Strategy

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Strategy is the basis for effective planning and budgeting. Essentially, strategy is the beginning point of a loop that cycles thru planning and budgeting, execution, and evaluation. The effectiveness of interaction between strategy and planning and budgeting defines how well strategy will be achieved and how well the planning/budgeting process will operate. Many planning/budgeting concerns relate to the strategy involved in developing, planning and formulating the budget.

Viewpoint A

Summary: An organization’s budget reflects its Strategy. Planning and budgeting tie key performance measures to strategy delivery. Budget requests should be tied to strategy. Strategy changes over time as the organization adapts to changing business conditions. More...

Viewpoint B

Summary: Business conditions require proactive responses to market changes. This requires strategic planning and budgeting. Strategy and Planning & Budgeting must be linked together. More...

Viewpoint C

Summary: Strategy is a long range view of what the company envisions itself to be. Planning and Budgeting depends on implementation plans from the strategy. Planning and Budgeting coordinates and integrates strategy. More...

Viewpoint D

Summary: Overseeing the budget process involves a strategic assessment, in such areas as: (1) Understanding program functions of the agency and what’s happening in the programs being reviewed; (2) Engaging the decision-making systems to ensure that they are informed of the organization and Administration priorities; (3) Analyzing financial and performance data to highlight trends/concerns and determine appropriate funding for future funding levels; (4) Making sure -- through guidance, oversight, and implementation of the decision processes -- that budgets are brought forth from bureaus and program areas that reflect Agency and Administration priorities and address previously identified issues; (5) Strengthening justifications in support of requests for performance, results, and precision in program results and vision.

Over the years, there has been an increase in the types of information and explanatory material presented in the budget documents. Much of the changes of recent years have focused on performance and results for resources sought and a more direct management plan for programs to be initiated and implemented. More...

Benchmarks, Resources, Recommendations, Implications

Viewpoint A

More and more organizations emphasize strategic planning as a vital aspect of ensuring mission delivery. An organization’s budget directly reflects its strategy, in fiscal terms, and the effectiveness with which budgets are planned and executed can go a long way towards determining how well an organization’s strategic vision is being implemented.

Often, organizations structure budgets around strategic plans made up of mission areas, long-term goals (outcomes) and short-term goals (outputs). This strategic infrastructure can be directly linked to the budget structure and, if meticulously planned to directly reflect all aspects of an organizations operations, tie directly to key performance measures that track the degree to which the strategy is successfully delivered.

As organizations become more adept at linking budgets and performance to their respective strategic visions, more emphasis is placed on the ability to articulate, during budget formulation, how a budget request will serve to best implement an organization’s strategy. Many organizations require that requests for increases in funding, or even requests to sustain base funding, explicitly detail in quantifiable terms what the performance impact will be. The most visionary organizations, from a strategic planning standpoint, organize budgets around their mission areas and can demonstrate the changes in performance relative to increases or decreases in funding.

Strategic plans should be fluid and adaptable to change. As the business environment shifts due to internal and external factors, an organization’s strategy must also shift to meet those changes head on. Many strategic plans are reengineered or revised every three to five years to adapt to shifts in strategic priorities. Accordingly, key long-term and short-term measures may need to be changed or recalibrated, or emphasis on certain measures may shift over time. The ability of an organization to adapt to its changing environment, by updating its strategy as required, is critical to ensuring optimal effectiveness over time.

Viewpoint B

Pace, dynamics, and competitiveness of current business condition require proactive reponses to market changes and stakeholder demands. Speed and accuracy are integral to this response. Organizations, both private and public, cannot afford to miss the mark or get to the finish line after their competitor. To ensure quick and correct efforts, management must exercise strategic planning and budgeting, asking questions like:

  • Where are we going?
  • What are our goals?
  • What is our current condition?
  • What are the gaps?
  • What are the burning platforms (targeted gaps)?
  • How do we close the targeted gaps?
  • Which gaps do we close first?
  • Who can get us where we need to be?
  • What resources are needed?
  • What are rewards?
  • What are the risks?
  • How do we measure our success?

Strong changes to the business environment require even stronger responses. Strategic planning, planning to plan, can be defined as a disciplined effort to produce fundamental decisions and actions that define an organizations or office’s planned efforts and actions.

