Annual Budgeting

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I spent time last week with one of our medical device clients in New England. Weather was beautiful and everyone was still happy about the Red Sox World Series victory. This particular organization is working to improve their portfolio management capabilities.

They are doing many things right; great executive sponsorship with a clear vision and mandate. During our assessment we found a common practice that will require fundamental change in order to optimize the value of the innovation portfolio. Annual budgeting as project selection and portfolio management.

Their annual budgeting process includes decisions regarding the funding of specific product development projects. Annual planning is not a substitute for portfolio management. The world changes too fast, especially in life sciences; technologies evolve, regulatory requirements change, competitors make moves, and customers alter buying behaviors. We need a process that runs on a faster cycle, allows priorities to change, and enables the dynamic reallocation of resources.

Annual budgeting as portfolio management is a relic of a different age when lifecycles were longer.

Budgeting can define the scope of the company’s investment, but, in most industries, innovation leadership should make investment allocation decisions on a much more dynamic basis.