Thursday, July 11, 2013

A quick lesson on the economics of applying for grants

A scientific system that is set up to run off of grants should make sure that the system is economically viable. If it's not sustainable, it cannot be guaranteed to run in the future.

What are the economics of applying for grants?

Under what conditions is it cost effective to apply for one?

Here's a first calculation.

Let's say a person makes $75k a year. That's about a 12-month salary for an assistant professor. That's a daily salary of $300. (Ignore costs for insurance, etc.)

Let's say a proposal takes 2 weeks to write and submit. That means it costs $3000 to submit a proposal.

If the proposal is funded, the applicant applies for 2 months of salary. $12500. For now we are going to assume they don't even have to do any work. They just get 12.5k if the proposal is funded.

Probability of being funded.
Let's assume 5%, which is about the going rate these days.

Costs = $3000
Benefit = $12,500 x 0.05 = $625

Net benefit = -$2375.

Another way to write that is that you'd have to submit 20 proposals to get $12.5K. That would be 40 weeks of work ($60k in costs)

That's a horrible business model.

Spend 60k to get 12.5k.

One way to make this more sustainable is to increase the funding rate.

That would be a funding rate of 24% to break even.

Decrease the time it takes to write a proposal?

Essentially, you'd only spend 2 days on the proposal?

These calculations don't even take into account that once you get the money, you have to do more work. Then the calculations become harder because they depend on replacement income--how much would you get for doing a different job (or how much is your free time worth).

The whole system still works because 1) people put grants in together. But that takes an average of 5 people per grant to make it sustainable. 2) Overhead subsidizes the system. The return on investment for the system is higher because the salary of the person applying for a grant is subsidized by other income derived from the grant. Overhead has to make up the difference, which means an extra $50k can be taken in per grant and paid to the person writing the grant.  If it costs 3k to write a grant with 5% funding rate, the grant has to bring in 60k for that person's salary to make things sustainable.

Take home points?

Applying for grants can be economically unsustainable.

Funding agencies would have to go with nothing more than the current short proposal that takes 2 d to write to bring things back to equitable.

Individuals would likely never write grants just for their salary. If they did, they would spend no time on it and never do the work once it was funded.

1 comment:

  1. The business model runs on the assumption that the product not produced while writing proposals is of no value or invaluable, depending on the attitude