Too often business goals, operating plans, and budgets remain separate and incompatible—planning works from the top while budgeting works from the bottom and sometimes stays there. In many cases, traditional budgeting is adopted as the primary process that incrementally builds on the previous year’s budget, forming linear silos of departments and offices. Classic budget processes are devoted to data collection and analysis, which do not offer dynamic tools and processes that support the capacity for strategic budgeting and business planning.

Viewpoint C

Strategy, in general, refers to more of a long range picture of where the company envisions itself to be in some future set of years. Strategy statements in themselves cannot be translated into usable Planning and Budgeting information until specific implementation plans are developed.

There should be two way communications between Strategy development teams and the planning and budgeting process early on since it could impact people, facilities, capital equipment and other resource items required by the planning and budgeting process.

P&B must be responsive to changes in strategy-- Changes in strategy may or may not cause changes in the annual budget since it may be locked down, but could impact operational processes causing either under/overruns to the budget.

The planning process outlines the process for achieving company objectives and target performance with linkage throughout the company. The planning process is to ensure company strategies are coordinated and integrated. It should provide for continuous improvement and adapt to changing conditions and assure congruence among all areas of the company.

Viewpoint D

Summary: Formulation of a Federal Agency’s budget typically begins in the Spring of each year (many agencies begin earlier), which is approximately: (1) Nine months before the budget is actually submitted to Congress; (2) 18 months prior to the beginning of the fiscal year to which it pertains; (3) 30 months before the close of that fiscal year.

The early stages of budget preparation occur in the individual agencies. When they begin work on the budget for a new fiscal year, agencies already are: (1) in various stages of implementing the budget for the fiscal year in progress; and (2) waiting final appropriations approvals and other legislative decisions for the upcoming fiscal year. Relative to the new fiscal year for which work is just beginning (also known as the “budget year” or “BY”), the actual year in progress becomes the “past year” (PY) and immediately upcoming fiscal year becomes the “current year” (CY). The long lead times, and the fact that appropriations have not yet been approved for the next year, mean that the budget is prepared in an environment of uncertainty about economic conditions, presidential policies, congressional actions, and Agency performance and results Strategy with Respect to Overall Reviews: Most Federal agencies and departments are separated into bureaus and decisions on budgets for those components actually begin in the bureaus – and at the program level, ideally based on early planning guidance issued by the parent Department with the endorsement of the Department’s Secretary or the Agency head

Decisions percolate up to the parent Agency/Department in the form of each bureau’s budget request to the Agency/Department. Agencies/Departments are concerned with competing program interests as well. But many times, these are multiplied by consideration for numerous individual and appropriated bureaus.

Many and multiple reviews go into assessing organizational proposals with the strategy for making this assessments covering: (1) Performance and results for resources used and requested, including ongoing assessments of measures and intended outcomes for the program; (2) Labor cost and production analysis; (3) Capital budgeting and IT reviews – a growing focus of budget assessments and reviews; (4) Financial management reasonableness of proposals; (5) Consistency with the overall strategic plans; (6) Consistency with organizational priorities, as well as Administration priorities, in the case of the Federal Government.

The Formulation of the budget is, by and large, a process that exists outside specific time boundaries. Done properly, it is a year-round task. Organizations are required to manage the current year, while, at the same time, work to tell the story for the year ahead. Like shifting sand, events occurring today can impact directly on the course taken tomorrow. Reviewers – Cabinet Departments, OMB, Congress, GAO, as well as, oversight reviews within an individual agency – will often highlight weaknesses in themes and messages. A major strategic objective of reviews is to balance the assessment of the facts with what those facts might mean for and Agency’s direction and vision.

Overseeing this process involves a strategic assessment, in such areas as: (1) Understanding program functions of the agency and what’s happening in the programs being reviewed; (2) Engaging the decision-making systems to ensure that they are informed of the organization and Administration priorities; (3) Analyzing financial and performance data to highlight trends/concerns and determine appropriate funding for future funding levels; (4) Making sure - through guidance, oversight, and implementation of the decision processes -- that budgets are brought forth from bureaus and program areas that reflect Agency and Administration priorities and address previously identified issues; (5) Strengthening justifications in support of requests for performance, results, and precision in program results and vision.

