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How to Develop a Strategic Plan for Business Development [Free Template]

Published: May 01, 2023

Business development is usually confused with sales , often overlooked, and only sometimes given the strategic focus it deserves. Having a business development strategy, however, is crucial to long-term success. It ensures that everyone in your company is working toward a common goal.

But how do you develop a business development plan? Pull up a chair and stay awhile, I’m diving into that and more below.

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Business development.

Business development is the practice of identifying, attracting, and acquiring new business to further your company’s revenue and growth goals. How you achieve these goals is sometimes referred to as a business development strategy — and it applies to and benefits everyone at your company.

It’s not unusual to mistake business development with sales, but there’s an important distinction between the two. Business development refers to many activities and functions inside and outside the traditional sales team structure. In some companies, business development is part of the larger sales operations team. In others, it’s part of the marketing team or sits on its own team altogether.

Because business development can look so different among industries and businesses, the strategy behind this function is expansive. Below, we outline each step in the strategy and how to apply it to your business development plan.

Business Development Strategy

• Understand your competitive landscape.
• Choose effective KPIs.
• Develop long-term customer relationships.
• Implement customer feedback.
• Keep your website content and user interface fresh.
• Speed up your response time.
• Leverage a sales plan to identify areas of growth.
• Implement a social listening strategy.
• Sponsor industry organizations, conferences, and events.

1. Understand your competitive landscape.

Before you can develop a strategic plan to drive business growth, you must have a solid understanding of the competitive landscape in your industry. When you know who your ideal customer is and what problem they are looking to solve with your product or service, research who else is providing a viable solution in your industry.

Identify other companies operating in your space. What features do their products have? How competitive is their pricing? Do their systems integrate with other third-party solutions? Get crystal-clear on what the competition is offering so you know how to differentiate your product to your customers.

Featured Resource: 10 Competitive Analysis Templates

2. Choose effective KPIs.

How will you know if your business development efforts are successful? Ensure you can measure your goals with relevant, meaningful key performance indicators (KPIs) that reflect the health of your business. The result of these metrics should give you a strong indication of how effective your business development efforts are.

Featured Resource: Sales Metrics Calculator Dashboard

3. Develop long-term customer relationships.

Do you engage with your customers even after the deal has been closed? If not, it’s time to develop a plan to keep your buyers engaged. Building long-term relationships with your customers pays off. A grand majority of a company's business comes from repeat customers, and returning customers are cheaper to convert. Indeed, it’s famously known that it costs five times more to convert new customers than it does to sell to returning customers.

Not only are repeat customers easier to sell to, they can also provide valuable feedback and insights to help you improve your business. Additionally, customer testimonials can be used for valuable content that can attract your next buyer.

4. Implement customer feedback.

If and when you have customers who are willing to provide feedback on your sales process and offerings, make sure you hear them out and implement it. Your customers offer a unique, valuable perspective because they chose your product over the competition — their insights can help shape your strategy to keep your business ahead of the curve.

5. Keep your website content and user interface fresh.

When was the last time your company had a website refresh? Can you ensure that all links are working, that your site is easy to navigate, and that it is laid out and intuitive for those who want to buy from you?

Keeping your website up-to-date and easy to use can make or break the sale for customers who know they are ready to buy. Don’t make it too difficult for potential customers to get in touch with you or purchase your product directly (if that suits your business model).

6. Speed up your response time.

How fast your sales team responds to your leads can make or break your ability to close the deal. If you notice your sales process has some lag time that prevents you from responding to prospects as soon as possible, these could be areas to prioritize improvement.

7. Leverage a sales plan to identify areas of growth.

No business development strategy is complete without a sales plan . If you’ve already established a plan, make sure to unify it with your business development efforts. Your plan should outline your target audience, identify potential obstacles, provide a “game plan” for sales reps, outline responsibilities for team members, and define market conditions.

While a sales plan primarily affects your sales team, it can inform the activities of your business development reps. A sales plan can help them understand where the business needs growth — whether it’s in a new vertical, a new audience, or a new need that’s recently come to light in the industry.

Not sure how to create a sales plan? Download the following template to get started.

Featured Resource: Sales Plan Template

8. Implement a social listening strategy.

While social listening is mainly used in a marketing and customer service context, it’s also an essential practice for business development. There are more than 4 billion social media users worldwide. Naturally, social media is one of the best places to hear directly from consumers and businesses — without needing to reach out to them first.

In business development, you can use social listening to track what the general public is saying about your brand, industry, product offerings, product category, and more. It can help you identify key weaknesses in the industry, making it a prime opportunity to be the first to address those pitfalls.

Use a social listening tool to pick up on trends before they gain traction.

9. Sponsor industry organizations, conferences, and events.

A key facet of business development is reaching potential customers where they are. One of the easiest ways to do that is by sponsoring industry organizations, conferences, and events. This strategy will guarantee that your business development reps get valuable face-to-face time with your business’ target audience. The additional visibility can also help establish your business as a leader in the field.

Now that you understand what business development entails, it's time to create a plan to set your strategy in motion.

How to Develop a Strategic Plan

When we refer to a business development strategic plan, we’re referring to a roadmap that guides the whole company and requires everyone’s assistance to execute successfully and move your customer through the flywheel . With a plan, you’ll close more deals and quantify success.

Let’s go over the steps you should take to create a strategic plan.

1. Download our strategic plan template .

First, download our free growth strategy template to create a rock-solid strategic plan. With this template, you can map a growth plan for increasing sales, revenue, and customer acquisition rates. You can also create action plans for adding new locations, creating new product lines, and expanding into new regions.

Featured Resource: Strategic Plan Template

2. Craft your elevator pitch.

What is your company’s mission and how do you explain it to potential clients in 30 seconds or less? Keeping your elevator pitch at the forefront of all strategic planning will remind everyone what you’re working toward and why.

Some people believe the best pitch isn’t a pitch at all , but a story. Others have their favorite types of pitches , from a one-word pitch to a Twitter pitch that forces you to boil down your elevator pitch to just 280 characters.

Find the elevator pitch that works best for your reps, company, and offer, and document it in your business development strategy.

3. Include an executive summary.

You’ll share your strategic plan with executives and maybe even board members, so it’s important they have a high-level overview to skim. Pick the most salient points from your strategic plan and list or summarize them here.

You might already have an executive summary for your company if you’ve written a business proposal or value proposition . Use this as a jumping off point but create one that’s unique to your business development goals and priorities.

Once your executives have read your summary, they should have a pretty good idea of your direction for growing the business — without having to read the rest of your strategy.

3. Set SMART goals.

What are your goals for this strategy? If you don’t know, it will be difficult for your company and team to align behind your plan. So, set SMART goals . Remember, SMART stands for:

Featured Resource: SMART Goal Setting Template

Download the template now.

If one of your goals is for 5% of monthly revenue to come from upsells or cross-sells, make this goal specific by identifying what types of clients you’ll target.

Identify how you’ll measure success. Is success when reps conduct upsell outreach to 30 clients every month, or is it when they successfully upsell a customer and close the deal? To make your goal attainable, ensure everyone on your team understands who is responsible for this goal: in this case, sales or business development reps.

This goal is relevant because it will help your company grow, and likely contributes to larger company-wide goals. To make it time-based, set a timeline for success and action. In this case, your sales team must achieve that 5% upsell/cross-sell number by the end of the quarter.

4. Conduct SWOT analysis.

SWOT is a strategic planning technique used to identify a company’s strengths, weaknesses, opportunities, and threats.

