research-finance

---
name: research-finance
description: Use when managing money for an internal R&D program — building a budget with F&A splits, tracking burn/runway against milestones, or routing capex-vs-opex determinations.
category: Research
version: 1.0.0
tools: []
---

# Research Finance

Financial management of internal R&D programs and portfolios: program budgeting with F&A (indirect) rates, burn/runway tracking, and capitalize-vs-expense routing. Every number ships with its assumptions, and accounting-treatment calls **route to a named finance owner** — this never books an entry or makes the final determination.

## Purpose

R&D finance partners, program controllers, and operations leads manage money already allocated or raised — not the corporate close, not the next funding round, not finding a grant. Structure three recurring decisions:

1. **Program budgeting** — build a multi-period budget from work-package line items, apply the F&A (indirect) rate to an MTDC-style eligible base, and roll up direct / F&A / fully-loaded cost per period with an explicit assumptions block.
2. **Burn & runway** — compute average and trailing burn, runway in months, and whether each value-inflection milestone is reachable before cash runs out; flag accelerating burn and below-threshold runway.
3. **Capex vs. opex routing** — score each R&D cost item against IAS 38 development-phase criteria (or flag US GAAP ASC 730 expense-as-incurred) and route it to CAPITALIZE-CANDIDATE / EXPENSE / FINANCE-OWNER-REVIEW with a named owner — never auto-decide.

## When to Use

- Building or revising an R&D program budget and need the F&A split made explicit.
- A program's runway is in question and a milestone-vs-cash read is needed.
- Finance is asking whether a development cost can be capitalized and needs a defensible first routing.
- Preparing a portfolio review and need per-program burn consistency.

**Not for:** corporate DCF/valuation/close, discovering or positioning grants, or making the final accounting determination — that's the controller's and auditor's call; this only routes and recommends. @mention the teammate who owns whichever of those applies.

## Workflow

1. **Lay out the program** — work-package lines, categories, per-period amounts.
2. **Build the budget** — apply the negotiated F&A rate for the relevant R&D profile (pharma, biotech, medtech, deep-tech, software, university lab) and read off the direct / F&A / fully-loaded rollups plus the assumptions behind them.
3. **Track burn & runway** — compute runway and check it against milestone timing, with a runway-alert threshold (commonly 6 months) as the trigger for flagging.
4. **Route accounting treatment** — score each cost item against the applicable standard (IFRS/IAS 38 or US GAAP/ASC 730) and send anything landing on CAPITALIZE-CANDIDATE or FINANCE-OWNER-REVIEW to the named owner.
5. **Assemble the review** — every number carries its assumptions; every treatment call carries a named owner.

## Method Notes

- The F&A rate is the most error-prone input — always confirm it's a negotiated NICRA rate, not a guess or an assumed de minimis 10%. Ground in 2 CFR 200 (Uniform Guidance), NICRA basics, and standard F&A pool composition (facilities + administration on an MTDC base).
- Burn/runway uses the recent-weighted (trailing) burn as the forward run-rate, assuming flat forward spend unless the ledger encodes a ramp — a lifetime average hides both a slowdown and a ramp-up, so prefer the trailing figure. Ground in Cooper's stage-gate framework and standard burn-rate/runway analysis.
- The capex router only scores the criteria it's given — asserting "technical feasibility" doesn't make it true; the named finance owner and auditor validate it. Ground in IAS 38 (research vs. development), ASC 730 and ASC 985-20, and standard FASB/IFRS capitalization criteria. Profiles annotate context (e.g., "most drug R&D is expensed") but never change the underlying accounting test.
- Portfolio ROI should be risk-adjusted (rNPV / probability-of-success weighted), not raw NPV, which overstates R&D value — this is standard in drug-development valuation and real-options literature.

## Anti-Patterns

- **Stating a budget number without its assumptions.** The F&A rate, escalation, and base must travel with the number.
- **Auto-deciding capitalize-vs-expense.** This only routes; the controller (and auditor where required) decides.
- **Using lifetime-average burn for runway.** Recent burn is the honest forward run-rate.
- **Applying F&A to the full base.** Capital equipment, large subaward portions, and certain categories are typically MTDC-exempt.
- **Confusing this with corporate finance.** Valuation, close, and fundraising belong to a different specialty entirely.

## Forcing Questions (walk one at a time, never bundled)

1. **"Is this spend in the research phase or the development phase — and can you evidence technical feasibility?"** Recommended: research = expense; development = capitalize-candidate only with feasibility evidence, routed to a named finance owner. (IAS 38.54-57; ASC 730.)
2. **"What F&A/indirect rate are you applying — your negotiated NICRA, a de minimis 10%, or an assumption?"** Recommended: use the negotiated rate; flag explicitly if it's an assumption. (2 CFR 200; NICRA basics.)
3. **"What's runway in months at current burn, and does it clear the next value-inflection milestone?"** Recommended: runway should cover the milestone plus a buffer; surface the gap if it doesn't. (Cooper stage-gate; standard startup-efficiency frameworks.)
4. **"Is portfolio ROI risk-adjusted (rNPV / probability-of-success weighted) or raw NPV?"** Recommended: risk-adjusted; raw NPV overstates R&D value. (rNPV drug-development valuation; real-options literature.)
5. **"Who is the named finance/controller owner who signs off on the capitalize-vs-expense treatment?"** Recommended: name them explicitly — this only recommends, it never books the entry. (ASC 730/IAS 38 governance; auditor sign-off requirements.)

Lock questions 1-2 before opening 3-5.

## Example

A sample budget excludes capital equipment (a sequencer) and a CRO subaward from the F&A base as MTDC-exempt; a capex-routing pass sends exploratory screening to EXPENSE, a fully-criteria'd pilot line to CAPITALIZE-CANDIDATE, and a partial-criteria software build to FINANCE-OWNER-REVIEW.