Given the strategic planning best practices, it is obvious that the creation of a good plan requires far more than just collecting a set of financial estimates. To achieve a budget and strategy alignment, use the following six steps:
Senior Management (Corporate) Activities
- Define key objectives
Executives set short-and long-term corporate objectives for each portion of the strategic plan. They also assign a value (i.e., a measure) that denotes the success of each objective.
- Identify strategies and impact
Next, senior executives:
- Describe the strategies that will enable the organisation to achieve its objectives.
- Assign and record the influence each strategy has on achieving an objective.
- Note which department(s) is responsible for implementing each strategy.
- Determine how they will measure the success of each strategy
- Document assumptions
Senior executives document the key assumptions and measures about business environment factors that could affect the organisation’s ability to achieve its strategic objectives.
Operational Management Activities
- Develop tactics and high-level operational budgets
After receiving the plan from senior executives, operational managers should record the following in each of their tactics:
- A measure to monitor the implementation process
- The impact of each tactic
- The responsible person
- The time scale
- The frequency of measurement
- The type of activity
- The estimated cost and revenue impact of executing each tactic
Management Review Activities
- Assess and mitigate risks
In assessing the completed plan, the following questions should be asked:
- Is the plan realistic?
- Is the plan affordable?
- Are there any risks and what can be done?
- How far will you let variances go before taking action?
- What alternative plans are there?
- Check the plan for completeness and finalise it
The last step is to come to agreement on the amended tactics and the costs/revenues assigned to each activity. Once completed, the plan can now serve as the starting point for a more detailed budget breakdown, if required. The high-level costs and revenues from the plan become budget targets.
In this modern age, it is not a wise move to go manual, especially with core business processes. Discover how technology can help in the full whitepaper “6 steps for linking corporate strategy to the budget”.