Linking Budgets to Strategy

Strategy is concerned with the implementation of projects (which we will call initiatives) designed to improve the way the business operates. With this in mind, budgets can be split into:

Business as usual’ - i.e. the resources that will be expended within departments based on their current day-to-day activities.

Initiatives’ - i.e. those resources that are targeted at projects and other activities not currently being done that are considered by management as being of strategic importance.

In order to monitor the impact of both types of budget we can add two extra sets of measures (if not already present):
  • Measures that capture the work being done by individual departments. These are likely to be unique and should be kept to a minimum. The aim is to capture the effort that the budget resources allow us to perform. For example, the marketing department might capture the number of mailings or social media comments made. Sales may record the number of prospective client calls, and so on.
  • Measures that capture the output of each department. I.e. the results the workload is hoping to achieve. Where activities are linked, the output of one activity is likely to form the input to the activity that follows.
These two sets of measures help management to gauge the effectiveness of each department in relation to workload, resources and outputs.

Separating out strategic initiatives

Financial Driver has a separate dimension that allows it to monitor projects and their affect on overall corporate objectives. This dimension can have multiple members that can be organised into a hierarchy. For example, it allows initiatives to be grouped as per the business perspectives described in the Balanced Scorecard.
Separating out strategic initiatives from 'Business as usual'
When collecting budgets or forecasts, Financial Driver can be informed as to what initiatives are to be budgeted separately, and which departments are responsible for those initiatives.  This will cause Financial Driver to now request different levels of detail, depending on the department involved. It will hold ‘business as usual’ separately from the individual initiatives, all of which are now budgeted separately, depending on the department entering the data. At the head office level, finance staff will be able to see the total budget as well as the breakdown by initiative and ‘business as usual’. This can also be reported in multiple ways such as with initiatives forming the columns of the report, or as being separate pages by department. Better still, Financial Driver will now track individual initiatives, and when combined with the measures of ‘work being done’ and ‘output’, provide management with a informative view as to whether strategy is being implemented as planned, and whether it is having the desired impact on overall corporate performance. With Financial Driver there is no need to implement a separate strategy/dashboard reporting application. Everything you need is in one place, and ensures that budgets are tied to strategy.  To find out more why not request a free trial and see for yorself?