An organisations budget is supposed to be the tool that turns strategy into action. Unfortunately, up to 60% of organisations do not link corporate strategy to the budget. This article discusses the importance of budgeting and provides six distinct steps on how to link corporate strategy to the budget and provides reasons why it is important to link these two variables.
Article
In some organisations, budgeting can be a guessing game, which can lead to a budget which is inaccurate. A budget should be created to direct the way in which the organisation will achieve its strategic goals. For budgeting to become the relevant process it was meant to be and can be; this group must be fixed.
Budgeting is part of a large, closed loop process called ‘performance management’. Performance management is a holistic approach to the way organisations direct and manage resources to achieve objectives. In the context of performance management, budgeting’s central role is to support execution through the allocation of resources to the activities that drive value.
In order to achieve a best practice plan that is linked to a budget, the following six steps have been created:
Steps 1 – Define key objectives
Senior executives should create short and long-term objectives for each section of the strategic plan. These objectives can be based around revenue, growth and operating efficiency. In order to measure the success of each objective, executives should assign a value to each objective.
Step 2 – Identify strategies and impact
The second step is to describe strategies that achieve the objectives. A percentage weight should be assigned to each strategy which outlines the likelihood of achieving that objective. Departments should also be identified who are be responsible for implementing the strategy.
Step 3 – Document assumptions
A list of key assumptions and measures should be made to address the business environmental factors that could affect the organisations ability to achieve its objectives.
Step 4 – Develop tactics and high level operational budgets
At this stage senior executives give the plan to the operational manager who implements the document strategy. For each strategy, managers must develop tactics to implement this part of the plan.
Step 5 – Assess and mitigate risks
Once the tactics have been created, the plan can be assessed. The plan must be: realistic, affordable, and alternative plans must be in place.
Step 6 – Check the plan and finalise it
The final step is to agree the amended tactics and costs/revenues assigned to each activity. The plan can now serve as a starting point for a budget breakdown.
Why is it Important to Link Strategy to the Budget?
This article has focused on one aspect of performance management – strategic management and provided 6 steps to achieve a best practice plan that is linked to the budget. When strategic performance management is linked with other performance management functionalities, the result is a closed-loop performance management system.
It is thought by Waal (2002:24) that organisations that focus on performance management and use performance management software outperform those who don’t. In a survey of 437 publicly traded organisations, those that had structured performance management systems produced better results than those who didn’t.
That is why many companies are turning to performance management to improve budgeting and to enable them to successfully link their corporate strategy to their budget.
By: suzi mezze
Posts Tagged ‘Efficiency’
Six Steps for linking corporate strategy to the budget and the role of budgeting in performance management
January 1st, 2010Predictions In The World Of Fleet Management For The Coming Year
October 13th, 2009Fleet management can be defined as the tracking of a company’s vehicles; this can include ships, vans and cars. It is becoming increasingly viable with the advances in GPS technology for all manner of companies. The uses are diverse and for the manager who likes to know the whereabouts and functions of their fleet it can provide a comprehensive solution. But what predictions can be made for the fleet management industry in the next twelve months?
One issue that is becoming increasingly important in the world of fleet management is the rises in the cost of fuel. This has become a major concern as expenses for fuel seem to be escalating at record levels. It is estimated that the hardest hit will be those involved in the management of truck fleets. Fleet managers this year will attempt to lower their fuel costs; this however will be difficult. The only way they will be able to reduce the fuel costs of a fleet is to look at tyres and maintenance of vehicles to ensure higher levels of efficiency.
One benefit for those involved in fleet management is that last year’s new regulation in engines is not having as great an effect as previously thought. Seemingly efficiency has not been greatly diminished. One way in which fleet managers will be trying to increase efficiency is to limit the time vehicles are spent idling. Introducing management procedures that forces drivers to turn off engines whenever stationary will definitely become common practice this year. Once again technology is aiding these procedures by producing devices that measure idling time and cut the engine off if this period is too long.
The world of fleet management may also see the increased use of alternative fuels. We are already seeing bio-fuel becoming a popular alternative to diesel as it is cheaper and better for the environment. There are even transportation companies sprouting up that are specialising in bio-fuelled vehicles; it is believed that this approach will lead to environmentally conscious customers utilising their services. An alternative to bio-fuel has been the use of propane in fleet management; this comes at a time when the entire motor industry is trying to find more viable fuelling solutions.
GPS tracking will become an even more important element to fleet management in 2008. While these systems have been developing since the late eighties it is now that they are becoming a truly appealing option. While installation costs are still relatively high the dividends can be huge. They can improve fuel efficiency, increase delivery space and more generally raise levels of productivity.
GPS tracking or telematics can improve fuel efficiency by creating routes that are the most fuel efficient fleet management solution. By planning driver routes in advance it is possible to maximise the deliveries made in relation to the fuel used. In the same way, by making accurate route plans it is possible to reduce the number of trucks on the road by filling each to their maximum before departure. Hopefully this technological advancement will make the one pallet delivery a non existent occurrence.
The use of GPS systems can also measure the activities of drivers in detail. This may seem as an invasion of privacy on the part of the fleet management team, but as the drivers are effectively working, their whereabouts should be known at all times. By having procedures in place to deal with drivers who take excessive detours it is possible to maximise efficiency and reduce the time wasted.
The world of fleet management is rapidly changing. This is mainly due to inclusion of GPS technology in many fleets and the subsequent benefits. As stated previously the increase in fuel prices worldwide means that the major concern of fleet managers this year will be to increase fuel efficiency and hence profitability.
By: Thomas Pretty
