Is Budgeting Drowning Strategic Planning In Your Organization?
By Uju Onwuzulike
Chief Results Officer, MCL
“The budget is not just a collection of numbers, but an expression of our values and aspirations”…Jacob Lew
We can hardly see any organization that does not have a well outlined budget in place. Organizations often rely on their budgets to guide them. It is not out of place to have a budget, but it is not enough to rely only on budget in driving the vision of the entire organization.
Most organizations have missed it. How? They have allowed the budget to drive the organization’s vision. Such organizations have worked day and night to develop a well outline budget but may not have realized the need to develop a strategic plan first. For the purpose of clarity, your organization’s vision and the strategic plan are what drive your budget, and not vice versa.
Organizations that are reactive in their operations have low level of planning effectiveness. They allow the budget alone to drive the plan for the entire organization. They also view planning as synonymous with financial objectives alone. Some other organizations are traditional in their planning effectiveness, and surprisingly are even better than the reactive organizations.
The proactive organizations have higher level of planning effectiveness, as they have a comprehensive strategic plan that is conducted for the entire organization. The proactive organizations also start out right at the beginning with a clearly – defined, organization-wide, shared, and integrated vision. Proactive organizations allow their strategic plan to drive the budget.
The budget must be seen as the means to securing the plan. If your plan exceeds your budget capabilities, then it will be necessary to find ways to secure additional funding or reallocate funds to carry out your plan. If this is not possible, then you will have to revisit, review, and recalibrate all of the initiatives planned for your next budget cycle and shift some initiatives to the next quarter or year planning cycle, if your immediate quarter or year’s budget cannot provide the resources for your initial plan.
This insight does not intend to undermine the importance of budgeting in organizations. I am also in support of the fact that all organizations must be realistic about their financial limitations; it would be organizational suicide not to take financial resources into consideration. However, allowing your planning decisions to be dictated solely by budget may not be in best interest of the organization.
Points to ponder:
- Organizations should prepare their budgets based on the strategic plan of the entire organization.
- The strategic plan should always drive the budget.
- The budget should not be a stand alone.
- Organizations should allocate appropriate amount of time for both the planning process and the integration of planning into budgeting.
Final note: The strategic plan primarily should be a guide for the entire organization. One of the key reasons for strategic planning is to create a tension and conflict between your future vision and the resources you need to complete key tasks to achieve it, versus your current way of allocating your budget. This tension and gap between resources is what can motivate you to make the hard choices of how you spend your budget; either on past, obsolete activities or future-oriented priorities. We should avoid the temptation of not giving adequate time for both the planning and process and integration of planning into budgeting. As organizations and leaders, we should not rush too fast into budgeting and leaving planning to hang loose.
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