Budget Processes

* Budgets & Projections

* Tracking expenditures (Projected vs actual)

T Forecasting " Roll-ups • Divisions

® Departments & Teams ® Product & Portfolio ® Categories & Cost centers ® Special: study, institution(site), vendor

* Flexibility

Fig. 2.18. Budgets plans (cash and or stock options), and benefits, such as health care, vacation, sick leave, retirement program, and savings plans. Training is listed separately because of its importance to the skills, knowledge, and satisfaction of employees, which directly relate to productivity, but it may be included in HR costs. Overhead pays for the building construction and depreciation and utilities. Grants are paid to investigators and institutions for all the various studies (clinical, basic science, pharmacoeconomics, pharmacokinetics, stability, etc.), con-sultantships, and educational programs, including their institutional overhead, usually 25% to 50%. Contracts are payments to vendors for various services (e.g., to clinical research organizations, site management organizations, data centers, market research, and off-site manufacturers).

Processes for budgeting are many in number and variety to meet all the operational needs of different groups. Budgeting is a critical success factor in the tracking function for R&D. We need to create a budget for each year for each product and all the R&D departments, within some corporate set of targets, dependent on expected revenues, work objectives, and operational needs. Expenditures and costs during the year are tracked for planned versus actual, which is a major operational goal for the management in any for-profit company. Departments and teams are obligated to stay within their forecasted expenditures and are measured against them. The cost of goods projections need to be compared and tracked very carefully to actual costs as more work on scale-up is done over time with a product; an excessive added cost could adversely impact the viability of a product. Forecasting of costs is done over multiple years going forward based on the portfolio plans and compared with potential revenues, especially sales, or other income sources (stock offerings, investments, loans, or milestone payments for small new companies). Roll-ups of the budget for cost centers and categories need to be done for products, teams, departments, and portfolio. Also, each category and cost center has a budget roll-up, as part of the assessment of operational success. This information generally is reviewed at least quarterly. Special reports are commonly done for specific vendors, institutions, investigators, individual studies, so that managers can understand and control cost more effectively. Flexibility needs to be built into the process to adjust allocation of budget across the organization, as unexpected R&D outcomes or external events occur (e.g., study failure, unexpected observations [AEs], product fails at IND or NDA stage, vendors change costs, research alliance being terminated, or an important new product is licensed in from an outside company).

A core document in product development and PPM is the "product profile." Ten factors commonly are considered as the core information needed to describe the product in both its science and marketing potential, as listed in Figure 2.19 (e.g., efficacy, safety, and formulation). In essence, we start with an ideal product profile that comes from market research with the disease needs, patient convenience, health care system issues, medical thought-leaders' input, cost of care for the target

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