Relationship Between Strategic Planning and Budgeting

Strategic planning refers to a planning process which combines an organization’s major action sequences, policies and goals into a cohesive whole. A strategy that is well formulated assists to allocate and marshal resources of an organization into a viable and unique posture, founded on the comparative internal competencies and shortcomings, anticipated environmental changes and contingent moves via intelligent opponents. Strategic planning has the role of defining the expectations and directions of a firm that are founded on the stakeholders’ vision. It is a process of a progressive reflection. Budgeting on the other hand refers to a forecast of all expenses and income, and assists a business in identifying future financial plans and needs according to anticipated cash flow, expenses, and profit. A budget is used to support the strategic plan of an organization. Thus, a budget is a reflection of an organization strategic plan whereby it is highly influencing strategic planning (Lalli, 2012).

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The two processes differ in that strategic plan is an independent document or process that focuses more on the organizational objectives and how they can be achieved. On the contrary, budget is reliant on the strategic plan. It is created with intention of ensuring that the strategic plan is achieved by allocating it enough monetary resources to ensure its accomplishment. Budget can also be used in a reverse way to influence strategic plan, based on the amount anticipated to be acquired and the main strategic goals that must be accomplished.

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Strategic planning can be adjusted to either delay or fasten some activities based on the likelihood of getting enough sources of funding. Thus in a way, the strategic planning is done to identify processes needed to ensure organization growth, and stability.

is done to identify the resources available for funding those processes. While doing so, the strategic planning must define the level of priority to identify those processes that must be considered first in the budgeting and those that must follow or be considered in the future.  This highly influenced by the organization need.

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In most cases strategic planning and budgeting focus on identifying opportunities that can fit the organization budget to bring change in an organization. For instance, an organization may realize that it needs more workers training to enhance individual level of productivity. This activity is listed in the strategic plan as one of the year main strategic goal. The company budget should then be used to identify the amount that can be set aside for this specific activity. This should be considered after funding other necessary activity such as fixed operational charges, and important variable charges such as workers payments.  Hence the part of budget that considers the strategic planning aspect is regarded in the organization capital budget. This means, when strategic planning focus on processes that can bring change, budgeting focuses on adjusting funding in different sectors to create enough resources to accommodate the strategic planning goals, based on their level of priority. Thus, the planning period need to match the organization budget capability. The budgeting section that consider the strategic planning act as a form of investment set aside to accomplish projects likely to bring change in an organization.

Types of Budgets

There are five types of budgets that can be used to enhance financial planning in an organization. They include performance

, program and planning budgeting, zero-based budgeting, site-based budgeting, and outcome-focused budgeting (NCES, 2003). Below is a table offering a comparison of the five forms of budgeting.

Types of budgeting Key features Uses
Performance budgeting expenditure involves inputs standard cost  multiply by number of units offered in a time periodtotal budget involves sum of all standard unit cost multiply by expected unitsNarrative description of every program budget organization into quantitative costs estimates and accomplishments   Centers in evaluating and measuring outcome
Program and planning budgeting Expenditures are based on work programs and objects Expenditures are based on work programs and objectsIt involves identifying fundamental objectives and matching them with activities expenditure.Flexible enough to be used in different ways based on organization needs less evaluation and control oriented Budget reports and requests are summarized based on a few extensive programs Centers on long range planning Focus on determining the cost of the program and workers involvement cost 
Zero-based budgeting Program services and activities need to be justified every year in budgeting process Budget preparation involves dividing all operations of government into decision units at cooperatively low organizational levels Eliminates old expenditures and efforts and concentrate on most effective resources Annual review of all expenditures and activities of the program Individual units of decision are  then aggregated into package on organizational units, program activities, and goals Allocation decisions information improvement Effective development need paperwork,, planning and staff time Centers on enhancing improvement in the work operations by maybe defining incentives that can result to positive change
Site-based budgeting Resources allocation happens at the siteManagement have the main authority of controlling the budgetstresses on the budgetary decision making decentralization It enhance effective understanding of the organization needs it increases participation level by staffs and immediate managers Members are offered a chance to voice their needs (NCES, 2003) Focus on improving workers moral, ensuring enough provision of resources and general satisfaction of workers.
Outcome-Focused Budgeting Enhances linking the resources allocation to the outcomes productionEntity objectives, goals and outcomes must be tied and identified to the budget allocations for objectives accomplishmentFocus on allocating resources to programs or service providers who utilize them effectivelyIs more effective and efficient in offering desired results More flexible and innovative, ensuring high workers morale (NCES, 2003). Focus on improving individual performance by ensuring their operational needs are satisfied

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