Before conducting a SWOT, identify what your goal is. For example, “We’d like to use SWOT to learn how best to conduct outreach to prospective buyers.”

Once you’ve identified what you’re working toward, conduct market research by talking with your staff, business partners, and customers.

Next, identify your business’ strengths. Perhaps you have low employee turnover, a central location that makes it easy to visit with prospects in person, or an in-demand feature your competitors haven’t been able to mimic.

Featured Resource: Market Research Kit with SWOT Analysis Template

Your business’ weaknesses are next. Has your product recently glitched? Have you been unable to successfully build out a customer service team that can meet the demands of your customers?

Then, switch to opportunities. For example, have you made a new business partnership that will transition you into a previously untapped market segment?

What are the threats? Is your physical space getting crowded? What about your market space? Is increasing competition an issue?

Use SWOT results to identify a better way forward for your company.

5. Determine how you’ll measure success.

You’ve identified strengths and weaknesses and set SMART goals , but how will you measure it all ? It’s important for your team to know just how they will be measured, goaled, and rewarded. Common key performance indicators (KPIs) for business development include:

• Company growth
• Lead conversion rate
• Leads generated per month
• Client satisfaction
• Pipeline value

6. Set a budget.

What will your budget be for achieving your goals? Review financial documents, historical budgets, and operational estimates to set a budget that’s realistic.

Once you have a “draft” budget, check it against other businesses in your industry and region to make sure you’re not overlooking or misjudging any numbers. Don’t forget to factor in payroll, facilities costs, insurance, and other operational line items that tend to add up.

7. Identify your target customer.

Who will your business development team pursue? Your target market is the group of customers your product/service was built for. For example, if you sell a suite of products for facilities teams at enterprise-level companies, your target market might be facilities or janitorial coordinators at companies with 1000+ employees. To identify your target market:

• Analyze your product or service
• Check out the competition
• Choose criteria to segment by
• Perform research

Your target customer is the person most likely to buy your product. Do your homework and make sure your business development plan addresses the right people. Only then will you be able to grow your business.

8. Choose an outreach strategy.

What tactics will you use to attract new business for your sales team to close? You might focus on a single tactic or a blend of a few. Once you know who your target market is and where they “hang out,” then you can choose an appropriate outreach strategy.

Will your business development plan rely heavily on thought leadership such as speaking at or attending conferences? Will you host a local meetup for others in your industry? Or will your reps network heavily on LinkedIn and social media?

If referrals will be pivotal to your business’ growth, consider at which stage of the buying process your BDRs will ask for referrals. Will you ask for a referral even if a prospect decides they like your product/service but aren’t a good fit? Or will you wait until a customer has been using your solution for a few months? Define these parameters in your strategy.

Upselling and Cross-Selling

Upselling and cross-selling are a cost-effective way of growing your business. But it’s important that this tactic is used with guardrails. Only upsell clients on features that will benefit them as well as your bottom line. Don’t bloat client accounts with features or services they really don’t need — that’s when turnover and churn start to happen.

Sponsorship and Advertising

Will your BDR work with or be on the marketing team to develop paid advertising campaigns? If so, how will your BDRs support these campaigns? And which channels will your strategy include? If you sell a product, you might want to feature heavily on Instagram or Facebook. If you’re selling a SaaS platform, LinkedIn or Twitter might be more appropriate.

What’s your outreach strategy? Will your BDRs be held to a quota to make 25 calls a week and send 15 emails? Will your outreach strategy be inbound , outbound , or a healthy combination of both? Identify the outreach guardrails that best match your company values for doing business.

Strategic Plan Example

Let’s put all of these moving parts in action with a strategic plan example featuring good ol’ Dunder Mifflin Paper Company.

Elevator Pitch Example for Strategic Plan

Dunder Mifflin is a local paper company dedicated to providing excellent customer support and the paper your business needs to excel today and grow tomorrow.

Here are some additional resources for inspiration:

• Elevator Pitch Examples to Inspire Your Own
• Components of an Elevator Pitch

Executive Summary Example for Strategic Plan

At Dunder Mifflin, our strengths are our customer service, speed of delivery, and our local appeal. Our weakness is that our sales cycle is too long.

To shorten the sales cycle 5% by the end of Q4, we need to ask for more referrals (which already enjoy a 15% faster sales cycle), sponsor local professional events, and outreach to big box store customers who suffer from poor customer support and are more likely to exit their contract. These tactics should allow us to meet our goal in the agreed-upon timeline.

• How to Write an Incredibly Well-Written Executive Summary [+ Example]
• Executive Summary Template

SMART Goals Example for Strategic Plan

Dunder Mifflin’s goal is to decrease our sales cycle 5% by the end of Q4. We will do this by more proactively scheduling follow-up meetings, sourcing more qualified, ready-to-buy leads, and asking for 25% more referrals (which have a 15% shorter sales cycle already). We will measure success by looking at the sales pipeline and calculating the average length of time it takes a prospect to become closed won or closed lost.

• 5 Dos and Don'ts When Making a SMART Goal [Examples]
• How to Write a SMART Goal
• SMART Marketing Goals Template

SWOT Analysis Example for Strategic Plan

Strengths: Our strengths are our reputation in the greater Scranton area, our customer service team (led by Kelly Kapoor), and our warehouse team, who ship same-day reams to our customers — something the big box stores cannot offer.

Weaknesses: Our greatest weakness is that our sales team has been unable to successfully counter prospects who choose big box stores for their paper supply. This results in a longer-than-average sales cycle, which costs money and time.

Opportunities: Our greatest business opportunity is to conduct better-targeted outreach to prospects who are ready to buy, ask for more referrals from existing customers, and follow up with closed lost business that’s likely coming up on the end of an annual contract with a big box store.

Threats: Our biggest threat is large box stores offering lower prices to our prospects and customers and a sales cycle that is too long, resulting in low revenue and slow growth.

• How to Conduct Competitive Analysis
• How to Run a SWOT Analysis for Your Business [+ Template]
• SWOT Analysis Template and Market Research Kit

Measurement of Success Example for Strategic Plan

We will measure success by looking at the sales pipeline and calculating the average length of time it takes a prospect to become closed won or closed lost.

Budget Example for Strategic Plan

You've laid out the SMART goals and the way you'll measure for success. The budget section's goal is to estimate how much investment it will take to achieve those goals. This will likely end up being a big-picture overview, broken down into a budget by a program or a summary of key investments. Consider laying it out in a table format like so:

• Budgeting Templates
• How to Write an Incredible Startup Marketing Budget

Target Customer Example for Strategic Plan

Our target customer is office managers at small- to medium-sized companies in the greater Scranton, PA area. They are buying paper for the entire office, primarily for use in office printers, custom letterhead, fax machines. They are busy managing the office and value good customer service and a fast solution for their paper needs.

• How to Create Detailed Buyer Personas for Your Business
• Make My Persona Tool

Outreach Strategy Example for Strategic Plan

Networking, sponsorships, and referrals will be our primary mode of outreach. We will focus on networking at regional paper conferences, HR conferences, and local office manager meetups. We will sponsor local professional events. And we will increase the volume of referrals we request from existing customers.

Create a Strategic Plan for Business Development

Without a strategic plan, you can invest resources, time, and funds into business development initiatives that won't grow your business. A strategic plan is crucial as it aligns your business development and sales teams. With a solid business development strategic plan, everyone will be working toward the greater good of your company.

Editor's note: This post was originally published in January 2020 and has been updated for comprehensiveness.

