![]() Cost management: A strategic emphasis.īlumentritt, T. Conclusionīudget and strategic alignment and integration require the input as well as the engagement of all areas of a business. By bringing a business's strategic and budgetary decision-makers together, a company can manage both short-term and long-term goals and finances sustainably and profitably.īlocher, E., Juras, P. Fourth, select and implement the best course of action. And fifth, evaluate the performance. ![]() Thirdly, perform Relevant Cost Analysis and Strategic Analysis by collecting relevant information, predicting future values, costs, and revenues, and then performing a strategic analysis. (2022)’s Cost Management: A Strategic Emphasis, is a great framework. First, it’s critical to determine your business’s competitive strategy. Secondly, figure out your criteria and identify alternative actions to be taken. The above diagram, taken from Blocher et al. McGraw Hill.Ī strategic and budgeting workflow should include stakeholders from every business area. This should include operations, sales and marketing, accounting, and production leaders. The goal is to integrate the company’s long-term vision and goals with the budgetary process. What Should a Strategic Budgeting Workflow Look Like? Figure 11.1 from Cost Management: A Strategic Emphasis. (Čalopa, 2017). Further research by Čalopa (2017) states that “participating in the decision-making process enables greater initiative and increased motivation (rewarding) and productivity.” Taylor (2009) “In order to protect a division or department from inaccurate forecasts, unexpected increases in resources needed, and poor performance reviews from cost overruns, most managers inflate their budgets and then ensure that all dollars allocated are spent.” This leads to tribalism within an organization, damaging morale and, ultimately, the bottom line. Giving all areas of an organization a seat at the table allows for greater trust and transparency, both of which are required for an organization to be innovative. One of the benefits of combining budgeting and strategy is the positive impact on the financial decision-making process, such as innovation, intellectual capital, speed of decision-making, and reward for the effort. Benefits of Strategic and Budgetary Process Integration (2022) “…the decision to buy rather than to make a part for the firm’s product might make sense on the basis of a relevant cost analysis but be a poor strategic move if the firm’s competitive position depends on product reliability that can be maintained only by manufacturing the part in-house.” Every strategic and budgetary consideration must be aligned with the other for the company to achieve lasting success. Strategic planning and budgeting are, after all, closely related. However, if the conflict can be mitigated, having strategy and budgeting working cohesively can allow an organization to be successful. Blumentritt (2006) writes “When properly applied, both processes improve an organization's ability to create and sustain superior performance.” There is certainly a fair amount of friction between the two, however. As Blumentritt (2006) continues, “The identification of the firm's general strategic direction and firm‐wide goals should have a significant impact on the firm's investment priorities.” To illustrate this intersection further, Blocher et al. Strategy and budgeting intersect quite often, typically with friction. ![]() Budgets and Strategies Are 2 Sides of The Same Coin ![]() Nevertheless, it’s essential to integrate both processes. Without articulating a clear strategy, a firm can get stuck investing in resources in areas that aren’t aligned with a company’s visions and goals. Without budgeting, strategic investment can, to put it simply, cause financial issues. Separate teams within the organization often perform these processes (if they are done at all). As we near the end of the calendar year, and the end of the fiscal year for many companies, it is time to review budgets and make strategic adjustments for next year. Often, an organization’s strategy and budgeting processes have been separated.
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