Where Finance Directors Step In
In my discussions with various companies, a recurring theme is the reactive nature of budgeting for regulatory expenses. The process typically begins with an internal acknowledgment that “something” needs to be done – whether it’s hiring a regulatory consultant or conducting product testing. This realisation triggers a search for service providers, usually involving requests for multiple quotes to ensure competitive pricing. However, this approach often leads to delays, as the responsibility for approving these expenditures usually falls on the shoulders of finance directors or controllers who may not have a deep understanding of the regulatory landscape.
The absence of a pre-approved budget means that each expenditure requires sign-off, which can delay project initiation. This situation is particularly acute for companies that outsource their regulatory work, as these companies may not anticipate the costs associated with compliance. However, even companies with internal regulatory resources are not immune to these challenges. The trend we observe suggests that outsourced regulatory affairs functions often face greater exposure to budgeting issues, but internal teams can also struggle with unplanned expenses.
The Cost of Denial
There could be many reasons why companies require testing, but the crucial point here is that businesses either anticipate this need or discover it unexpectedly. Those in the former category may have provisionally budgeted for these expenses, allowing them to move swiftly. However, those in the latter often face delays, as they scramble to secure approval for unbudgeted costs. This can lead to a form of “regulatory cost denial,” where companies are reluctant to acknowledge the reality of new expenses, particularly for products previously classified differently under older regulations.
For instance, the reclassification of devices under the MDR has caught many companies off guard, especially those with products that were previously classified as low-risk. The sudden need for extensive testing and documentation can be a shock, both in terms of scope and cost. The reluctance to accept these new realities can delay crucial decisions, ultimately affecting the company’s ability to compete in the market.
The Time Trap
Timing is another critical factor. The absence of a dedicated budget often means that the decision-making process falls to financial directors, who may not be fully versed in the nuances of medical device regulations or testing. As a result, they may insist on obtaining multiple quotes to ensure value for money. However, waiting for these quotes can take weeks or even months, especially in a market under pressure, where labs prioritise service delivery over customer service.
To illustrate, we recently worked with a client who requested a proposal for a series of tests. We provided a detailed outline study plan and cost estimate within a day. Over the next few weeks, we followed up consistently, but the client kept delaying their decision, waiting for quotes from other labs. By week six, we pointed out that had they moved forward with us, they would already have had the final report. This experience underscores a critical question: Is the project cost-sensitive or time-sensitive?
In many cases, the opportunity cost of delayed product launches far outweighs the potential savings from lower testing fees. The decision-making delay can result in significant opportunity costs, including lost revenue and delayed market entry. This highlights the importance of timely decision-making and the potential drawbacks of an overly cautious approach driven by financial considerations rather than project needs.
Just do the Budget
The current landscape demands a more strategic and flexible approach to budgeting for regulatory expenses. Product managers and regulatory teams must collaborate closely with finance departments to ensure these costs are not overlooked or underestimated. Ideally, those responsible for the project should have access to a dedicated budget, allowing them to make timely decisions without unnecessary delays or financial bottlenecks.
While many companies recognise that cost is not the only driver of purchasing decisions, it’s crucial to understand that the real cost often comes in the form of delayed market entry and lost revenue. To mitigate these risks, finance directors should treat medical device regulatory and testing costs as standard operating expenses, integrated into the broader financial planning process.
Instead of simply spreading these costs over time on an accrual basis, finance teams should consider a more nuanced approach. This includes setting aside contingency funds specifically earmarked for regulatory expenses, allowing for adjustments based on actual spending and changes in the regulatory landscape. Regularly updated rolling forecasts can provide the flexibility needed to adapt to new information and evolving market conditions, ensuring that financial plans remain relevant and effective.
Moreover, companies should prioritise value over cost savings. This means choosing partners and service providers based not solely on price but also on their ability to deliver quality and timely results.
Adopt a proactive, flexible, and value-oriented budgeting strategy. This approach helps manage regulatory expenses more effectively, ensures smoother project execution, and prevents financial constraints from hindering critical regulatory compliance efforts. Ultimately, it safeguards the company’s market position and long-term success.
Your thoughts?
This article isn’t meant to be a statistics-heavy analysis but rather a reflection of the insights and opinions formed from hundreds of conversations with clients. The goal is to offer a perspective on what’s happening in the market and to prompt readers to consider where they might fit within these scenarios. Whether you see yourself in the camp of proactive budgeting or recognise the challenges of last-minute approvals, the key takeaway is the importance of preparing for the inevitable costs of regulatory compliance.
In the end, the question remains: Are you budgeting for regulatory costs, or are you in denial about their impact on your project’s success? The future of your product may depend on how you answer.
The current landscape, the implications of unbudgeted expenses, and the importance of timely decision-making.
By Tautvydas Karitonas, Managing Director of Test Labs
Tautvydas Karitonas is an experienced professional with a decade of involvement in developing cutting-edge healthcare products that are now widely used in hospitals globally. He presently serves as the Managing Director at Test Labs, a Medical Device Contract Research Organization dedicated to accelerating access to market for medical devices. Adept at balancing technical expertise, strategic vision, and the ability to inspire others, his leadership is defined by a distinctive blend of proficiency, strategic thinking, and effective guidance.
Tautvydas holds BSc and MSc degrees in Mechanical Engineering, which provides him with a distinctive approach that links product design and development process with device verification and validation. He has used his experience in developing hydrogen peroxide and UV-C light technologies to influence the laboratory design and expedite research timelines. Tautvydas is proud of leading the Test Labs team in achieving a prestigious UKAS accreditation in under 12 months.
Tautvydas is an expert in product development, validation, and problem-solving, making him a valuable member of any team he works with. He shares his knowledge and passion for the industry through his posts, where he discusses a range of topics from the latest medical device regulations to the impact of emerging technologies on the healthcare industry.