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Strategic Business Alignment

Your guide to creating a strategic business development plan.

The People Strategy Leaders Podcast

Every business faces the challenge of crafting an effective business development strategy . But what exactly is strategic business development? In simple terms, it’s a vital tool that ensures long-term success by aligning everyone in your organization towards a common objective.

A well-defined strategy outlines what your organization aims to achieve and the necessary steps to get there. It provides a clear roadmap, guiding your transition from broad directions to specific initiatives and ongoing operations. A strategic business development plan plays a crucial role in driving growth and ensuring sustainable success.

Now, let’s explore the strategic plan further, understand its significance, and dive into the art of crafting a winning business development plan.

Strategic Business Development Plan – What Is It?

A business development strategy is crucial for achieving organizational objectives and driving growth. It involves finding and implementing effective business growth strategies. With a well-defined growth strategy, teams can better understand their goals and contribute to organizational objectives. Business development focuses on attracting and retaining new customers to enhance revenue and expand your organization. By developing a clear plan, your business can plan to achieve these goals.

According to a poll conducted by Bridges Business Consultancy, a staggering 48% of organizations and 85% of businesses fail to achieve even half of their strategic goals. This highlights the importance of creating a strategic business development plan. 

Importance of Strategic Business Development Plan

A well-crafted strategic business development plan is the key to unlock long-term success and growth for your organization. By defining clear goals and actionable plans, businesses can thrive and achieve greatness. But why exactly is a strategic business development plan crucial? Let’s dive into a few compelling reasons.

Improves transparency

Transparency has become recognized as a critical business trait for both customers and employees. By cultivating transparency, you can enhance your company’s success and reputation. From strengthening your sales team to improving employee retention, transparency has the power to make a significant impact. Implementing a strategic growth strategy ensures that everyone in your organization is aware of the goals and their role in achieving them, thus promoting transparency.

Increases sales

At the heart of business development lies growth. Increasing sales is the ultimate goal, and businesses need a plan to make it happen. A strategic business development plan allows you to identify markets and products with high-profit potential, enabling you to prioritize partnerships and make informed decisions. It also helps you reduce expenses, uncover untapped growth opportunities, and allocate resources efficiently. With a solid business development strategy , your bottom line will thrive.

In today’s competitive landscape, businesses must actively seek growth opportunities. A thoughtfully designed business development strategy enables you to expand your clientele, explore new markets, and offer innovative products or services. By identifying your differentiators and value propositions, you’ll set your organization apart from competitors and take a lead in the market.

Also Read: How To Improve Employee Productivity In 2024?

How to create a strategic business development plan.

Effective strategic management involves identifying an organization’s strengths and acknowledging its weaknesses. It goes beyond mere recognition and outlines a robust business strategy that maximizes the benefits and mitigates the drawbacks. A comprehensive corporate development plan comprises various components, each strategically aligned with distinct goals and objectives. Now, let’s delve into a detailed possess to create a business plan:

Define your purpose

A strategic plan serves as the overarching mission or vision statement for a company. When embarking on the creation of a corporate plan, it proves advantageous to initiate the process by clearly defining the goal of your organization . This entails a meticulous identification of the needs, preferences, and pain points of your ideal customers. By gaining a profound understanding of these factors, your plan can be more effectively tailored to cater to their specific requirements. Initiating the strategic planning process with a well-defined purpose sets the foundation for your company to deliver enhanced value over time.

Perform market research

After identifying your target market, it’s time to delve into comprehending their needs. To effectively persuade them to collaborate with you, you need to address the following inquiries:

• What are the major challenges they currently face?
• What specific services pique their interest?
• How do they approach problem-solving at present?
• How can your products or services uplift their current situation?

Once you have solid answers to these questions, it’s crucial to thoroughly research your competitors. Identify what makes you stand out from the crowd and emphasize this unique value proposition to potential clients, leveraging it as your competitive advantage.

Consider SWOT analysis

To gain a profound understanding of your company’s current standing, conducting a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) is a paramount strategy. Each element of the SWOT matrix plays a crucial role in shaping and executing an organization’s strategy. Some factors fall under internal control, while others are significantly influenced by external forces. A SWOT analysis provides a comprehensive view of your business from various perspectives. It not only sheds light on internal aspects for improvement and areas of success but also necessitates an evaluation of the external environment. This evaluation helps identify potential threats and business opportunities that can be either mitigated or seized in the future.”

Provide value to stakeholders

Investing in lasting connections with your clients is a worthwhile expense. Repeat customers not only contribute significantly to your business’s revenue but also come at a lower conversion cost. Moreover, returning customers are more open to your sales pitches, providing valuable insights for your company’s growth. However, remember that your suppliers deserve value too – it’s crucial to prioritize delivering value to them alongside your customers. And let’s not forget about the importance of prioritizing employee satisfaction in your business plan. By doing so, you’ll not only enhance employee morale but also improve customer satisfaction in the process.

Identify ways to monitor progress

Effectively monitoring the progress of your business development strategy is crucial for achieving your goals. One key approach is the utilization of key performance indicators (KPIs) tailored to your strategic objectives. Regularly tracking these KPIs provides real-time insights into the performance of various initiatives, allowing for timely adjustments and improvements. Data analytics tools play a vital role in quantifying metrics such as customer acquisition costs, conversion rates, and website traffic. Additionally, seeking feedback from customers, conducting market research, and implementing surveys can offer qualitative insights that complement quantitative data. 

Make use of technology

Embrace tools and platforms designed to enhance the efficiency of your business development activities. Utilize advanced solutions to manage leads, keep track of interactions, and engage with prospects seamlessly. Leverage social networking sites, implement marketing automation software, and integrate CRM systems to streamline your processes. Maintain flexibility and readiness to adapt to evolving consumer demands and market conditions. Regularly assess and enhance your business development approach to stay ahead and remain competitive in a dynamic business landscape.

Monitor and alter your approach

Regularly monitoring the effectiveness of your business development strategy enables you to make necessary adjustments based on valuable information and insights. Keep a close eye on the progress of your objectives and assess the efficiency of your strategy using key performance indicators (KPIs). Stay proactive by consistently evaluating market developments, gathering customer input, and monitoring competitor activities. 

A comprehensive understanding of your target market, specific objectives, and a clearly articulated value proposition are essential for crafting a successful business growth strategy.

Also Read: Modern Performance Appraisal Types that Create a Winning Culture

Summing it up.

Every successful business has its own unique qualities. That’s why it is crucial to tailor these tactics to align with your specific goals, industry, and target audience. Continuously evaluate your business development efforts and make the necessary adjustments to foster growth and triumph. 

With a well-structured strategic management approach, you can not only enjoy this process but also proudly propel your company forward. Remember, implementing a company plan requires dedication, but it is just the beginning of an exciting journey. By embracing the right planning and utilizing the appropriate resources, your organization stands a fair chance of achieving remarkable success. 

Frequently Asked Questions

1. what is the primary purpose of a strategic business development plan.

A strategic business development plan serves as a roadmap for guiding your company’s growth and success. It outlines goals, identifies opportunities, and sets a clear path for achieving sustainable development. By aligning your business activities with a well-thought-out plan, you can enhance decision-making and improve overall efficiency.

2. How often should I update my strategic business development plan?

Regular updates are crucial for keeping your strategic business development plan relevant and effective. Aim to review and, if necessary, revise the plan at least annually. However, more frequent assessments may be required if there are significant changes in your industry, market conditions, or internal factors. Flexibility and adaptability are key in ensuring your plan remains a dynamic tool for success.

