Six “Easy Wins” to Immediately Improve Clinical Trials Financial Forecasts

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My favorite clinical trial finance guru, Chris Chan agreed to publish his SCOPE 2014 presentation at ClinOps Toolkit.  You can read more about the SCOPE conference in my blog series from the Spring. Chris is pretty to look at but he is no Vanna White.  Still, he infused a lot of fun into the topic of clinical trials financial forecasts by combining a well-known sequence of letters (R-S-T-L-N-E!) from one of my favorite puzzleshows, ‘Wheel of Fortune’ to help us all make the business of clinical budgets, contracts, and forecasts easier.  Read his presentation summary, implement his suggestions, and effortlessly execute these “easy wins”. –Nadia


Six “Easy Wins” to Immediately Improve Clinical Trials Financial Forecasts

As you’re busy trying to initiate sites, manage enrollment, and meet trial targets, those momentum-interrupting party-poopers in Finance demand another financial reforecast; the very same folks who, months later, will demand to know why your forecast numbers were so far off. No one disputes that financial budgets and forecasts for clinical trials are complicated. However, some companies make them more complicated than necessary.

Chris Chan present six relatively simple things any biopharma company can implement (if they haven’t already) to improve their clinical trials budgets and forecasts. I give you…

The “RSTLNE’s” of Clinical Trials Financial Forecasts

Fans of the game show “Wheel of Fortune” may recognize these letters: after super genius show producers noticed that many contestants chose these same five consonants and one vowel for their final round puzzles, the show decided to make these six letters a “given” and have contestants choose other incremental letters. Along the same lines, if you utilize these following six implementations as “given”, you will significantly enhance your ability to generate accurate clinical trials forecasts.

R = Realistic Forecast vs. “Approved to Spend”

After the umpteenth time a clinical team confirmed high likelihood of spending their remaining annual budget over the remaining three months of the year despite having only spent 25% to date, I decided to investigate this anomaly of rational thought. Because I know how to read spreadsheets and by definition am quite smart, I was able to deduce the following: it isn’t that clinical teams believe they can suddenly turbo-charge their spending activity; it’s more a desire to ensure no remote possibility that they’ll be “dinged” for overspending by year end.

Chris says superstars have approval to spend whatever it takes to manage the trial. Here he is posing with Nadia in Miami. Who paid for that drink?

Chris says superstars have approval to spend whatever it takes to manage the trial. Here he is posing with Nadia at SCOPE 2014 in Miami. Who approved the budget for that drink?

Although Management often cites that underspending is equally as undesirable as overspending, body language directed at teams often suggests overspending is the greater of two evils. As such, teams tend to cling to their budget target numbers even when they become increasingly unlikely. The solution: have company management sever the concept of “realistic forecast” from “approval to spend.” In other words, even if the team dares to provide a lower, more reasonable forecast, they will still be “allowed” to spend up to previously approved original budget if they prudently can. In the companies I’ve worked for that implemented this dynamic, clinical trial forecast accuracy was significantly improved.

S = Systems Understanding

Both Finance and the R&D groups utilize multiple complex system tools that squeeze out numbers. For instance, Finance will typically have different accounting/invoicing systems, budget/forecast planning systems, and purchase order (PO) systems. R&D may have CTMS, and perhaps different budget planning systems for service provider/CRO costs, investigator site costs, and resource management. Without a solid working understanding of each respective system’s functions and nuances, there could be confusion that leads to less accurate forecasts. For instance, how does the accounting system’s specified expense total tie to the PO or budget system numbers? If the invoice system declares we’ve paid $1M year-to-date for study X, the accounting system specifies $1.2M in expenses over that same period, and the budget system specifies only $0.9M, which one is correct and which one should I utilize to forecast for the remaining year? Why doesn’t the costs in the investigator site costing system match with Finance’s budget system?

The solution, while no small effort, is simple: comprehensively cross-train all R&D and Finance personnel on the spectrum of relevant systems. The training doesn’t have to be at the “system user” level; just higher level functional overview would suffice.

T = Top Down Guidance

The teams spend hours generating a detailed forecast based on reasonable assumptions…only to be told to go back to the drawing board because the total exceeds targets by a factor of two or three. While I sometimes find it fun to watch clinical folks in the throes of a conniption, wouldn’t it be a wonderful alternative if those heretofore surreptitious targets could be shared with teams beforehand? It is true that management often only has an initial higher-level overall target in mind, and therefore won’t provide project or department-specific targets until the totality of data is gathered. However, it’s also possible they may have a general idea even at the more granular levels.

If it can be agreed by all parties that any preliminarily shared targets are still in flux and serve only as general guidelines, teams may be provided with a very useful initial data point to work with. Therefore, top-down guidance should always be sought from Management.

