Budgets

In the first instance the construction of the budget for the R&D group is done on the basis of the existing complement of staff. The problem of having an oversized budget is considered in Section B, 3.1.2.1. There are several elements that form the total budget, but within R&D personnel cost always dominate.

There are many ways of drawing up a cost budget and every company will have their own formalised system, which an R&D Manager will have to follow and understand. However, it is unlikely that these systems will vary markedly from one company to another even across geographical boundaries. Typical components of a budget setting system, which a new Manager is likely to come across, are described below.

Each of the individual elements of a budget requires careful attention by the Manager, as an error at this stage can later lead to an overspend, something which is never liked by business managers or accountants. The largest single element in any R&D budget is, as mentioned earlier, the cost of personnel, often as high as 80% of the total, excluding site or company overheads. When calculating personnel costs, it is easy to underestimate the impact of events which occur during the year on the eventual outcome of R&D expenditure. These include additional costs arising from the promotion of staff, increases from performance related pay figures and items beyond a Manager's control, such as a general cost of living rises for all staff. There is also the effect of national or international inflation on the costs of other items, especially consumables and minor capital items. The cost for the training needs of staff, arising from the performance management process, need to be estimated. Some projects may require a large number of visits, e.g. to customer's premises, to plants and facilities in remote locations, and the travel budget needs to be set following an estimate of these activities. The make up of a typical cost budget is shown below.

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