Budgeting in Strategic Planning

How budgets link to the setting of strategic plans and objectives

Budgeting in Strategic Planning is the process of developing a multi-year budget. The purpose of this form of budgeting is to create a plan that supports a long-term vision for an entity’s future status. This may include expanding into new geographic areas, conducting the necessary research and development to launch a new product line, switching to a new technological platform, and restructuring the organization. In many instances, completing the essential actions within the time period covered by a single yearly budget is impossible. Additionally, if yearly budgets are utilized, it is conceivable that financing for a multi-year effort may not be maintained for the whole period of the program, resulting in the project never being finished. Thus, only via strategic budgeting can an organization aspire to strengthen its strategic position over the long run.

A strategic budget or Budgeting in Strategic Planning is less concerned with the specific income and spending line items that a yearly budget generally contains. Rather than that, these groupings are condensed into a more manageable amount of line items. This places less emphasis on the correctness of particular things and more on the overall objectives to be accomplished. Thus, the focus of strategic budgeting swings away from the details of budget construction and toward such issues as, Directions strategies, Management of risks, Threats to competitiveness, Prospects for expansion and Reallocations of resources to places with greater development potential.

Budgets link to setting strategic plan and objectives by the following steps (Budgeting in Strategic Planning): 

There are six step for linking budgets with strategic planning (Budgeting in Strategic Planning), goal and objectives and they are as follows:

1. Defining the key objectives on long term and short term basis.
2. Identifying all the relevant strategies and the significant impact.
3. Document assumption.
4. Developing the ways, appropriate tactics and operational budgets.
5. Assessing and mitigating all the risks.
6. Checking plans for accomplishing the task and finalizing the budget

Step 1: Defining the key objectives on long term and short term basis.

This is the step of functioning activity of senior-executive by setting objectives on long term and short term basis which is connected to strategic plan. For example the objective is growth of revenue and it is gaining revenue $1,00,000. So, the strategic plan will be demonstrated with achieving the objectives of $1,00,000 revenue growth.

Step 2: Identifying all the relevant strategies and the significant impact.

This is the step of functioning the activity of senior executives by identifying all the relevant strategies and the significant impact because all the straggles would be connected with achieving the goal. While it would be analyzed the significant impact of strategies, then the backup solution is enabling ready for overcoming the situation. For example, to achieve the objectives of $1,00,000 revenue growth, the strategy would be increasing sales volume and minimizing the risk. In that case, the impact may arise if the sales decreases due to economic imbalance, then what would be another steps for overcoming that situation.

Step 3: Document assumption

This is the step of functioning the activity of senior executives by documenting all key assumption which is related with factors of business environment because the factors of business impact have huge effect on strategic planning, business operation and budget measurement achieve its strategic objectives. For example, if it is the strategy of controling costs, the business environmental factors and its assumption of inflation should be considered which is related to the objective of revenue growth.

Step 4: Developing the ways, appropriate tactics and operational budgets

This is the step of functioning the activity operational managers which is back grounded all resources from senior executives by Developing the ways, appropriate tactics and operational budgets and operation managers are particularly responsible for implementing this strategies by applying different tactics like:

• Monitoring the course of action.
• The weight measurement of each tactic.
• Assisting, guiding, and supporting the person who is responsible for taking the action.
• Setting the time scale for implementation
• Setting the measurement of work frequency
• Setting the operational budget on trial basis
• Finding out the limitation of that operational budgets
• Suggest the implication and impact of that operational budgets

Step 5: Assessing and mitigating all the risks

This is the step of functioning the activity operational managers by assessing and mitigating all the risks. It would be done by getting the answer of below questions:

• Is the plan realistic?
• Is the plan affordable?
• What is the financial benefits to reduce the costs?
• What are the kinds of risk may arise?
• Setting up “best cases,” “expected cases,” and “worst cases” scenarios for.
• What would be alternative plans to overcome the large risks?
• What is the alterative tactics for achieving the objectives?

Step 6: Checking plans for accomplishing the task and finalizing the budget

This is the step of functioning the activity to final agreement regarding the response of all amended tactics which is assigned to each activity. And then enabling to finalize the budget which is focused on achieving the revenue growth of $1,00,000.

Two other benefit of budgeting:

  Funding planning. For making the planning for funding on long term and short term basis, the benefit of budgeting is important because it shows the overall numeric plan for the successful implementation and execution of strategic plan over the years.

  Bottleneck analysis. For analyzing the bottleneck of the company, budgeting process is useful for  expanding the business capacity.

So, the budgeting process as well as Budgeting in Strategic Planning is the most effective aspect of financial management. It is critical in a company’s strategic planning process since it guarantees that suitable financial and operational operations are carried out properly in order to improve profits. Due to the importance of financial management, company owners are recommended to engage financial professionals who are familiar with the various modern budgeting strategies that are now in use and can handle them properly. Bookkeeping is the most trustworthy of the current budgeting approaches since it provides for the recording of all transactions that a firm has done or intends to make in the future. It facilitates decision-making and future planning inside a company, while also increasing credibility. Aside from that, accounting provides for an examination of all actions and duties that have been completed in a company, as well as the identification of loopholes that must be closed in the future in order to avoid any severe issues that might harm the organization. Budgeting has a crucial part in strategic planning, as demonstrated by the hypotheses that are presented below.

Written by

Md. Shadequr Rahaman

Email: [email protected]