Many lab managers rise through an organization based on technical expertise and communication skills. While they often learn staff development and basic budgeting along the way, broader financial acumen is rarely taught yet increasingly essential in today’s lab environment.
Leaders commonly face cost pressures that impact staffing and capital decisions. Higher expectations for investment justification are now the norm, yet lab leaders rarely develop these skills through their own career paths. Good financial decisions include technical needs, business strategy, and wider operational considerations, which, when taken together, enable improved lab output, quality, safety, and staffing sustainability.
With financial acumen comes the know-how to make sound investments in your operation. Short-term decisions, such as daily consumable purchases, and longer-term decisions, such as multi-year capital (equipment and facilities) and staffing plans, all benefit from a good balance of technical and financial awareness. In this context, financial acumen does not mean in-depth accounting expertise, but instead a broader understanding of the relationships between various sources of organizational cost and how to manage them to reduce risk and unplanned expenditures.
What financial acumen really means in a lab context
The bulk of laboratory budgets is comprised of staff and capital costs. Most managers focus on a yearly/monthly budget including depreciation from a multi-year capital plan, operating costs (service contracts, maintenance, consumables, waste management, facility costs, and staff development), and people costs (salaries and benefits). Shift your thinking to monthly budget management. Having a clear picture of when costs hit throughout the year will help you make the best use of your budget dollars. This is particularly important with long instrument lead-times, on-stream times, and the seasonality of some costs, such as training. In addition to timing, leverage the categorization of purchases that can be capitalized (depreciated over multiple years) versus expensed, thereby potentially spreading out their budgetary impact. Considering detailed timing and costs can help you meet your delivery commitments and minimize unplanned cost swings.
Next, take a deeper dive into your capital decision-making process by evaluating return on investment (ROI). This can be applied to capital and operational costs alike and enables you to build a balanced case for and against investments. An ROI calculation should include both the cost of the physical investment and the benefits of its implementation. Benefits can include labor savings, staff redeployment opportunities, downtime avoidance, error reduction/rework, compliance, and audit risk mitigation. Other factors, such as improved sustainability, consumables reduction, energy costs, and facility usage, should be added to the assessment. These beneficial factors can help build a strong case for cost savings, balancing the financial expenditure.
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Using ROI to build defensible investment decisions
Your team will have a list of capability wants, but operational and implementation targets also need to be developed for any new investment. Assemble your team to create lists of features (capabilities, throughput, accessories), constraints (capital budget, space), and operational benefits (automation, waste reduction, delivery time) that will feed your ROI calculation in advance of the vendors’ quoting process. With both operational goals and technical must-haves, vendors can more directly respond with offerings that address your broader needs.
Defining needs before engaging vendors
As scientists, we develop strong partnerships with vendors and their application teams. We rely on them for problem-solving and consulting throughout the equipment’s lifespan. As a result, negotiating cost and other factors associated with a new purchase can be uncomfortable. Separate technical detail gathering from negotiations. Leverage the technical relationships to demonstrate the capabilities and survey other users to understand their experiences with hardware, software, installation, and support. As a lab manager, explore broader laboratory impacts and costs with the vendor. Don’t overlook service contracts, employee training, onboarding, documentation, payment, and exit terms. Ensure the agreed-upon parameters are all outlined in the final contract.
It is good practice to assess offerings from multiple vendors. Although a thorough in-person demonstration and investment assessment is time-consuming, it is important to broaden your understanding of viable alternatives in the marketplace to strengthen your justification. Also, remember that quotes should be considered confidential, but the details can help you negotiate terms with the top vendor. In some cases, a single-source justification can be made to your management and procurement department due to the uniqueness of the capabilities or the implementation in your current lab environment. This justification will be strengthened if you have approached competitive suppliers, demonstrating the fairness of your assessment.
When it comes to final pricing and terms negotiation, some organizations place this firmly in the hands of a procurement professional. Engage them early in the process and share all critical evaluation details. This will prepare them to fully represent your needs. If these negotiations are not handled by a purchasing organization, taking the lead as the lab manager is appropriate. You can ask pointed questions that your technical team might shy away from. This will ensure the important collegial relationships stay intact while negotiating firmly but fairly.
Knowing when to involve procurement—and how
Being an astute financial steward of your operation will ensure smarter spending and minimize the need for costly emergency outlays. A clear view of the bigger operational picture helps you better justify the changes your organization needs to improve its impact and align with corporate needs and strategy. Engage your technical team leads in these discussions to build more buy-in and acceptance of sometimes unpopular decisions. A more collaborative relationship between technical teams, a better understanding of corporate strategy, and new creative solutions might result.
Running the lab like a business strengthens scientific outcomes
Create a multi-year plan that reflects equipment replacement evaluation, depreciation timeframes, on-stream targets (infrastructure, installation, validation), staffing, and training deadlines. Then, project manage the process to evaluate, install, and train accordingly to avoid creating a financial bottleneck later in your budget and capital plan due to delays. Even the best-managed organization experiences unexpected repairs, replacements, and staff departures. A robust plan, underpinned by knowledge of financial levers and organizational interdependencies, enables you to make smart decisions even in an emergency. Your plan should consider the use of service contracts, equipment rental, and outsourcing to fill unexpected gaps. Where possible, create strategic alliances with partners and put non-disclosure agreements in-place in advance. This will remove barriers to a rapid project kick-off if needed. Before an emergency hits, an outsourcing partner can create familiarity with a capability and more thoroughly validate its applicability, thereby strengthening your justification before bringing it in-house. They can also provide stop-gap services during a lengthy delivery, installation, and validation schedule.
Making clearly justified decisions or conclusions based on data sounds like the scientific method, but it is also how a smoothly running laboratory operates, based on clear financial decisions. Appreciating the true cost of running your lab as a business strengthens your decisions and enhances your credibility with leadership. With a laboratory staff that understands organizational goals and the evaluation process, a more aligned team results. Financial management of your lab staffing, facilities, and capital can reduce risk, rework, and burnout. Invest time in thinking through your operational inputs and outputs through the lens of financial acumen to inform decision-making and support defensible choices.
