Leverage Weekly #54 - Creating a budget
tl;dr - Budgets, done properly, are important coordination mechanisms
Last week, I talked about internal oversight, i.e., from a boss or manager. External oversight, i.e., from an organization’s board or the public, can be equally valuable. One way external oversight takes place for an organization is through its budget. Just as an organization’s schedule is a central point of coordination for people inside an organization, which is then hooked up to the outside, the budget is a central point of coordination for people outside of an organization, but with clear ramifications internally.
Let’s unpack this. A budget, done properly, makes it possible to tell what an organization is planning to spend on different things. It has legible categories, such as “Personnel” and “Equipment”; for science projects, these can be even clearer: “Scientists” and “Instruments.” The categories and price breakdowns let an outsider check whether the money being spent on each category is reasonable and they can compare it to the organization’s output to determine how well the organization appears to be working.
It is, of course, possible to hide things in a budget. One can have opaque categories, such as “Indirect Costs,” or useful categories used as opaque catch-alls, as can happen with “Operations.” Opaque budgets indicate an attempt to avoid external oversight. Transparent budgets, on the other hand, show that an organization wants external oversight and believes that such oversight will be beneficial.
How is external oversight beneficial? People outside the organization may not understand the specific circumstances the organization faces. This is especially true in science, where it can be difficult for people to understand the scientific value of a given experiment or research path. Outsiders, however, while sometimes uninformed, are much less likely to get caught up in the particular insanity that a given organization may be prone to. They thus provide a “reasonableness check,” which in the context of a budget amounts to looking at whether costs seem “reasonable.”
Do people know what costs count as reasonable? In some cases, the answer is clearly yes. A hammer doesn’t cost $400; a small plastic fork that can be 3-D printed for $0.05 shouldn’t cost $9. In many other cases, it’s hard to tell. For this reason, rather than trying to hide costs, budgets should be created with the intention of helping to inform them about costs and sometimes should be supplemented by further efforts to communicate about how the organization works and what its needs truly are.
A budget done properly gives external parties, including potential hires, future funders, and society at large the ability to understand what an organization is doing in a very general sense and to compare it to other organizations. If many organizations produce good budgets, it is then possible for there to be sector or even society-wide conversations about important questions like the appropriateness of salaries or dysfunctionalities in relevant parts of the economy.
Private companies may not wish to publish certain types of detailed information in order to maintain competitive advantage, because facts about compensation might be contentious within an organization, or simply because, as a private fiefdom, its owners don’t want to. This is far less true in the non-profit sector, where companies have an obligation to inform the public about their activities and where the goal of public benefit attenuates the need to maintain competitive advantage.
A budget then has an impact within an organization, determining how many people the organization can employ and what sorts of activities they can engage in. It thus serves as an intermediating function between society (and the economy) and the organization as a whole. In the case of projects with communities, it also helps to maintain trust and gives interested people a chance to understand the organization better and possibly even contribute by suggesting cheaper or better ways to do things!
Budgets, done properly, are important coordination mechanisms.
Last week was spent working on the budget for the Quantum Biology Institute. This was a full team effort, both from QBI and the Leverage team. After some more work yesterday, we now have a budget that we’re ready to circulate with relevant stakeholders. After we get feedback, the Institute will submit a funding proposal to the Quantum Biology DAO. (For people just tuning in, the Institute and the DAO are part of the Quantum Biology Ecosystem, for which there is a roadmap here.)
This was the first time that Leverage has made a budget that deals with this magnitude of money (still in the low millions per year) and with this degree of public accountability. It was an excellent learning experience; we’re thinking of applying the mentality and approach we developed to the Leverage budget going forward.
It has not escaped our attention that the Quantum Biology Institute budget is being created in the era of DOGE and a widespread desire to cut unnecessary expenditures both in general and in science in particular. It was thus especially important to produce a budget that we believe is defensible, both so we can educate people about the costs of doing scientific research and so we can maintain and build trust with relevant communities and stakeholders.
As part of our work on the budget, Oliver, Melinda, and I started learning about scientific instruments: how they’re built, who supplies them, how much they cost. Apart from that, Oliver continued helping QBI with recruitment, Melinda worked on preparing some of our videos to be posted on our YouTube channel, and I spoke more with a potential future client. This week is likely to involve revisions to the budget and more work helping to get QBI set up to starting building their microscope.