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6 steps for linking Corporate Strategy to the Buget

6 steps for linking Corporate Strategy to the Buget

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Published by Mario P. Lopez, CPA
Financial Research.
Financial Research.

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Categories:Types, Business/Law
Published by: Mario P. Lopez, CPA on Feb 16, 2013
Copyright:Attribution Non-commercial

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08/04/2013

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6 steps for linkingcorporate strategyto the budget
Inor PM Strategic Management > Whitepaper
Infor PM
The budget is supposed to be the tool by which an organisationtransorms its strategy into action. Unortunately, up to 60percent o organisations do not link their corporate strategy totheir budget. This paper will show you how to link these relatedmanagement processes and strengthen your businessperormance management capabilities.
 
Inor is in no way committing to the development or delivery o any specifed enhancement,upgrade, product or unctionality. See “disclaimer” paragraph contained herein.
Inor PM Strategic Management > Whitepaper
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Table o contents
Why budget? 3The role o budgeting in perormance management 4Best practices in strategic and operational planning 5The process or linking strategy to the budget 7Step 1: Defne key objectives 7Step 2: Identiy strategies and impact 7Step 3: Document assumptions 8Step 4: Develop tactics and high-level operational budgets 8Step 5: Assess and mitigate risks 9Step 6: Check the plan or completeness and fnalise it 9Cause and eect visibility and the role o technology 10Creating the strategic plan with Inor PM Strategic Management 10Creating the operational plan and linking it to the Budget 13Reviewing the operational plan 15Monitoring actual perormance 16Why linking strategy to the budget makes sense 20Why Inor PM? 21
 
Why budget?
Ask any three people in an organisation why they budget and you are bound to get three dierent answers. They usuallyinclude such statements as, “It is something we do every year,” “It is a big stick we use to cane those who don’t perorm,” and“It is the mechanism or setting the managers’ bonuses.” Is this really the intended purpose o budgeting? Consider thetypical budgeting cycle. It lasts our months—up to 25,000 person-days per year or the average billion-dollar company
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and starts with senior managers asking the rest o the organisation to “guess” the fnancial numbers that they already holdor next year. That guessing is acilitated by a set o spreadsheets that are handed out to budget managers or completion.Once completed, the spreadsheets are returned and numbers are consolidated, only to reveal that the budget managers’guesses weren’t right.So the second round starts with senior managers asking budget managers to guess again. This time, the budget managersare now ocused on what set o numbers senior managers hold and whether they can guess the right ones. Strategy — the“how” o achieving the numbers — has been replaced by a numbers guessing game. I the organisation is ortunate, thensenior managers will reveal their guess by doing a top-down pass to the budget holders — who now have a great excuse ormissing the budget: it wasn’t their guess.With this type o process in place, it is no wonder, then, that no one says they budget in order to direct the way in which theirorganisation will achieve its strategic goals — the intended purpose o the budget. According to data cited by Kaplan andNorton, creators o the Balanced Scorecard, 60 percent o organisations do not link strategy to their budgets.
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For budgetingto become the relevant process it was meant to be and can be, this gap must be fxed.
1 Loren Gary, “Why Budgeting Kills Your Company,”
Harvard Business School Working Knowledge
, August 11, 2003 (http://hbswk.hbs.edu/).2 Robert S. Kaplan and David P. Norton,
The Strategy-Focused Organisation
(Boston: Harvard Business School Press, 2001), p. 274.
Inor is in no way committing to the development or delivery o any specifed enhancement,upgrade, product or unctionality. See “disclaimer” paragraph contained herein.
Inor PM Strategic Management > Whitepaper
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