Three Keys to Managing within a Budget

Managing a budget is one of the many responsibilities of lab management. While it is a skill, we all should practice at home. Managing a budget for a lab requires some different knowledge and skills, which are not typically learned while executing scientific projects at the bench. Managing within a budget requires the understanding of the different items that make up the budget and how to prioritize the trade-offs required to react to reality in the lab. Unless additional funding for the lab can be secured, managing the budget is a null sum game. For spending to be increased for one activity, costs must be reduced somewhere else. Here are three tips to help lab managers improve their ability to make the hard decisions required to manage their lab budgets.

#1 – Understand fixed and variable costs

Fixed costs represent spending the lab has already committed to and usually can’t change. This will include budget items like rent, depreciation on capital investments, annual service contracts, other annual services, and some utilities. The decisions to spend this money were already made and the lab is committed to these costs. They could be changed for a future budget but are essentially fixed for this year’s budget.

Variable costs are spending that depends on the work that progresses through the lab. Typically, variable costs increase when workloads are high, and decrease when they are low. In many labs, higher variable costs are offset by higher revenue when workloads increase.

#2 – Understand the cost stack

For most labs, the biggest cost is staff, which can contribute between 40 to 70 percent of the lab’s budget. The next largest costs are typically rent and utilities, consumables, services (including repair and maintenance), and depreciation on capital investments. While costs like staffing can be decreased, those are major, strategic decisions with a great deal of downside. Understanding the cost stack helps lab managers realize where they have budget flexibility and where there is little or none.

#3 – Be flexible with discretionary costs

Discretionary costs in the budget represent spending over which the lab manager has more control. This would be budget items like training, travel, promotional increases, consultants, and optional lab services. A typical lab has only five to 10 percent of the budget in discretionary costs. The decisions around discretionary costs will have a significant impact on the morale of the lab. It is important to develop objective criteria for discretionary spending so that staff understand how these decisions are made and how everyone can participate and receive some of their benefits.

It should also be noted that when line management requires in-year cost controls, it is the discretionary spending that gets limited first. When budget cuts exceed about 10 percent, it is difficult for lab managers to meet those expectations without laying off staff to save on personnel costs.