3. What are the key components of a successful strategic business development plan?

A comprehensive strategic business development plan typically includes key components such as a clear mission statement, a thorough analysis of the current business environment, defined short-term and long-term goals, identification of target markets, competitive analysis, and a detailed implementation strategy. It should also outline how progress will be measured and what mechanisms are in place for regular evaluation and adjustments.

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Chandler Barr is the VP of Sales at Engagedly and is focused on driving a culture of progress over perfection in a no-fault environment where employees are secure and encouraged to think creatively to solve problems. Chandler is a seasoned leader that has scaled sales teams for SaaS startups and multibillion-dollar publicly traded tech companies, as well as, led Marines to accomplish the mission during hardships overseas.

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What Is Business Development?

• Understanding the Basics
• Areas of Development
• The Process
• Creating a Plan
• Skills Needed

The Bottom Line

• Small Business
• How to Start a Business

Business Development: Definition, Strategies, Steps & Skills

Why more and more companies worldwide are embracing this planning process

In the simplest terms, business development is a process aimed at growing a company and making it more successful. That can include seeking new business opportunities, building and sustaining connections with existing clients, entering strategic partnerships, and devising other plans to boost profits and market share.

Key Takeaways

• The overarching goal of business development is to make a company more successful.
• It can involve many objectives, such as sales growth, business expansion, the formation of strategic partnerships, and increased profitability.
• The business development process can impact every department within a company, including sales, marketing, manufacturing, human resources, accounting, finance, product development, and vendor management.
• Business development leaders and team members need a wide range of both soft and hard skills.

How Business Development Works Within an Organization

Business development, sometimes abbreviated as BD, strives to increase an organization's capabilities and reach in pursuit of its financial and other goals. In that way, it can impact—and also call upon the specialized skills of—a variety of departments throughout the organization.

As the financial services giant American Express puts it, "When it comes to organizational growth, business development acts as the thread that ties together all of a company's functions or departments, helping a business expand and improve its sales, revenues, product offerings, talent, customer service, and brand awareness."

For example:

Sales and Marketing

Sales personnel frequently focus on a particular market or a particular (set of) client(s), often for a targeted revenue number. A business development team might assess the Brazilian market, for example, and conclude that sales of $1.5 billion can be achieved there in three years. With that as their goal, the sales department targets the customer base in the new market with their sales strategies.

Business development often takes a longer-range perspective in setting goals than many sales departments have in the past. As the Society for Marketing Professional Services puts it, "A traditional view of sales is akin to hunting, but business development is more like farming: it's a longer-term investment of time and energy and not always a quick payoff."

Marketing , which oversees the promotion and advertising of the company's products and services, plays a complementary role to sales in achieving its targets.

A business development leader and their team can help set appropriate budgets based on the opportunities involved. Higher sales and marketing budgets allow for aggressive strategies like cold calling , personal visits, roadshows, and free sample distribution. Lower budgets tend to rely on more passive strategies, such as online, print, and social media ads, as well as billboard advertising.

Legal and Finance

To enter a new market, a business development team must decide whether it will be worth going solo by clearing all the required legal formalities or whether it might be more sensible to form a strategic alliance or partnership with firms already operating in that market. Assisted by legal and finance teams, the business development group weighs the pros and cons of the available options and selects the one that best serves the business.

Finance may also become involved in cost-cutting initiatives. Business development is not just about increasing market reach and sales, but improving the bottom line . An internal assessment revealing high spending on travel , for instance, may lead to travel policy changes, such as hosting video conference calls instead of on-site meetings or opting for less expensive transportation modes. The outsourcing of non-core work, such as billing, technology operations, or customer service, may also be part of the development plan.

Project Management/Business Planning

Does an international business expansion require a new facility in the new market, or will all the products be manufactured in the base country and then imported into the targeted market? Will the latter option require an additional facility in the base country? Such decisions are finalized by the business development team based on their cost- and time-related assessments. Then, the project management /implementation team can swing into action to work toward the desired goal.

Product Management and Manufacturing

Regulatory standards and market requirements can vary across regions and countries. A medicine of a certain composition may be allowed in India but not in the United Kingdom, for example. Does the new market require a customized—or altogether new—version of the product?

These requirements drive the work of product management and manufacturing departments, as determined by the business strategy. Cost considerations, legal approvals, and regulatory adherence are all assessed as a part of the development plan.

Vendor Management

Will the new business need external vendors ? For example, will the shipping of a product require a dedicated courier service? Will the company partner with an established retail chain for retail sales? What are the costs associated with these engagements? The business development team works through these questions with the appropriate internal departments.

10 Potential Areas for Business Development

As noted earlier, business development can require employees throughout an organization to work in tandem to facilitate information, strategically plan future actions, and make smart decisions. Here is a summary list of potential areas that business development may get involved in, depending on the organization.

• Market research and analysis: This information helps identify new market opportunities and develop effective strategies.
• Sales and lead generation: This involves prospecting, qualifying leads, and coordinating with the sales team to convert leads into customers.
• Strategic partnerships and alliances: This includes forming strategic alliances, joint ventures, or collaborations that create mutually beneficial opportunities.
• Product development and innovation: This involves conducting market research, gathering customer feedback, and collaborating with internal teams to drive innovation.
• Customer relationship management: This involves customer retention initiatives, loyalty programs, and gathering customer feedback to enhance customer satisfaction and drive repeat business.
• Strategic planning and business modeling: This includes identifying growth opportunities, setting targets, and implementing strategies to achieve sustainable growth.
• Mergers and acquisitions: This involves evaluating potential synergies, conducting due diligence , and negotiating and executing deals.
• Brand management and marketing: This includes creating effective marketing campaigns, managing online and offline channels, and leveraging digital marketing techniques.
• Financial analysis and funding: This includes exploring funding options, securing investments, or identifying grant opportunities.
• Innovation and emerging technologies: This involves assessing the potential impact of disruptive technologies and integrating them into the organization's growth strategies.

The Business Development Process in Six Steps

While the specific steps in the business development process will depend on the particular company, its needs and capabilities, its leadership, and its available capital, these are some of the more common ones:

Step 1: Market Research/Analysis

Begin by conducting comprehensive market research to gain insights into market trends, customer needs, and the competitive landscape. Analyze data and gather additional information to identify potential growth opportunities and understand the market dynamics.

Step 2: Establish Clear Goals and Objectives

Leveraging that research, define specific objectives and goals for business development efforts. These goals could include revenue targets, market expansion goals, customer acquisition targets, and product/service development objectives. Setting clear goals provides a focus for the business development process.

Step 3: Generate and Qualify Leads

Use various sources, such as industry databases, networking , referrals, or online platforms to generate a pool of potential leads. Identify individuals or companies that fit the target market criteria and have the potential to become customers. Then, evaluate and qualify leads based on predetermined criteria to determine their suitability and potential value.

Step 4: Build Relationships and Present Solutions

Initiate contact with qualified leads and establish relationships through effective communication and engagement. Utilize networking events, industry conferences, personalized emails, or social media interactions to build trust and credibility. As your relationship forms, develop and present tailored solutions that align with the client's needs. Demonstrate the value proposition of the organization's offerings and highlight key benefits and competitive advantages.

Step 5: Negotiate and Expand

Prepare and deliver proposals that outline the scope of work, pricing, deliverables, and timelines. Upon agreement, coordinate with legal and other relevant internal teams to ensure a smooth contract execution process.

