[SOUND] Hi, good to see you again. In this session, we're going to discuss how to structure and control R&D Budget. Well, how do we structure and control R&D budget? Let's start with structuring. The costs involved in R&D, direct or indirect, can be summarized in a list with these items. Personnel costs, people are the main assets of R&D. And this includes independent consultants. It may range from 50 to 70% of all costs. Depreciation, the research area has laboratories and other technical infrastructure. They need to be depreciated. Amortization, the company may have some intangible assets, like a patent that was bought from another company. There should be an amortization during the period of its life. Supplies and materials, these are the consumables of the projects. Information sources, R&D people should be up to date with the frontiers of knowledge in many areas. So subscriptions to specialized magazines or access to database are crucial. Office costs, including rentals, utilities, maintenance, and real estate management. Travel and attendance to professional events. R&D professionals have to participate in events, seminars, and other scientific meetings. Contractors, for cases when building additional specialized infrastructure is necessary. Well, the items we just saw are the major costs involved in R&D. Now, talking about the structure of R&D budget, here are some alternatives. By programs and projects. If you have well-defined R&D programs, and within the programs you have projects, then you constructed the project at the program level. Like this example here, you have this in the reading materials. In this example, there's only one program, but you could have many others. In this approach, the programs and projects can be allocated to specific areas of the company. Each of them could have an R&D specific budget. In such a case, the company wouldn't have a particular area for R&D. Which would be distributed within the company. Another approach is centralized R&D. In case the company has a specific area to centralize R&D activities, the budget will look like this example here. [MUSIC] Okay, now let's talk about controlling the R&D budget. We've seen here that R&D has many discrete programs and projects. So it's worth to invest some time in controlling the ongoing programs and projects. We can, for example, measure the development of the projects. Check if they are according to the schedule and the budget. And even estimate if they are going to be over budget. Look at this example here, we have two programs, Isis and Phoenix, and each one has many projects. The expenditures are showed for each project. And there's also an estimated gap in the budget to conclude the research and development of each project. R&D personnel typically control the schedule of the projects. So we have here the status of ongoing project with the estimation of deadline overdue. We could also use another approach to control the budget. Look at this table here, we can see that it also covers the budgeted resources allocations. The programs are broken down into its projects, and there is a timeline view. One for monthly control on working hours, salaries, and other items. Another with a cumulative view on year to date. That includes purchase commitments, control on actual values, and budgeted values. And the respective gap is also possible in the case. Let's not forget, this is possible because R&D projects are discretely controlled. Well, at least they should be. At this point, you might be wondering, how can we measure R&D results? That's a fair question, with no right answer. Here are some alternatives to do it. The relation of revenue from new products divided by the total revenue. Or the time to develop a new product from concept to market. The relation of total R&D budget divided by total net sales in a historical perspective. The relation of R&D investment in a product development divided by the product sales. There are other ways to measure R&D performance. However, bear in mind that this is not a simple matter. Measuring R&D is complex due to the multifactorial nature of the R&D programs and projects. Well, we discussed, in this video, some approaches to structure and control R&D budget. We should say, though, that it's case sensitive. That means it depends on the overall budget structure and, of course, on the strategic guidelines. We have concluded R&D budget analysis. Next step in the framework is administration budget. Please read the materials provided, follow the steps to advance in the course, and stay tuned, see you. [SOUND]