Agency requests are submitted to OMB in September and are reviewed by OMB in consultation with the President and his aides, and include the negotiation with Departments and Agencies on the final outcome to be proposed by the President to Congress.

Strategy with Respect to Performance Information: Over the years, there has been an increase in the types of information and explanatory material presented in the budget documents. Much of the changes of recent years have focused on performance and results for resources sought and a more direct management plan for programs to be initiated and implemented.

During the past decade, Congress and the Executive Branch have increased emphasis on improving management across all agencies. Most specifically, a series of legislative proposals and changes to federal budget guidance has highlighted the presentation of performance and results information for Government dollars invested annually.

Significant new legislation has been enacted over the past decade by Congress, most significantly, the Government Performance and Results Act (GPRA). This legislation was enacted in 1993 and implemented Government-wide in 1999. GPRA charges all federal agencies with integrating their budget and planning processes and using performance and results to more fruitfully assess investments. GPRA fundamentally changes the focus of federal management and accountability from a preoccupation with inputs and processes to a greater emphasis on the outcomes and results that programs should be achieving. It brings together manager, worker, and stakeholder to focus on three things: (1) Purpose of programs; (2) Means to achieve them; and (3) Progress towards achievement

The key to assessing program effectiveness is measuring the right things. Performance outcomes are influenced by a number of inputs and processes – some of which are controlled by the agency, some of which are not. Agencies can draw a “line of sight” from inputs to outcomes to determine how the elements of a program build to the ultimate outcome. This exercise can help agencies zero in on the appropriate metrics.

In order to create a true Performance Budget, agencies need to tie metrics to all phases of the process. Some key activities include: (1) Developing a strategic plan that clearly links an agency’s mission to each activity and program; (2) Developing a performance plan with objectives that support the strategic goals; (3) Making budget decisions that support the performance plan to the extent that resources can be made available, and, in the process, program priorities set; (4) Constructing budgets and related justifications that speak to the strategic context and support the performance plan; (5) Periodically assessing progress against the plan, analyzing how various inputs influenced performance.

Recommendations

  • Clear communication of strategy enables effective planning and budgeting.
  • Plan horizons should take account of the business model of the organization, e.g. lifecycle and horizon of investments, divestments, and differences in channels and products
  • Increased frequency of planning is required in a more dynamic environment.
  • Ensure that plans and budgets reflect the strategic goals of the organization.

Benchmarks

Business Drivers

  • Strength of the relationship between budget and corporate strategy.
  • Items which are included in the budget
  • Budget elements whose change impacts the preparation of new forecasts
  • Percentage of time spent collecting and manipulating budget data.
  • Frequency per annum that financial forecasts are prepared.
  • Consistency and accuracy of the business entity's "perform planning/budgeting/forecasting" activities.
  • Whether the business entity has eliminated the annual budget process.

Leading Practice Statements

  • Rationalize and simplify budget content to reduce budget complexity and thereby improve efficiency of the process.
  • Focus planning on regular operational planning activities
  • Many researchers are promoting the idea that budgets are no longer the way to plan and control managerial behavior in an age when innovation, service, quality, and knowledge sharing are the real attributes of competitive success. The budgeting process is too rigid, too internally focused, and adds little value. Some organizations are shifting focus to business improvement rather than imposed budgetary controls. Managers have local decision-making authority and run the business unit as their own business. The new model is based on empowerment, information sharing, process-based management and internal and external benchmarking.
  • Maximize ability to evaluate business data by using an analytics solution.Maximize ability to evaluate business data by using an analytics solution.

Metrics

  • Total cost of the process "perform planning/ budgeting/ forecasting" per budgeted account.
  • Average personnel cost per FTE for the process "perform budgeting/planning/forecasting."
  • Cycle time in days to complete the annual budget cycle in the most recent fiscal year.
  • Total number of FTE days to complete the budget cycle.
  • Number of budget versions produced before final approval.

Resources

  • Your input is welcome here.

Implications

Strategy Outline

Definition: “Strategy” is the grouping of items for planning and budgeting that captures the concerns and relate to the strategy involved in developing, planning and formulating the budget. The following are bullet points (in no particular order) generated by the group relating to strategy:

(1) Strategy should accept feedback from P&B process (2) P&B is a prime way to communicate strategy (3) P&B must be responsive to changes in strategy

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