Step 6: Continuously Evaluate

Continuously monitor and evaluate the effectiveness of business development efforts. Analyze performance metrics , gather feedback from clients and internal stakeholders, and identify areas for improvement. Regularly refine strategies and processes to adapt to market changes and optimize outcomes.

While it's common for startup companies to seek outside assistance in developing the business, as a company matures, it should aim to build its business development expertise internally.

How to Create a Business Development Plan

To effectively create and implement a business development plan, the team needs to set clear objectives and goals—ones that are specific, measurable, achievable, relevant, and time-bound (SMART). You can align these objectives with the overall business goals of the company.

Companies often analyze the current state of the organization by evaluating its strengths, weaknesses, opportunities, and threats through a SWOT analysis . That can make it easier to identify target markets and customer segments and define their unique value proposition.

A substantial component of a business development plan is the external-facing stages. It should lay out sales and marketing strategies to generate leads and convert them into customers. In addition, it may explore new potential strategic partnerships and alliances to expand your reach, access new markets, or enhance your offerings.

Teams should conduct a financial analysis and do resource planning to determine the resources required for implementing the plan. Once you implement, you should track progress against the key performance indicators (KPIs) you've chosen.

Skills Needed for Business Development Jobs

Business development is a fast-growing field across industries worldwide. It is also one that calls upon a wide range of hard and soft skill sets.

Leaders and other team members benefit from well-honed sales and negotiating skills in order to interact with clients, comprehend their needs, and sway their decisions. They have to be able to establish rapport, cope with challenges, and conclude transactions. They need to be able to communicate clearly, verbally and in writing, to both customers and internal stakeholders.

Business development specialists should have a thorough awareness of the market in which they operate. They should keep up with market dynamics, competition activity, and other industry developments. They should be able to see potential opportunities, make wise judgments, and adjust tactics as necessary. Because many of their decisions will be data-driven, they need good analytical skills.

Internally, business development practitioners need to be able to clarify priorities, establish reasonable deadlines, manage resources wisely, and monitor progress to guarantee timely completion.

Finally, people who work in business development should conduct themselves with the utmost morality and honesty. They must uphold confidentiality, act legally and ethically, and build trust with customers and other stakeholders.

Why Is Business Development Important?

In addition to its benefits to individual companies, business development is important for generating jobs, developing key industries, and keeping the economy moving forward.

What Are the Most Important Skills for Business Development Executives?

Development executives need to have leadership skills, vision, drive, and a willingness to work with a variety of people to get to a common goal.

How Can I Be Successful in Business Development?

Having a vision and putting together a good team are among the factors that help predict success in business development. A successful developer also knows how to write a good business plan, which becomes the blueprint to build from.

What, in Brief, Should a Business Development Plan Include?

A business development plan, or business plan , should describe the organization's objectives and how it intends to achieve them, including financial goals, expected costs, and targeted milestones.

Business development provides a way for companies to rise above their day-to-day challenges and set a course for a successful future. More and more companies, across many different types of industries, are coming to recognize its value and importance.

American Express. " Business Development and Its Importance ."

Society for Marketing Professional Services. " What Is Business Development? "

World Economic Forum. " The Future of Jobs Report 2020 ," Page 30.

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The Strategic Planning Process in 4 Steps

To help you throughout our strategic planning framework, we have created a how-to guide on the basics of a strategic plan, which we will take you through step-by-step..

Free Strategic Planning Guide

What is Strategic Planning?

Strategic Planning is when organizations define a bold vision and create a plan with objectives and goals to reach that future. A great strategic plan defines where your organization is going, how you’ll win, who must do what, and how you’ll review and adapt your strategy development.

Overview of the Strategic Planning Process:

The strategic management process involves taking your organization on a journey from point A (where you are today) to point B (your vision of the future).

Part of that journey is the strategy built during strategic planning, and part of it is execution during the strategic management process. A good strategic plan dictates “how” you travel the selected road.

Effective execution ensures you are reviewing, refreshing, and recalibrating your strategy to reach your destination. The planning process should take no longer than 90 days. But, move at a pace that works best for you and your team and leverage this as a resource.

To kick this process off, we recommend 1-2 weeks (1-hour meeting with the Owner/CEO, Strategy Director, and Facilitator (if necessary) to discuss the information collected and direction for continued planning.)

Questions to Ask:

• Who is on your Planning Team? What senior leadership members and key stakeholders are included? Checkout these links you need help finding a strategic planning consultant , someone to facilitate strategic planning , or expert AI strategy consulting .
• Who will be the business process owner (Strategy Director) of planning in your organization?
• Fast forward 12 months from now, what do you want to see differently in your organization as a result of your strategic plan and implementation?
• Planning team members are informed of their roles and responsibilities.
• A strategic planning schedule is established.
• Existing planning information and secondary data collected.

Action Grid:

Step 1: Determine Organizational Readiness

Set up your plan for success – questions to ask:

• Are the conditions and criteria for successful planning in place at the current time? Can certain pitfalls be avoided?
• Is this the appropriate time for your organization to initiate a planning process? Yes or no? If no, where do you go from here?

Step 2: Develop Your Team & Schedule

Who is going to be on your planning team? You need to choose someone to oversee the strategy implementation (Chief Strategy Officer or Strategy Director) and strategic management of your plan? You need some of the key individuals and decision makers for this team. It should be a small group of approximately 12-15 people.

OnStrategy is the leader in strategic planning and performance management. Our cloud-based software and hands-on services closes the gap between strategy and execution. Learn more about OnStrategy here .

Step 3: Collect Current Data

All strategic plans are developed using the following information:

• The last strategic plan, even if it is not current
• Mission statement, vision statement, values statement
• Past or current Business plan
• Financial records for the last few years
• Marketing plan
• Other information, such as last year’s SWOT, sales figures and projections

Step 4: Review Collected Data

Review the data collected in the last action with your strategy director and facilitator.

• What trends do you see?
• Are there areas of obvious weakness or strengths?
• Have you been following a plan or have you just been going along with the market?

Conclusion: A successful strategic plan must be adaptable to changing conditions. Organizations benefit from having a flexible plan that can evolve, as assumptions and goals may need adjustments. Preparing to adapt or restart the planning process is crucial, so we recommend updating actions quarterly and refreshing your plan annually.

Strategic Planning Phase 1: Determine Your Strategic Position

Want more? Dive into the “ Evaluate Your Strategic Position ” How-To Guide.

Action Grid

Step 1: identify strategic issues.

Strategic issues are critical unknowns driving you to embark on a robust strategic planning process. These issues can be problems, opportunities, market shifts, or anything else that keeps you awake at night and begging for a solution or decision. The best strategic plans address your strategic issues head-on.

• How will we grow, stabilize, or retrench in order to sustain our organization into the future?
• How will we diversify our revenue to reduce our dependence on a major customer?
• What must we do to improve our cost structure and stay competitive?
• How and where must we innovate our products and services?

Step 2: Conduct an Environmental Scan

Conducting an environmental scan will help you understand your operating environment. An environmental scan is called a PEST analysis, an acronym for Political, Economic, Social, and Technological trends. Sometimes, it is helpful to include Ecological and Legal trends as well. All of these trends play a part in determining the overall business environment.

Step 3: Conduct a Competitive Analysis

The reason to do a competitive analysis is to assess the opportunities and threats that may occur from those organizations competing for the same business you are. You need to understand what your competitors are or aren’t offering your potential customers. Here are a few other key ways a competitive analysis fits into strategic planning:

• To help you assess whether your competitive advantage is really an advantage.
• To understand what your competitors’ current and future strategies are so you can plan accordingly.
• To provide information that will help you evaluate your strategic decisions against what your competitors may or may not be doing.