L = Low-Impact Forecast Items

Have you and your teams ever spent hours contemplating and reforecasting some budget line item, only to realize later that the entire annual cost for said line item was a rounding error relative to one of your mid-sized trials? Although this sounds simplistic, it’s important to focus the vast majority of reforecast time and effort on the big-ticket items. So monitoring expenses should incur materially more forecast effort than IVRS, and investigator grants more than IRB fees.

One common budget item that often results in disproportionate effort and scrutiny is travel expense. In all my illustrious years of budgeting and forecasting, I have yet to see a clinical trials-related travel forecast that ultimately came close to actual spend. I’ve also never encountered a situation in which travel spend variance by itself resulted in a significant overall clinical trial cost variance. But because travel is typically controversial as an oft-cited” overspend” item, teams often go through painful effort to generate their travel budget in great detail.

In reality, even if teams can reasonably estimate the timing, number, and destination of trips for up to a year in advance (a Nostradamically tall order in itself), they would be hard-pressed to foreshadow precise airfare and hotel prices. Given this and the fact that travel expense is typically a less material component of total clinical trial cost, less forecast effort should be allocated to this and other “low-impact” items. Low-impact budgets should be based on a simple standard set of fixed assumptions (set number of domestic and international trips per employee per month to generate travel budget, for instance), with the understanding that these assumptions will likely change based on reality and that these likely changes won’t materially affect total budgets.

N = New Trials and Activities

Many companies utilize risk probabilities and adjustments when forecasting for clinical trials. For instance, if the probability that a planned new clinical trial will take place is 80%, the financial forecast will only factor in 80% of the expected costs. Importantly, some companies apply a risk probability factor not only to new trials that haven’t started, but to existing trials to adjust for slower than planned activities. What I’d like to emphasize here is that new trials should be given a different risk probability factor than existing ones, given that there’s a different level of uncertainty with a trial not yet started. For example, while an ongoing trial may enroll patients slower than originally anticipated, a new trial is subject to that same risk along with trial commencement risk, site initiation risk, and so forth.

E = Excellent Understanding of Financial ACCRUALS

While I’m cheating a little with the “E” heading, it’s no exaggeration that lack of financial accruals understanding is a leading culprit when it comes to forecast inaccuracy. In short, “accruals” for our purposes is the monthly process of estimating the total value of all clinical trial work actually performed for the period, including CRO’s, central labs, investigator sites, all other service providers and consultants, etc. Because of the complexity of accruing for clinical trials due to numerous and complex moving parts, many companies utilize esoteric models and methodologies to generate their financial accruals. Without an understanding of your company’s specific accruals processes, you will have a very difficult if not impossible task forecasting for clinical trials costs.

Here’s a quick test: assume you are asked to forecast YEAR 2 of a 3-year, $3M CRO budget. The total CRO expense for the past year (YEAR 1) was exactly $1M. You also know that a $1.5M milestone payment will be due to the CRO during YEAR 2. All else equal, what’s your best forecast estimate for YEAR 2 CRO costs? Is it (a) $1M; (b) $1.5M, or (c) some other amount? The answer is – trick question! It can be any one of the three, depending on the accrual methodology. Choice (a) is correct if your company uses a “straight-line” methodology; (b) is correct if your company uses the primitive “cash basis” methodology; and (c) is correct if your company utilizes some models-based methodology. But you can clearly see how not knowing your company’s specific methodology makes it extremely difficult for you to forecast accurately.

Once again, the solution is simple: make sure all Clinical and R&D team personnel who have financial forecast responsibility are trained on and familiar with the company’s financial accruals methodologies.

See great presentations on clinical trials financial forecasts at SCOPE 2015

See great presentations on clinical trials financial forecasts at SCOPE 2015

Summary “Easy Wins” to Immediately Improve Clinical Trials Financial Forecasts

The inherently complex nature of clinical trials makes accurate forecasting a challenging endeavor. But by ensuring that these six relatively simple “RSTLNE” implementations are in place, you can enhance your efforts towards better clinical trials financial forecasts, and make your world a more wonderful place.


About The Author

Chris Chan

Chairperson at the 2014 SCOPE summit for Clinical Trial Forecasting, Budgeting and Project Management and Senior Director of R&D Finance at Fibrogen, Chris Chan is an accomplished speaker and regular contributor to the ClinOps Toolkit Bay Area meetup and networking group.


  • Julie Daves

    August 6, 2015

    Hey Nadia (small world!) – great read! Do you or anyone know of any “off the shelf” systems for training clinical trial managers at pharmas the basics of accruals, forecasts, budget stuff? 🙂 Would really appreciate any leads. Thanks – Julie

  • Anonymous

    September 11, 2014

    Great read, I know a lot of these ideas can be a direct help to my groups interactions with clinical teams. Thanks for making this presentation available!

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