Navigating Budgeting & Forecasting Challenges

Budgeting & Forecasting Maze 

Challenges of Budgeting & Forecasting Clinical Trials for CROs and Sponsors

Trial costs, scope, globalization, and complexity continue to rise along with pressures for greater time and cost efficiencies to support expanded pipelines and profits. Increase in outsourced vendors contribute to the total clinical trial budget and create a budgeting & forecasting challenge. The overall trial budget is an accumulation of costs from CROs, research sites, labs, and various other vendors. This creates a complex, time-consuming financial management rubric. There are delays in site and subject recruitment, protocol amendments that add additional clinical assessments, scope of work modifications with vendors, dropped and added sites and challenges of subject participation in multiple geographies. All of these changes can significantly impact the original budget, leaving a gap in the ability to accurately forecast and compare against the original budget with the actual trial site activation, enrollment, and study activity expenses. As actuals replace estimates, getting an accurate, real-time picture of what the re-forecasted expenses will be is incredibly difficult.

What goes into the forecast?

The components that go into the budget for outsourced trials are fairly consistent:

  • Site fees
  • Start up
  • Regulatory services
  • Project management
  • Clinical monitoring
  • Site management
  • Data management
  • Medical monitoring & safety
  • Biostatistics
  • Medical writing
  • Lab fees

The latest analysis by the Tufts Center for the Study of Drug Development, published March 2016 in the Journal of Health Economics, pegged the average cost for the top ten drug companies to develop and gain marketing approval for a new drug at $2.6 billion.[i]  This astronomical figure was based on estimated average out-of-pocket costs of $1.4 billion and time costs while a drug is in development of $1.2 billion. In a similar study published in 2003, Tufts CSDD estimated the cost to be $802 million, equal to $1.05 billion in 2016 dollars. This indicates a 148% increase to develop and win marketing approval for a new drug since 2003. Clinical trial costs are one of the biggest expense categories for biopharmaceutical companies.[ii]  Since costs are so high, even slight variance from forecasts can cost companies millions.

Variance – What is Acceptable?

While the ideal variance is no higher than 3%, almost a third of sponsors will accept an error rate of 5-10%. However, the variance between forecasted and actual clinical trial costs for life science companies far exceeds that at 16%.[iii]   With pressure on earnings, financial predictability, and accurate reporting, a high variance is less tolerable today; the effect on revenue, future R&D budgeting, and wrong accruals impact earnings in the next reporting period.

Let’s Explore 8 Major Factors Contributing to the Variance

  1. Trial Complexity

With the expansion in number, size, length, and complexity of clinical trials forecasting is incredibly difficult. As of February 1, 2017, lists 235,891 studies with locations in all 50 States and in 195 countries.[iv]

Clinical Trial Sites Over Time

Over the past two decades, the average length of a clinical trial increased 70%, the average number of routine procedures per trial has risen 65%, and the average clinical trial staff work burden increased 67%. Trials today often undergo protocol amendments, which can add new subject populations, increased assessments, and other design modifications. Site fees, or the investigator grant payments that are made to the sites, are typically upwards of 50% of total study budget. The number of tests is a direct driver of site fees. If protocol design is complex or if decisions are made to add expensive lab tests to the patients’ schedule, it results in substantial cost increases.

In addition, due to the rapidly changing nature of clinical trials, forecasters may not be able to use historical data to accurately predict expenses for future clinical trials. The trend toward adaptive trial design, where the trial can be modified during its progress based on interim results, makes forecasting difficult.

2. Outsourcing

Due to the dynamic nature of clinical trials today, sponsors have opted to move from fixed expense to variable expense by outsourcing parts of trial management to multiple vendors. Outsourcing of trials more than doubled from 20% 2012 to 41% in 2014 according to a Nice Insight[v] survey. Large pharmaceutical companies have the highest rate of outsourcing at 46%, and a February 2017 study published on Market Wired shows 83% of top 50 drug companies outsource their clinical data management.[vi]   This trend in outsourcing trial management activities to multiple vendors has resulted in the lack a single consolidated financial management system with access to the complete financial picture.  Multiple vendors and contracts in disparate systems, efficient financial management, forecasting, and budgeting has made this task incredibly challenging.

3. Lack of Expertise

The labor-intensive task of forecasting is often not done by financial experts. Rather, it falls on the clinical operations team who lack expertise in financial forecasting. These teams are already stretched in their efforts to manage trial execution, data collection, site relationships as well as their many other responsibilities. Now they are tackling the responsibility for tracking, evaluating, reconciling, and accurately re-forecasting future expense needs based on study information, which likely is not in real time. These tasks often require pulling data from multiple systems and analyzing it in cumbersome spreadsheets. This effort takes critical time away from trial execution.

4. Delays

Many budgetary elements of outsourced trials are driven by duration. If timelines extend, monthly unit costs and resource time will increase, generating significant variability in clinical development budgets and costs. More than 80% of clinical trials experience delays ranging from one to six months, costing companies upwards of $35,000 per day, per trial. Forecast can be impacted by slower site activation, lags in enrollment activity, and underperforming sites.[vii]

5. Increase in Number of Sites

When sites do not enroll enough subjects, it may be necessary to add more sites across multiple geographical regions and closing sites early due to non-performance. All of these changes can significantly impact the original budget, leaving a gap in the ability to accurately forecast and compare against the original budget with the actual trial site activation, enrollment, and study activity expenses. As actuals replace estimates, it is tough to get a true and real-time picture of what the re-forecasted expenses will be.