Learn more on how to conduct a competitive analysis here .

Step 4: Identify Opportunities and Threats

Opportunities are situations that exist but must be acted on if the business is to benefit from them.

What do you want to capitalize on?

• What new needs of customers could you meet?
• What are the economic trends that benefit you?
• What are the emerging political and social opportunities?
• What niches have your competitors missed?

Threats refer to external conditions or barriers preventing a company from reaching its objectives.

What do you need to mitigate? What external driving force do you need to anticipate?

Questions to Answer:

• What are the negative economic trends?
• What are the negative political and social trends?
• Where are competitors about to bite you?
• Where are you vulnerable?

Step 5: Identify Strengths and Weaknesses

Strengths refer to what your company does well.

What do you want to build on?

• What do you do well (in sales, marketing, operations, management)?
• What are your core competencies?
• What differentiates you from your competitors?
• Why do your customers buy from you?

Weaknesses refer to any limitations a company faces in developing or implementing a strategy.

What do you need to shore up?

• Where do you lack resources?
• What can you do better?
• Where are you losing money?
• In what areas do your competitors have an edge?

Step 6: Customer Segments

Customer segmentation defines the different groups of people or organizations a company aims to reach or serve.

• What needs or wants define your ideal customer?
• What characteristics describe your typical customer?
• Can you sort your customers into different profiles using their needs, wants and characteristics?
• Can you reach this segment through clear communication channels?

Step 7: Develop Your SWOT

A SWOT analysis is a quick way of examining your organization by looking at the internal strengths and weaknesses in relation to the external opportunities and threats. Creating a SWOT analysis lets you see all the important factors affecting your organization together in one place.

It’s easy to read, easy to communicate, and easy to create. Take the Strengths, Weaknesses, Opportunities, and Threats you developed earlier, review, prioritize, and combine like terms. The SWOT analysis helps you ask and answer the following questions: “How do you….”

• Build on your strengths
• Shore up your weaknesses
• Capitalize on your opportunities
• Manage your threats

Strategic Planning Process Phase 2: Developing Strategy

Want More? Deep Dive Into the “Developing Your Strategy” How-To Guide.

Step 1: Develop Your Mission Statement

The mission statement describes an organization’s purpose or reason for existing.

What is our purpose? Why do we exist? What do we do?

• What are your organization’s goals? What does your organization intend to accomplish?
• Why do you work here? Why is it special to work here?
• What would happen if we were not here?

Outcome: A short, concise, concrete statement that clearly defines the scope of the organization.

Step 2: discover your values.

Your values statement clarifies what your organization stands for, believes in and the behaviors you expect to see as a result. Check our the post on great what are core values and examples of core values .

How will we behave?

• What are the key non-negotiables that are critical to the company’s success?
• What guiding principles are core to how we operate in this organization?
• What behaviors do you expect to see?
• If the circumstances changed and penalized us for holding this core value, would we still keep it?

Outcome: Short list of 5-7 core values.

Step 3: casting your vision statement.

A Vision Statement defines your desired future state and directs where we are going as an organization.

Where are we going?

• What will our organization look like 5–10 years from now?
• What does success look like?
• What are we aspiring to achieve?
• What mountain are you climbing and why?

Outcome: A picture of the future.

Step 4: identify your competitive advantages.

A competitive advantage is a characteristic of an organization that allows it to meet its customer’s need(s) better than its competition can. It’s important to consider your competitive advantages when creating your competitive strategy.

What are we best at?

• What are your unique strengths?
• What are you best at in your market?
• Do your customers still value what is being delivered? Ask them.
• How do your value propositions stack up in the marketplace?

Outcome: A list of 2 or 3 items that honestly express the organization’s foundation for winning.

Step 5: crafting your organization-wide strategies.

Your competitive strategy is the general methods you intend to use to reach your vision. Regardless of the level, a strategy answers the question “how.”

How will we succeed?

• Broad: market scope; a relatively wide market emphasis.
• Narrow: limited to only one or few segments in the market
• Does your competitive position focus on lowest total cost or product/service differentiation or both?

Outcome: Establish the general, umbrella methods you intend to use to reach your vision.

Phase 3: Strategic Plan Development

Want More? Deep Dive Into the “Build Your Plan” How-To Guide.

Strategic Planning Process Step 1: Use Your SWOT to Set Priorities

If your team wants to take the next step in the SWOT analysis, apply the TOWS Strategic Alternatives Matrix to your strategy map to help you think about the options you could pursue. To do this, match external opportunities and threats with your internal strengths and weaknesses, as illustrated in the matrix below:

TOWS Strategic Alternatives Matrix

Evaluate the options you’ve generated, and identify the ones that give the greatest benefit, and that best achieve the mission and vision of your organization. Add these to the other strategic options that you’re considering.

Step 2: Define Long-Term Strategic Objectives

Long-Term Strategic Objectives are long-term, broad, continuous statements that holistically address all areas of your organization. What must we focus on to achieve our vision? Check out examples of strategic objectives here. What are the “big rocks”?

Questions to ask:

• What are our shareholders or stakeholders expectations for our financial performance or social outcomes?
• To reach our outcomes, what value must we provide to our customers? What is our value proposition?
• To provide value, what process must we excel at to deliver our products and services?
• To drive our processes, what skills, capabilities and organizational structure must we have?

Outcome: Framework for your plan – no more than 6. You can use the balanced scorecard framework, OKRs, or whatever methodology works best for you. Just don’t exceed 6 long-term objectives.

Step 3: Setting Organization-Wide Goals and Measures

Once you have formulated your strategic objectives, you should translate them into goals and measures that can be communicated to your strategic planning team (team of business leaders and/or team members).

You want to set goals that convert the strategic objectives into specific performance targets. Effective strategic goals clearly state what, when, how, and who, and they are specifically measurable. They should address what you must do in the short term (think 1-3 years) to achieve your strategic objectives.

Organization-wide goals are annual statements that are SMART – specific, measurable, attainable, responsible, and time-bound. These are outcome statements expressing a result to achieve the desired outcomes expected in the organization.

What is most important right now to reach our long-term objectives?

Outcome: clear outcomes for the current year..

Step 4: Select KPIs

Key Performance Indicators (KPI) are the key measures that will have the most impact in moving your organization forward. We recommend you guide your organization with measures that matter. See examples of KPIs here.

How will we measure our success?

Outcome: 5-7 measures that help you keep the pulse on your performance. When selecting your Key Performance Indicators (KPIs), ask, “What are the key performance measures we need to track to monitor if we are achieving our goals?” These KPIs include the key goals you want to measure that will have the most impact on moving your organization forward.

Step 5: Cascade Your Strategies to Operations

To move from big ideas to action, creating action items and to-dos for short-term goals is crucial. This involves translating strategy from the organizational level to individuals. Functional area managers and contributors play a role in developing short-term goals to support the organization.

Before taking action, decide whether to create plans directly derived from the strategic plan or sync existing operational, business, or account plans with organizational goals. Avoid the pitfall of managing multiple sets of goals and actions, as this shifts from strategic planning to annual planning.

Questions to Ask

• How are we going to get there at a functional level?
• Who must do what by when to accomplish and drive the organizational goals?
• What strategic questions still remain and need to be solved?

