Research and Development Budget
RELATIONSHIP OF RESEARCH AND DEVELOPMENT AND ENGINEERING TO THE TOTAL BUDGETING PROCESS
To understand the relationship of research and development (R&D) and engineering to the total budgeting process, the difference between those functions and other corporate functions will be examined.
R&D, unlike any other department, deals in the company’s future profits and growth. Corporate growth can be internal, obtained from the products or processes produced by R&D and refined by engineering, or can be attained through acquisition. Strong modern companies involved in high- or medium-technology areas look toward both of these routes for growth.
Other departments of the company—marketing, manufacturing, service, quality assurance, quality control, electronic data processing, purchasing, and so forth—are involved in today’s profit. These groups produce, test, and sell yesterday’s R&D or engineering products or processes. This fact is often overlooked by financial people concerned with today’s profit. R&D is an investment in the future. Statistical data gathered from many sources show an interesting relationship between profits and sales. The data assume a free market. Monopoly situations or government-regulated industries fall into a different category. Typical sales and profit curves for industrial products and some consumer products are shown in Exhibit 22.1.