What is strategic budgeting and how to implement it

Growth by design is straightforward when aligning business goals with your financial targets and incorporating them into a budget model. Among the various types of budgeting, strategic budgeting serves as the ultimate roadmap for achieving long-term financial goals. When done well, the budgeting process ensures that everyone is aware of the strategic priorities and is more likely to actively participate in the agreed budgeting strategies. Conversely, when this process is not well-executed, people tend to become disengaged and distance themselves from plans in which they do not feel involved. 

What is strategic budgeting?  

Strategic budgeting involves forecasting future financial requirements and allocating resources to match. The main goal is to make sure financial decisions support the company's overarching objectives. By aligning budgetary allocations with long-term strategic initiatives, finance can prioritize investments and optimize cashflow for sustained competitiveness and agility. 

Strategic budgeting can help businesses achieve long term goals  

Strategic budgeting is different to traditional budgeting because it is more forward looking and but for it to be effective, the budget owner needs real-time data so the budget can be detailed, measured and adaptable. 

1. Improves responsiveness to market and performance changes  

When a financial planning and analytics platform is used to carry out strategic budgeting then budgets can be linked to financial reports; facilitating the daily monitoring of results, allowing for timely monthly adjustments after the books are closed. 

The platform also allows rolling forecasts to be implemented and scenario planning done before the budget is formally agreed. Financial scenario planning is used to test whether the budget aligns with your strategic objectives. In Phocas Budgets and Forecasts, scenario planning is executed using the lookup tabs in the BI and FPA platform. Lookup tabs are very handy tools and allow you to pull out various inputs, then model different scenarios by changing your drivers or assumptions. If there are issues, the finance team can adjust low or high areas before proceeding.  

You might begin by evaluating various options for increasing revenue and assessing their contribution to the desired growth level. You will stress-test outlined strategies, such as selling more to existing customers and adding new channels, determining high, medium, and low figures for each. This powerful analysis helps the team quickly assess whether these levers collectively deliver the desired strategic goal for increasing revenue.  
 
2. Collaboration aligns resources with strategic goals 
 
To achieve strategic budgeting, the finance team needs access to consolidated data which has been generated from all parts of the business enabling them to collaborate with senior leadership across all departments and then allocate resources for the coming years. 

The success of the planning hinges on the finance team's ability to connect with stakeholders by understanding their needs, interpreting their plans and including relevant parts in the overall budget for a planning outcome that everyone cares about and is accountable for.   

To achieve strong collaboration finance needs good data and the tools to share the information and receive feedback. Typically Excel has not been fit for purpose for sharing budget feedback because often the data gets incorporated into a new version of a spreadsheet template which can lead to miscalculations and short-term confusion. 

A BI and FP&A platform like Phocas has built-in workflows that allow finance to manage a collective approach to planning helping everyone in the business have an active role in the budget.   

Finance sends the budget model with inputted drivers or partially input drivers to key business partners. Finance and stakeholders work collaboratively to refine drivers based on the specific knowledge each contributor brings to the table. The objective is to establish a common language for the business, ensuring buy-in from everyone.  

Business partners review the budget and add their own data, aligning it with the overall strategy and their specific plans.   

In a recent survey, Phocas asked 300 chartered accountants what their key challenges with strategic budgeting are and they advised data capturing or data wrangling was the biggest or number one challenge. 

The second area of concern was managing expectations or alignment by not being able to create a model that satisfies all internal business partners or stakeholders. Many accountants expressed the complexity of this task, with feedback from internal business partners ranging from "The budget doesn't support our business operations" to "The budget doesn't align with the objectives for which we are responsible." 

Receiving such feedback is something no CFO or finance team desires but on the flip side when you can achieve buy-in for the annual budget across your business, you will reach your goals because people are engaged and have clarity of what is expected from them. 

3. How data changes everything  

The vital part of any budget model is the data.  

When more than just historical data is used, strategic budgets and forecasts can be live. Using consolidated data also means finance teams can build a hybrid budget model which may include various budgeting methods starting with an incremental top-down approach to homing in on specific costs with specific line-items reviewed with zero-based budgeting. 

When there is access to all the financial and operational information, finance can budget in more detail and streamline all the specialized sub-plans in a bottom-up way with all the different departments. Accurate and live data helps to implement demand planning and sales forecasting as well as pricing models across your product categories and sub-categories. 

Headcount planning is always crucial for your budget because it is usually the largest expense and common to all businesses. This powerful functionality is also built-in and saves finance from running many models for headcount.  Finance and human resources can account for every person, including new starters and leavers in the budget period helping the business keep a handle on your most important costs. 

There are many benefits of strategic budgeting to achieve business growth and unity across your business. As more people in the business have been involved and the data is comprehensive, there is a collective commitment to the plan. 
 
Your master budget is stored in the FPA platform so it can be referred to and reported against for the coming months. Depending on the data used, Finance can present a comparative analysis of past years and a column for actuals, which will be populated when the budget season starts. Rolling forecasts can also be created to check in with you budget monthly by rolling your plans forward with month-end so you can adjust and align resources based on changes to market conditions.  

Dashboards can also be built over the Financial Statement data to provide ongoing analysis.  
 
Strategic budgeting serves as a crucial task for fostering business growth and ensuring alignment across a business. By using a BI and FPA platform you can access all the data you need to carefully and easily allocate resources and identify the key ways to drive expansion while maintaining focus on core objectives. Strategic budgeting builds confidence in the planning and ultimately your decision-making. Embracing a strategic approach to budgeting builds financial resilience as well as providing real-time insights into performance.