Budgeting basics: now's the time to plan for 2005

CADalyst, August, 2004 by Robert Green

I'M OFTEN AMAZED AT how little attention is paid to departmental budgeting. Though budgeting isn't an everyday activity for CAD managers, it's one of the most important things you'll do this year to determine how successful you'll be next year.

Before you say, "Ick, financial stuff," remember that budgeting is really nothing more than looking into the future and trying to estimate what you'll need to do a better job next year. In this regard, CAD managers are best suited when they put on their technologist hat and note which trends are coming and how those trends might affect their departments. Budgeting isn't a tedious exercise in accounting--it's a chance to show forward thinking and futurism. Sounds like a lot more fun in those terms, doesn't it?

What to Account For

In a word: Everything. Your budget will be with you all year and will come back to haunt you if you don't pay proper attention to it. As CAD manager you should have an idea of what to expect in the next year and should be able to tell your company what it needs to spend. Your budget should include more than what you need to just survive for the next year. It should reflect what you need to thrive and improve your department's efficiency.

All great managers demonstrate an ability to think on many levels and in a variety of time frames. Given the variables of business, considering operational expenses for today, next year, and the next several years can be daunting. Here are some factors and expenses you need to account for before you create your budget.

Rate of growth. How much will your company and department need to grow, shrink, or outsource during the next year to meet business requirements? If you don't know your company's forecasted growth, check with your superiors. You'll need solid information to plan for new computers, software, and Internet services to meet business needs, so strive to get a good number rather than making a guess.

Capital items. These are big-ticket items such as plotters, computers, and CAD software. What makes these capital items is the way they are treated for tax purposes. Capital items must be depreciated over five years or leased for annual tax deductions. Companies tend to evaluate these types of expenditures carefully, so you may even want to perform a basic ROI (return on investment) calculation to justify desired items.

Recurring items. These are day-to-day items such as plotting supplies, disks, backup tapes, Internet access fees, and maintenance contracts. These items should be easy to forecast based on this year's expenditures. These expenses can go up or down because of growth or lack thereof, but won't vary much given stability in your department.

Training budget. Too often overlooked and frequently the first thing to be cut, training is viewed as something that happens only in concert with major software revisions or workplace procedural changes. You may not know what training you'll need next year, but you can probably forecast that you'll need it. Why not budget for it so you don't have to sheepishly admit later that you should have?

Let's Get Started

Now you're ready to make an educated guess at your budget. I suggest making a different worksheet for capital, recurring, and training budgets to keep things logically organized. As with all budgets, you'll want to work with a pencil and get a big eraser--you'll be changing things later. It's time to stop avoiding spreadsheets--your budget will look more professional if you use one!

A typical mistake made in budgeting is underestimating to try and impress your superiors with how cheap you can be. Being cheap now only makes you beg later for the funds you should've budgeted for in the first place. You'll be respected more for thinking of everything and planning accordingly than you ever will for being cheap. Conversely, you may be punished for missing something that causes rebudgeting later in the year.

A key point to remember in all of this is that just because you've budgeted for something doesn't mean you'll get it. Think of your budget as a way to relay information about the various technology paths you may take next year. If you account for as many scenarios as possible, you've got the greatest chance for success.

Surprise Costs

While budgeting, keep in mind that high rates of growth or changes in work methodologies can impose large, unforeseen costs. As an example, if you decide to start collaborating with vendors and clients online, you'll need large investments in Internet services or Web server implementations even if your department remains the same size.

More traditional examples of surprise costs have to do with simply outgrowing current hardware or software infrastructures. Installing new plotting equipment or upgrading everyone from 2D to 3D software causes big spikes not only in capital spending, but in training expenditures as well. The moral of the story is to keep a constant eye on how your company is growing and evolving so you can forecast the costs ahead of time.