Department/functional goals, actions, measures and targets for the next 12-24 months

Step 6: Cascading Goals to Departments and Team Members

Now in your Departments / Teams, you need to create goals to support the organization-wide goals. These goals should still be SMART and are generally (short-term) something to be done in the next 12-18 months. Finally, you should develop an action plan for each goal.

Keep the acronym SMART in mind again when setting action items, and make sure they include start and end dates and have someone assigned their responsibility. Since these action items support your previously established goals, it may be helpful to consider action items your immediate plans on the way to achieving your (short-term) goals. In other words, identify all the actions that need to occur in the next 90 days and continue this same process every 90 days until the goal is achieved.

Examples of Cascading Goals:

Phase 4: Executing Strategy and Managing Performance

Want more? Dive Into the “Managing Performance” How-To Guide.

Step 1: Strategic Plan Implementation Schedule

Implementation is the process that turns strategies and plans into actions in order to accomplish strategic objectives and goals.

How will we use the plan as a management tool?

• Communication Schedule: How and when will you roll-out your plan to your staff? How frequently will you send out updates?
• Process Leader: Who is your strategy director?
• Structure: What are the dates for your strategy reviews (we recommend at least quarterly)?
• System & Reports: What are you expecting each staff member to come prepared with to those strategy review sessions?

Outcome: Syncing your plan into the “rhythm of your business.”

Once your resources are in place, you can set your implementation schedule. Use the following steps as your base implementation plan:

• Establish your performance management and reward system.
• Set up monthly and quarterly strategy meetings with established reporting procedures.
• Set up annual strategic review dates including new assessments and a large group meeting for an annual plan review.

Now you’re ready to start plan roll-out. Below are sample implementation schedules, which double for a full strategic management process timeline.

Step 2: Tracking Goals & Actions

Monthly strategy meetings don’t need to take a lot of time – 30 to 60 minutes should suffice. But it is important that key team members report on their progress toward the goals they are responsible for – including reporting on metrics in the scorecard they have been assigned.

By using the measurements already established, it’s easy to make course corrections if necessary. You should also commit to reviewing your Key Performance Indicators (KPIs) during these regular meetings. Need help comparing strategic planning software ? Check out our guide.

Effective Strategic Planning: Your Bi-Annual Checklist

Never lose sight of the fact that strategic plans are guidelines, not rules. Every six months or so, you should evaluate your strategy execution and strategic plan implementation by asking these key questions:

• Will your goals be achieved within the time frame of the plan? If not, why?
• Should the deadlines be modified? (Before you modify deadlines, figure out why you’re behind schedule.)
• Are your goals and action items still realistic?
• Should the organization’s focus be changed to put more emphasis on achieving your goals?
• Should your goals be changed? (Be careful about making these changes – know why efforts aren’t achieving the goals before changing the goals.)
• What can be gathered from an adaptation to improve future planning activities?

Why Track Your Goals?

• Ownership: Having a stake and responsibility in the plan makes you feel part of it and leads you to drive your goals forward.
• Culture: Successful plans tie tracking and updating goals into organizational culture.
• Implementation: If you don’t review and update your strategic goals, they are just good intentions
• Accountability: Accountability and high visibility help drive change. This means that each measure, objective, data source and initiative must have an owner.
• Empowerment: Changing goals from In Progress to Complete just feels good!

Step 3: Review & Adapt

Guidelines for your strategy review.

The most important part of this meeting is a 70/30 review. 30% is about reviewing performance, and 70% should be spent on making decisions to move the company’s strategy forward in the next quarter.

The best strategic planners spend about 60-90 minutes in the sessions. Holding meetings helps focus your goals on accomplishing top priorities and accelerating the organization’s growth. Although the meeting structure is relatively simple, it does require a high degree of discipline.

Strategy Review Session Questions:

Strategic planning frequently asked questions, read our frequently asked questions about strategic planning to learn how to build a great strategic plan..

Strategic planning is when organizations define a bold vision and create a plan with objectives and goals to reach that future. A great strategic plan defines where your organization is going, how you’ll win, who must do what, and how you’ll review and adapt your strategy..

Your strategic plan needs to include an assessment of your current state, a SWOT analysis, mission, vision, values, competitive advantages, growth strategy, growth enablers, a 3-year roadmap, and annual plan with strategic goals, OKRs, and KPIs.

A strategic planning process should take no longer than 90 days to complete from start to finish! Any longer could fatigue your organization and team.

There are four overarching phases to the strategic planning process that include: determining position, developing your strategy, building your plan, and managing performance. Each phase plays a unique but distinctly crucial role in the strategic planning process.

Prior to starting your strategic plan, you must go through this pre-planning process to determine your organization’s readiness by following these steps:

Ask yourself these questions: Are the conditions and criteria for successful planning in place now? Can we foresee any pitfalls that we can avoid? Is there an appropriate time for our organization to initiate this process?

Develop your team and schedule. Who will oversee the implementation as Chief Strategy Officer or Director? Do we have at least 12-15 other key individuals on our team?

Research and Collect Current Data. Find the following resources that your organization may have used in the past to assist you with your new plan: last strategic plan, mission, vision, and values statement, business plan, financial records, marketing plan, SWOT, sales figures, or projections.

Finally, review the data with your strategy director and facilitator and ask these questions: What trends do we see? Any obvious strengths or weaknesses? Have we been following a plan or just going along with the market?

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How to Master the Fine Art of Business Planning and Budgeting

Updated on: 5 January 2023

Starting a business is a challenging thing: you have to work hard and do your best to ensure its success. However, the work doesn’t end even when your business actually becomes operational. You still have to do so much more to ensure that it will keep on track.

Of course, it could be hard, especially for the beginners. It seems that you have to keep an eye on so many things and focus on so many urgent tasks every day that there isn’t any time left for business planning and budgeting. However, it is very important to find that time, because business planning and budgeting are actually one of the most important things for business success.

Why so? Because a plan allows you to get a better understanding of how you see your business, how you want to develop it, and so on. When you create a plan, you set targets that you want to achieve as well as define the ways of evaluating the success of your business.

Basically, planning gives you all the necessary tools that you can use to improve your business in the nearest future. However, this happens only when planning is done correctly.

What to Include in Your Annual Plan?

If you want to create a perfect business plan, you have to know what has to be included in it and how big it will be. Of course, there are no strict limitations to a size of a business plan as each business is different. However, if you are doing it for the first time, I recommend starting with a yearly plan: it is not too big and not too short.

A good annual plan has to include the following things:

• an executive summary
• a list of products and services you offer (or plan to offer this year)
• a detailed description of your target market
• a financial plan
• a marketing plan as well as a sales plan
• milestones and metrics
• a description of your management team

In order to write it in the best way possible, you need to spend some time thinking about the current status of your company as well as how it should look like by the end of the year. Describe your target market, think about the goals that have to be achieved this year, about the products and services that have to be launched.

Visualize the information to make it easier for you to see the whole picture (this is especially important for those, who don’t have much experience in planning). You can use charts, and different diagram types such as mind maps to visualize and organize your ideas and plans.

Try choosing a few main goals for your company and add them to the annual plan being as specific as possible: for example, if you want to increase your earnings, you should specify by how much (10%, 15%, etc.). It’s also good to think about the obstacles you might face and come up with some ways to minimize the potential risks that could occur.

Remember that while a business plan has to be specific and detailed when you write it, it shouldn’t remain static by the end of the year. No business is predictable enough for this to happen: you should understand it and prepare to act quickly, adding changes to a business plan if something unexpected happens.

