A notable exception is the College and Community Innovation (CCI) Program, which does permit indirect costs as an eligible expense.

Indirect costs are not always calculated using the same method; thus, it is crucial to read and abide by the sponsor's guidelines and any grant-specific requirements. Especially important is whether the maximum budget amount of the grant is inclusive or exclusive of indirect costs. Below are some examples of how to calculate indirect costs.

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Sponsor sets indirect costs as a percentage of the total direct costs (budget exclusive of indirect costs)

Example 1: Sponsor allows indirect costs at a maximum rate of 20%. If direct costs total $150,000, multiply $150,000 by 20%. The indirect costs would be $30,000, and the total budget would be $180,000.

Total direct costs x Sponsor's indirect rate (%) = Indirect costs
Total direct costs + Total indirect costs = Total budget amount to request from sponsor

$150,000 x 0.20 = $30,000
$150,000 + $30,000 = $180,000

Note: Some sponsors may not allow indirect costs as a percentage of all direct costs but, instead, limit indirect costs to certain types of expenditures (e.g., salaries).

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Sponsor sets indirect costs as a percentage of the total direct costs & the maximum budget amount is inclusive of indirect costs

Example 2: Sponsor allows indirect costs at a maximum rate of 20%. The maximum budget amount is $150,000 including indirect costs. The maximum direct cost amount is $150,000 ÷ 1.20 = $125,000, and the maximum indirect cost amount is $25,000. The budget will be limited by these two amounts — direct costs cannot exceed $125,000 and indirect costs cannot exceed $25,000.

Max. budget ÷ (Sponsor's indirect rate [%] + 1) = Total max. direct costs
Total max. budget - Total max. direct costs = Total max. indirect costs

$150,000 ÷ (0.20 + 1) = $125,000  and  $150,000 - $125,000 = $25,000
$125,000 + $25,000 = $150,000 requested from the sponsor

Example 3: Sponsor allows indirect costs at a maximum rate of 20%. The maximum budget amount is $150,000 including indirect costs. The project only requires $110,000 for direct costs. The indirect cost amount changes, and the calculation is the same as Example 1.

$110,000 x 0.20 = $22,000
$110,000 + $22,000 = $132,000 requested from the sponsor

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Sponsor sets indirect costs as a percentage of the annual grant amount & the maximum budget amount is inclusive of indirect costs (grants within the College & Community Innovation Program (CCI) managed by NSERC use this method)

Example 4: Sponsor allows indirect costs at a maximum rate of 20% of the annual grant amount. The maximum budget amount is $150,000 per year including indirect costs. A method similar to margin-markup can be used.

If Sponsor's Indirect Cost Rate Is	Direct Cost Multiplier: Multiply Direct Costs By
10%	11.11%
15%	17.65%
20%	25%
25%	33.33%
30%	42.86%

Let's say the direct costs for this project total $120,000. To calculate the indirect cost amount, multiply the direct costs by 25% according to the table above.

Total direct costs x Direct Cost Multiplier = Total indirect costs
Total direct costs + Total indirect costs = Total budget amount to request from sponsor

$120,000 x 0.25 = $30,000                                                                         ⇒     This is the same as $150,000 x 20% = $30,000
$120,000 + $30,000 = $150,000 requested from the sponsor 

a) If the direct costs decrease to $100,000, the indirect costs will change accordingly.

$100,000 x 0.25 = $25,000                                                                         ⇒     This is the same as $125,000 x 20% = $25,000
$100,000 + $25,000 = $125,000 requested from the sponsor

b) If the direct costs increase to $150,000, the maximum budget amount will be exceeded. Consequently, the direct costs must be adjusted. .

$150,000 x 0.25 = $37,500
$150,000 + $37,500 = $187,500     This total exceeds the grant limit of $150,000 — the direct costs are too high.