The assembly of an R&D budget is a complicated process, often involving inputs from multiple organizations and/or departments. It also involves getting approvals from supervisors, from supervisors’ supervisors, and from other people with whom you may not work outside budgeting times.
There are multiple factors involved in creating an R&D budget, from revenue growth to operating costs to capital requirements and — not least of all — administrative support. Most components in an R&D budget require input from other areas where people have specific expertise. That expertise is essential for obtaining accurate data that will hold up to final “down the road” analyses and management approval. Guesswork and rough estimates will not work in the creation of a detailed R&D budget, no matter the size of the organization or the bottom-line final budget.
A starting point for an R&D budget is an evaluation of previous R&D budget submissions, an investigation of the comments provided at the time, and the final results and analysis. There is no need to recreate the wheel–previous budgets are an excellent place to start.
A secondary area to evaluate is a breakdown of the overall components. The capital requirements, for example, are often created by specific divisions within the overall organization. These divisions will have details on how monies for specific capital are obtained, which often depends on the amount of the allocation required. They will also know how the capital is itemized and labeled for legal and tax purposes. A whole new research lab is entirely different than a magnetic resonance imaging instrument, yet both are large capital items that require extensive manufacturing and research engineering support.
Some organizations are more capital intensive than others and often the capital budget will be written separately from the R&D budget. Except for specific situations, such as instrumentation, what is capitalized and what is not capitalized should be left to those who are supremely experienced in it, as the rules and regulations can change annually. Capital also is defined differently between organizations, but it is generally one of the three factors of production, the other two being labor and land.
Other mostly independent financial factors in the R&D budget — such as revenue growth, operating costs, inflation, and the general economy’s effects on the R&D budget–are often delegated or heavily supported by the organization’s financial and accounting divisions. The organization’s R&D budget is often an interactive “live” document which requires extensive discussions between all parties, especially among R&D personnel who most-often have “corporate” ownership of the document and budget.
Manufacturing, for example, is often responsible for pilot production of a new device or process. Yet, that function will rely on technical R&D personnel to provide detailed information on new materials, energy requirements, safety issues, regulatory concerns, sustainability potential, and legal ownership, among many other items that the manufacturing personnel (or most other organizational divisions) will not understand or be able to accurately address.
2020 R&D concerns
When it comes to technology concerns, insufficient time, money and staff for R&D are still relevant, only more so. Items of concern in 2020 that are either new or substantially greater than in previous years include increased sustainability requirements, dramatically increased environmental and potential health issues — both short- and long-term; and the continuing and increasingly restrictive skilled staffing shortages. Entire countries and governments are committing to environmental energy and materials usage requirements that, up to now, had not even been discussed. And the deadlines for these changes is increasingly short-term, with some regions targeting 2030 as a deadline for becoming carbon-neutral.
Always a concern for R&D is the shortening life cycles of technologies. R&D organizations have consistently been accused of taking the shorter route to new development because this path is easier and requires fewer resources. This premise may be valid, but the alternative — working on technologies that are more complex — has the disadvantage that once developed, they may be out-of-date technologically and no longer competitive.
The “half-life” of new technologies shortening and researchers must factor that reality into their research plans. Another concerning facet of new technological development is that new technology, once fully developed and put into production, may have unforeseen negative effects or failure-modes. Researchers are notorious for pushing the limits of materials and stretching design capabilities.
Aging infrastructures are another R&D concern, and here economics often rears its ugly head. Often failures result from a lack of maintenance and inspections, as in bridge structures.
R&D funding effects
Surely, technology issues can affect R&D funding, especially when the technology development is not completed on time or within expected limits. According to the 2020 Global R&D Funding Forecast reader surveys, new technologies are the biggest issue that could affect R&D funding. Close behind are the organization’s R&D strategy and overall growth. All three, individually or in concert, could work to boost R&D funding.
When preparing an R&D budget, contingency plans or budget allocations should be provided for losses of R&D funding resources that were not expected or planned. A failed piece of essential equipment, the closure of a valued supplier, or the disruption of a needed facility can all be expensive-to-remedy losses for the R&D work flow.
This article is part of R&D World’s annual Global Funding Forecast (Executive Edition). This report has be published annually for more than six decades. To purchase the full, comprehensive report, which is 58 pages in length, please visit the 2020 Global Funding Forecast homepage.