Environmental Management » Likelihood http://www.e-p-o.org Environmental Management Articles at EPO Thu, 22 Dec 2011 22:02:24 +0000 en hourly 1 http://wordpress.org/?v=3.3 Six Steps for linking corporate strategy to the budget and the role of budgeting in performance management http://www.e-p-o.org/six-steps-for-linking-corporate-strategy-to-the-budget-and-the-role-of-budgeting-in-performance-management http://www.e-p-o.org/six-steps-for-linking-corporate-strategy-to-the-budget-and-the-role-of-budgeting-in-performance-management#comments Fri, 01 Jan 2010 12:21:50 +0000 admin http://www.e-p-o.org/six-steps-for-linking-corporate-strategy-to-the-budget-and-the-role-of-budgeting-in-performance-management 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.

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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

]]> http://www.e-p-o.org/six-steps-for-linking-corporate-strategy-to-the-budget-and-the-role-of-budgeting-in-performance-management/feed 0 Varying Approaches to Environmental Management http://www.e-p-o.org/varying-approaches-to-environmental-management http://www.e-p-o.org/varying-approaches-to-environmental-management#comments Fri, 18 Dec 2009 03:23:06 +0000 admin http://www.e-p-o.org/?p=222 The term EMS or Environmental Management System, is used very loosely and many of these approaches do not include a system.

All EMS programs start with some form of environmental audit and this is an essential first step but knowing what is wrong and doing something about it are two different things. There is no reason why, given appropriate tools and guidance, businesses should not initially audit their environmental impacts themselves. They know more about their business than anyone else but they do need to open their eyes to practices they had never realised pose an environmental risk. They need to work through a very systematic approach and do this with their eyes open.

Once they have an audit in place and understand the issues, an audit alone is not effective – it only identifies problems. The next step is to develop an environmental management plan (EMP), which hopefully has been based on analysing risks identified by the audit findings. An environmental management plan still does not necessarily lead to good environmental management because there is no feedback loop. It is so easy to leave things until tomorrow, which never comes.

There is an internationally recognised approach to Risk Analysis described in AS/NZS 4360: 2004 and this is the proper approach to follow. Some people grab a “risk” out of the air and decide that it is a low risk activity and the other end of this spectrum is demonstrated by some scientists deciding that determining environmental risk for an industry is a wonderful opportunity to apply for research funding. The middle approach, based on a realistic assessment of both likelihood and consequence within individual businesses is the approach that is internationally recognised. The difficulty with an industry wide approach is that the actual likelihood and consequence differ widely between businesses even within the same industry.

There is a big push, particularly by some regulators, for Codes of Practice (COP) and/or Best Management Practices. Again there is no feedback built in. Some people try to write a Code of Practice BEFORE they start their EMS but the audit, risk analysis and plan need to come first. The Code of Practice may then very useful as a starting place for others provided it has been based on an audit and risk analysis.

Government Agencies often impose Codes of Practice on industry sectors without industry consultation. The kingfish farmers in South Australia developed their own code of practice, and then both PIRSA (Primary Industries and Resources SA) and the EPA (Environment Protection Agency) imposed others so they now have three. Interestingly all three are very different. The industry code covers much of the other two but PIRSA and the EPA have developed codes that barely overlap. Neither was based on working with the industry to identify the real issues, and each is based on government perceived issues.

An imposed Code of Practice may not really consider the way the businesses operate in their particular situation. It is imposing a solution that may not be appropriate. It appears to me that the justification for the Code of Practice is the very real need to ensure that industry behaves legally and does not cause environmental harm. A summary of the legislation that applies to those businesses, pointing out what areas the regulators felt most concern, would actually be more helpful than a Code of Practice because it raises legislative awareness while allowing the business operator to find the best solution to the problems.

There are often community calls for increased monitoring of environmental outcomes. Monitoring is a great tool so long as it feeds back into changed action if there is a problem. Monitoring for/by an outside organisation does not necessarily result in changed management and continual improvement. Government Agency monitoring, with long reports written in “science speak” 18 months later does not feed back into changed practices. A fax or similar, the day there is a problem would allow a change in activity. The long reports are mostly just put in a bookcase with little impact on management practices. Monitoring is in fact, a tool that most businesses use internally to control their operations. Unfortunately many of the public do not trust industry to monitor their own outcomes. A classic example is fish farming. Operators very quickly learn, if they did not already know, that clean water is essential for growing healthy fish and they are unlikely to pollute the clean water that is so essential for them.

Most of the so called Environmental Management Systems we have discussed above do not have a SYSTEM – they are EM only. For EMS to work well there needs to be a system with feedback to ensure the plan or Code of Practice goes on being implemented and continuous improvement occurs. The system needs to include documenting procedures and duty statements, training workers in the environmental and other implications of their work, incident reporting, corrective action and feedback and emergency training. This can be kept slimline to prevent overheads and keeping it slimline is the key to making it work well.

The International Standard of Environmental Management ISO 14001 starts with an audit, uses a risk based approach to determine which impacts are significant, identifies legislative compliance then builds and system to make the plan go on working. It includes contingency planning, continuous improvement, internal auditing and management review.

Some people who do not understand the system have expressed concerns that they are no baseline standards for industry to reach before being accredited. This is in fact, quite untrue, because the ISO 14001 Standard includes a requirement to identify and regularly reassess legislative and regulatory compliance. Thus the base standard is the environmental and other legislation and regulations that are in place.

The role of certification

Certification adds an extra layer of rigor and feedback to the environmental management system. It ensures that tomorrow (in the form of an auditor) actually arrives on time. Auditors provide a valuable service by bringing a lot of experience and a fresh pair of eyes to a business and can provide very useful feedback. Having an independent external auditor can help a business demonstrate that they do take due care. A third party audited system provides greater certainty both to regulators and to markets. The Auditor is being paid to provide a valuable service and they should be approached this way. Working well with an auditor can be a great learning experience. They cannot consult but they can ask pointed questions and be extremely helpful.

Some organisations are discussing setting up their own local or industry Standards. This is a big mistake because setting up a Standard is very costly and if businesses making the commitment to being certified should have worldwide recognition.

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