The Marketing department must allocate a budget to cover the project expenses. These expenses include the cost of developing the prototype and all the costs related to the transition from R&D to production, i.e. ensuring that large quantities of identical units can be economically and reliably produced.
At the early stage of the project development, the R&D team will estimate the budget required for completing the project. This budget will depend on how different the new characteristics are compared to the ones of projects already developed. Upgrading a Clinite product will initially cost between a few hundred thousand dollars and 2 million dollars. Industry experts believe that developing the first Nutrite prototype will cost each firm a minimum of 5 million dollars. In both cases, R&D costs will decrease over time as more projects are successfully developed.
If the budget allocated by Marketing to the project is equal to or higher than the budget required for completion, then the project will be successfully completed and available during the following period. As the R&D department works as a profit center, any budget allocated in excess of the required budget will not be given back to Marketing.
If the allocated budget is much lower than the budget required for completion, the project will not be successfully completed. In this case, you have the choice to complete the project in the following period by allocating the amount required by R&D in the annual report, or shelve the project, i.e. put it aside until such time as you have sufficient funds to complete it. Note that a project does not have to be finished in one or two periods; you may well decide to develop your first Nutrite prototype in 3 or more periods.
If the allocated budget is slightly lower than the budget required for completion, there is a chance that the project will be successfully completed despite the lack of funds. Taking such a risk might not be a good idea if millions of dollars in revenues depends on the availability of the project.