Strategic Planning & Budget Preparation

1. Strategic Planning &Budget Preparation Chapters 7 & 8, Management Control Systems, 12th Ed., Anthony and Govindarajan

2. Definition of Strategic Planning “… the process of deciding on the programs that the organization will undertake and on the approximate amount of resources that will be allocated to each program over the next several years.” [Text, p. 300]

3. Strategic Planning Provides: • A framework for the operational budget • A training tool for managers • A mechanism forcing long-term thinking • A means of achieving goal congruence Must have senior-level management support Normally personality driven

4. What’s Included? • Proposed new programs • Ongoing programs • Required programs/improvements

5. Proposed New Programs • Normally, approved only by senior-level management • Analysis methods vary • Quantitative (Payback, NPV, IRR) • Qualitative (“Gut feelings,” experience) • Suggestion/submission timelines follow budgeting timelines • Can be submitted by anyone

6. Ongoing Programs • Can be approved at various levels based on management authority and span of control • Analysis methods • Mostly quantitative (value chain analysis, activity-based costing, NPV, IRR) • Some qualitative • Submission timelines follow budgeting timelines

7. Required Programs/Improvements • Normally dictated or mandated by law or regulations • Health, safety, etc. • Unavoidable cost of doing business • Little or no analysis required • Attempt to minimize costs incurred • Funding included in budget during normal timelines

8. Types of Budgets • Capital budget • Projects for more than one accounting cycle • Usually for specific investment or program • Each investment/program shown separately • Operational budget • Normally, one accounting cycle • Stated in monetary units • Sets objectives • Provides for performance assessment • Other budgets

9. Operational Budget • It’s more focused than strategic planning! • One year vs. several • Approved amounts vs. approved projections • It’s not a forecast! • Specified amounts vs. estimates • Approved vs. not approved

10. What Does It Show? • Budget by Corporation, Business Unit, Responsibility Center, etc. • Broken into • Revenues, by type • Costs, by type and responsible area • Net Income • Can be for specific time periods • Months, Quarters, Year

11. Other Budgets • Pro Forma Financial Statements • Statement of retained earnings • Balance sheet • Statement of cash flows • Cash budget • Cash collections schedule • Cash disbursements schedule • Contingency Budget

12. Budgeting Process • Must by emphasized and supported by senior-level managers (e.g., CEO) • Reviews and approval by line managers • Should be inclusive • People need to “buy in” • Should be reasonable • Not punitive • Revisable, as needed