When it comes to clinical trials costs management in a financial or accounting system, we see many different approaches depending on the type of trials, existing business processes, and the financial executives’ ideals. The approach usually fallls into one of the following three different methods.
At the simplest of approaches, we see that life science companies put a segment into their chart of accounts the represents a clinical trial, and many times a sub-trial or task related to that trial. This approach can be very simple and effective as they can then sort and report on that particular segment on their chat of accounts, as well as allocate the appropriate expense or revenue activity to that segment. However, there are a couple of challenges associated with this approach, including those trials that might span multiple fiscal years; because of the desire to track a budget specifically to that trial (or sub-trial, task and other dimension). A typical GL budget can only be associated to one fiscal year. Also, if there are a lot of trials coming and going, you increase your chart of accounts exponentially.
A second approach we see it that a company uses a “project accounting” type system to track costs against a “project.” this is a very effective approach if a company wants employees to enter time and allocate that time to different clinical trials (and sub-trials, tasks, etc). This method can also be effective if they want to allocate material to inventory to a clinical trial. However, there is a lot of system management, software costs and implementation costs that go with maintaining such project accounting systems.
Lastly, we see the life science companies using another means to track their activity associated with clinical trials, and that’s by creating a separate “cost bucket”or “dimension” that can sit outside the GL account code structure. These dimensions can have sub-dimensions or tasks associated to it, along with its own budget and filtered reporting on the trial. This budget can then span multiple fiscal years, unlike a GL budget. With this “cost bucket” also off the GL account code it is easy for them to come and go without affecting your overall size of the chart of accounts. This last method is becoming the most popular method for clinical trials costs management amongst our life science clients.
Written by Andy Collins, Partner at Tridea Partners. Tridea Partners is a Microsoft Dynamics Partner located in Southern California specializing in Life Sciences.