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Strategic Budgeting Process – Part 1

Many executives struggle with strategic budgeting and forecasting. Perhaps this is because budgets take different shapes according to a company’s needs, providing the foundation for sales targets, staffing plans, inventory production, cash investment/borrowing, and capital expenditures. Regardless of the decisions they drive, budgets are valuable tools for translating executive-level plans into specific, action-oriented decisions and activities.

There are two main reasons why companies struggle with budgeting: 

  1. It is time consuming to close the general ledger and reconcile a trial balance on a monthly basis and, as a result, executives are using old information to make decisions. Completing this process usually takes weeks, if not months. This creates a bottleneck for conducting a proper analysis on budgeting, forecasting, and management reporting activitiesThis is what happens when the teams are spending more time on number crunching than providing decision support. 

  2. Once the numbers are finalized, pulling information from different data sources (e.g., payroll, ERP, and CRM) creates a tremendous burden for budgeting and forecasting purposes. Systems tend to be siloed and lack key master data elements. As an example, for the same transaction, if the customer’s number and name is different in the CRM and ERP applications, then the finance team can’t link the two data sets to perform a financial analysis. When this is addressed, budgeting and forecasting tools can tie together financial, operating, and sales information and provide the level of insight executives need to make truly strategic decisions about operating the business. 

The reality is that many businesses experience these issues on an ongoing basis, leaving business owners and finance personnel without the information they need to make the best decisions on a timely basis. While budgets don’t guarantee success, they certainly help increase the chances of meeting your business goals. 

We will share three ideas that can bring more structure to your budgeting and forecasting process. In this article, we will discuss the first: focusing on linking your budgeting process to your business strategy, and will cover the second and third in subsequent articles.

  • Part 1: How do we measure our ability to achieve our business strategy?
  • Part 2: What processes and tools enable the right level of planning and budgeting?
  • Part3: What processes and tools produce the forecasting, planning, and analysis (FP&A) insight we need?

Linking your budgeting process to your business strategy

Linking your budgeting process to your business strategy is vital to avoid failure. Typically, less than 10% of an organization’s staff understand its strategy while less than 25% of managers have incentives linked to the company’s strategy ( More often than not, we see executive teams talk less about strategy and spend more time on day-to-day activities. This is where a well-defined budgeting process can enable your business to set clear goals, priorities, and spending caps, and – more granularly – detail funding sources and areas of opportunity.

How can you align your budgeting process with your strategy?  

The first step is to define what pieces of your strategy you will measure, and then design the measurements for each piece.

  1. Write down the main objectives of your strategy2-3 key drivers for each objective, and the time horizon for each. 

  2. Determine the metrics that will indicate success for each driver. 

  3. Design each metric – what data will be required, how will it be calculated, and how will it be tracked? 


The following is an example of a similar exercise we conducted with a client. Paraphrasing: 

In order to increase our top line, we need to increase average spend per customer. We have four tactics to achieve this goal, namely expand our product offering, source new suppliers, promote our products, and conduct marketing and pricing research. We will measure our results using three metrics: (1) average weekly spend per customer, (2) spend by product type, and (3) order frequency. 

These metrics then need to be built into the budget so they can be tracked on an ongoing basis without substantial manual effort. A proper planning tool (or an analytics tool) will allow these metrics to be designed and built one time and then tracked close to real-time. On each forecasting cycle, you will be able to track the trends of each metric, the budgeted goals to actual results, and have visibility to how they are impacting financials of the company for each period.

Transparency to these budgets will: 

  1. Improve the team’s focus on what matters most to the business by helping your team focus on what the executive team has decided will drive the most value. 

  2. Allow you to plan your operations to maximize the impact on the strategy, which will also allow your team to anticipate and consider challenges before they arise. Tied to this, the coordination of activities will yield more collaborations and unify different teams. 

  3. Create accountability with your middle managers and their teams. 

Ultimately, your business goals must be tied to your budgeting process to think strategically while being realistic and communicating needs arising with your team. In our next editorial, we will discuss various budgeting methods, variance analysis and forecasting techniques.




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