Step-by-step guide to budget and strategy alignment

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

1. 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.

2. 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

3. 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

4. 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

5. 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?

6. 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.

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