6. Globalization

With the increase in outsourcing and number of sites, there has been a major increase in the globalization of trials. The result is multiple countries using their own homegrown financial management systems, managing separate expenses in their own local currencies. Determining these trial costs typically involves manual collection, currency translation, and aggregation of financial data, often done across various spreadsheet systems. Only 36% of registered trials on as of January 31, 2017 are being conducted solely in the United States.[viii]

Clinical Trials Site Locations

7. Poor Vendor Selection Process

Sponsors often select vendors based on price and not on performance and fit. If a vendor is inexperienced, it will impact operational efficiencies and budget. Mismanagement of qualified vendors can be costly. If roles and responsibilities are not clearly defined, and communication and planning assumptions are ineffective, resulting in the increase of both scope and change orders. Most sponsors respond to site quality issues by increasing site monitoring, which is very expensive. Each site visit to train staff and review studies can cost thousands of dollars. Changing vendors mid-study due to poor selection or management is even more costly, adding additional start-up fees and expenses.

8. Inadequate Technology Tools

The tools used for financial management of a study after budget completion are typically cobbled-together spreadsheets and other disparate systems and sources. Spreadsheets are cumbersome to share and consolidate with other financial forecasting and budgeting data, and they do not help forecast subject and site activation. This rigid, time-consuming process takes too long to update, especially if there is a change in the study trajectory. Since these updates and adjustments are done manually, they are prone to error and increased variance. Worst of all, the end result of all this laborious work provides an inadequate, unconsolidated view across sites and protocols.

How Can You Improve Budgeting and Forecasting Processes?

The industry is aware of the common clinical financial pain-points, as well as the clinical trial complexities and increase in costs. Having the right processes, systems, and tools in place is critical to address these issues, ensuring that millions of dollars are not wasted.

Currently, many sponsors are developing budgets in haphazard ways. They may use a per patient cost for historical study, a percentage of bottom line, or they may simply start from vendor bids. If the original projections come from external vendors, internal forecasters lack the capabilities to re-forecast costs when inevitable change occurs. Sponsors do not have negotiation leverage or trust in the numbers. Instead they get headaches and unpleasant surprises.

Haspoa Horizon uses industry benchmarking data to forecast initial study budgets accurately and in real time. Such a tool allows the sponsor to model different study designs and scenarios without generating multiple vendor requests for proposals (RFPs). When bids are generated, the sponsor can easily compare bid-to-forecast to identify areas of mark-up. When amendments arise, costs can be re-forecast with the change of a few key assumptions. The tight 3–5% variance from actual-to-plan for a robust set of assumptions alone serves as value-add and can add leverage when it comes to negotiating contracts and effectively allocating dollars.

Haspsoa Horizon Site Selection and Site Management tools improves the ability to efficiently manage and collect good metrics, and compare sites.  With Haspoa Study Site Analytics and interactive charts, clinical trial management teams can identify which study sites are most cost-effective. They can also analyze site status, enrollment trends, and deviations from protocol; spotting trends and predicting changes to forecast data. Our Contract Management solutions will help to get a handle on all of the information and documents you track. Easily identify what vendors will deliver, get PO authorization, approve documents and invoices, and track funds on the PO as well as on the contract remaining.

Financial reconciliations are one of the most effective processes to ensure that you have a handle on your budget and accruals. These reconciliations, however, are most commonly conducted at high-level governance meetings. Those managing the trial financials are in the dark; the details are being discussed with the wrong audience. And manual management of accruals is the most painful aspect of budget managers’ responsibilities. This responsibility falls under Finance, but organizations often depend heavily on their clinical staff to manage accruals. Manual tracking is nearly impossible and rough estimates are always incorporated. Neither the Finance department nor the clinical staff is well-equipped for this responsibility due to gaps in data, unhelpful vendor reports, and spreadsheets tainted with historical entry errors. The result is accruals that become less of a reflection of actual work completed, and more of an estimate of what various people think may have taken place the previous month.

Successful companies know that manual accrual management is ineffective. These companies have models in place to remove the labor-intensive piece out of the equation, ensuring the proper generation of accruals and forecasting expenditures over time with a consistent, well-defined methodology. Haspoa’s tool for accrual management eliminates the constant errors which accompany these manual updates. One central system where vendors input information simplifies this process. Partnering with vendors who share data access and report on budget-to-actuals adds significant value when the common goal is staying on top of a trial budget which ensures alignment, understanding, and transparency across the systems.

Please contact us to let us know how we can assist with the issues you face or if you would like some feedback on the pain-points you are dealing with in financial management.

[i] Tufts CSDD Assessment of Cost to Develop and Win Marketing Approval for a New Drug Now Published

[ii] The Struggle With Clinical Study Budgeting. Contract Pharma. Oct. 11, 2011. Accessible at:…

[iii] Clinical Trials Forecasting for Finance Professionals. July 2011. Accessible at:

[iv] Active trials as of November 2014. Accessible at:

[v] Nice

[vi] Market Wired Study Finds That 83 Percent of Top 50 Drug Companies Outsource Clinical Data Management

[vii] CenterWatch Pharma industry: Still not budgeting accurately. August 8, 2011. Accessible at: still-not-budgeting-accurately#sthash.SskmRqC3.dpbs

[viii] Percentage of Registered Studies by Location (as of January 31, 2017