The program-based budget helps a nonprofit organization plan for operations in the coming year. The budget looks at when revenue is earned (an award letter received in advance of a disbursement) and expenses incurred (when the invoice is received rather than when the vendor is paid). A good budget should consist of estimated revenues, expenses and is useful in tracking actual vs. budget throughout the fiscal year. A program based budget allows for the expenses directly related to a project or program (direct costs) to be identified separately from the expenses that support the overall organization and are not allocated to a specific funding source or program (indirect costs). The Indirect costs are then allocated across programs – generally nonprofit best practices allow organizations to distribute costs in terms of Square footage and Full Time Employees (FTEs). Creating a program based annual budget will help your organization understand the full cost of operating each program.