Business Planning Cycle

As I said, typical business planning isn’t a static thing – actually, it’s a cycle that usually looks like this:

• You take some time to evaluate the effectiveness of your business. In order to do so, you should compare its current performance with the last year’s one – or with targets set earlier this year.
• Then you have to think about opportunities that might appear as well as the threats you might face.
• Remember about both successes and failures your business experienced throughout last year. Analyze them and think what can be done to repeat/avoid them.
• Think of the main business goals you would like to achieve and be sure to add them to the new annual plan (or edit the old one according to them).
• Create a budget.
• Come up with budget targets.
• Complete the plan.
• Be sure to review it regularly (every month, every three months, etc.), making changes if necessary.

Repeat the whole cycle.

Business Planning and Budgeting

When a business is still small and growing, it might seem unnecessary to plan its budget. However, it’s crucial if you want to avoid financial risks and be able to invest in opportunities when they appear.

Moreover, with the rapid growth of your business, you might find yourself in a situation where you aren’t able to control all the money anymore. Expansion of the business usually includes the creation of different departments responsible for different things – and each of these departments needs to have its own budget.

As you see, the bigger your business becomes, the more complicated it gets. While it’s okay to not control every cent by yourself, it is still up to you to make sure that your business keeps growing instead of becoming unprofitable. That’s why it’s so important to create a budget plan that allows you to understand the exact income your business brings by the end of the month and the amount of it, you are able to save or spend on different things.

It is important to remember that a business plan is not a forecast in any way. It doesn’t predict how much money you’ll make by the end of the year. Instead, it’s a tool for ensuring that your business will remain profitable even after covering all the necessary expenses.

Moreover, a business plan also ensures that you’ll have the opportunity to invest money into future projects, fund everything that has to be funded this year, and meet all of the business objectives.

Benefits of a Business Budget

The whole budget planning has a lot of benefits:

It allows you to evaluate the success of your business: when you know exactly how much profit your business gave you at the beginning of the year, you are able to compare it with the profit by the end of the year, understanding whether your financial goals have been met or not.

It allows managing money effectively: for example, if you save money for predicted one-time spends, you won’t be caught by surprise by them.

It helps identify the problems before they actually happen: for example, if you evaluate your budget and see that the income left after covering all the expenses is quite small, you’ll understand that you need to make more profit this year.

It helps make smarter decisions, by only investing money that you can afford to invest.

It allows you to manage your business more effectively, allocating more resources to the projects that need them the most.

It helps in increasing staff motivation.

Basically, when you have a budget plan ready, you have your back covered.

How to Create a Budget?

There are so many articles written on how to create a perfect business budget, but most of them narrow down to these 5 simple things:

• Evaluate your sources of income. You have to find out how much money your business brings on a daily basis in order to understand how much money you can afford to invest and spend.
• Make a list of your fixed expenses. These ones repeat every month and their amount doesn’t change. Some people forget to exclude the sum needed to cover these expenses from the monthly income, but it’s important to do so in order to get a clear understanding of your budget.
• Don’t forget about variable expenses. These ones don’t have a fixed price but still have to be paid every month. Come up with an approximate sum you’ll have to pay and include it in your budget.
• Predict your one-time expenses. Every business needs them from time to time, but if you plan your budget forgetting about these expenses, spending money on them could affect it greatly and not in a positive way.
• When you list all the income and expense sources, it’s time to pull them all together. Evaluate how much money you’ll have each month after you cover all these expenses. Then think of what part of that sum you could afford to invest into something.

While a whole process of budget creation might seem too complicated, you still should find time to do it. It’s totally worth the effort – moreover, such a plan could help you not only throughout the next month but also throughout the next year (if your expense and income sources won’t change much).

Of course, it’s still important to review it from time to time, making changes when necessary. However, the review process won’t be as complicated as the creation of a budget plan from scratch.

Key Steps in Drawing up a Budget

If you’ve never created a budget plan before, you could make some budgeting mistakes . However, when it comes to financial planning, the smallest mistake could have a negative impact. The following tips can help you easily avoid most mistakes, making your budget plan more realistic.

• Try to take it slow

The more time you spend on budgeting, the better it is for you. It’s hard to create a flawless budget plan quickly: there’s a big chance you might miss something. That’s why it’s vital to make sure that you’ve listed all the sources of your income and expenses, and are prepared well.

• You can use last year’s data

Last year’s data could help you see the whole picture better: you can compare it with this year’s data, finding out whether your income has increased or decreased. However, you should use it only for comparing and as a guide. You have new goals and resources this year, and the environment you’re working in has changed too, so your current planning and strategies should differ from the ones you used last year.

• Make sure that a budget is realistic

The most important thing about a budget plan is that it has to cover not only predictable expenses but also less predictable ones. Of course, making predictions is hard but using previous data along with some other business plans as examples could make the whole process easier.

A budget also has to be detailed: the information it contains has to allow you to monitor all the key details of your business, be it sales, costs, and so on. You could also use some accounting software for more effective management.

• It’s okay to involve people

If your business is big enough, you probably have some employees responsible for a part of the financial operations. It’s good to involve them in a budget creation process too, using their knowledge and experience to predict some expenses, for example. If the people you involve are experienced enough, the combination of their professionalism and your knowledge will make a budget more realistic and effective.

• Visualizing helps

Various charts and diagrams are so popular in business for a reason: they allow tracking your incomes and expenses easily. For example, you can create one chart based on your plan and another chart based on an actual budget and compare them during planned revisions to see whether your budget plan works just as expected or not.

As I mentioned above, it’s easier to control finances when you are running a small business. Such business needs only one budget that is created for a certain period – in most cases, for a year. Larger businesses, however, require something else. They have various departments, so it is better to create several budgets at once, tailoring each of them to a certain department’s needs.

Don’t Forget to Review!

I’ve already mentioned that a review is an important process of every business planning and budgeting. No matter how good your plan is, it is impossible to predict everything with 100 percent accuracy. Your business will grow and the environment around it will change, so the quicker you’ll react to such changes, the better it is for you.

That’s why you should schedule budget reviews from time to time. I recommend starting with reviewing it every month and then switching to a more comfortable schedule. Every month review can help you notice the flaws of your plan (which is especially important if you don’t have much experience in this kind of thing) as well as understand how stable your business is.

If you see that you don’t have to make changes often, you could start reviewing your plan every three or six months (however, I recommend doing it more often).

You can use various common diagrams to help you . The best thing about diagrams is that they help visualize data well, which is very important when you need to see the whole picture more clearly – and this happens often during budget planning. For example, a diagram or a chart of your company’s income can show you how much your finances have grown during a certain period. Moreover, if you notice certain downfalls in a chart (that aren’t predicted), you’ll be able to react to it quickly, fixing things that went wrong.

What do you need to consider during the whole review process? First, your actual income. Probably it will be different each month: every business has its own peak sales periods and drop sales ones, and you have to find them and remember them for more effective planning next year. It is important to check whether the income matches the one you predicted or not: if not, you have to find out why it happened.

Second, you have to evaluate your actual expenses. See if they differ from your budget, how much do they affect it, why they exceed your expectations (if they do), and so on.

Probably the best thing about reviewing is that it allows you to react to all the unexpected situations quickly, saving your business from the potential troubles and downfalls. So be sure not to skip it.

As you see, writing a business plan is a complex process. You have to be very attentive, to plan everything, starting with your goals and ending with your expenses, to consider so many things and to involve other people in planning if possible. Moreover, you also have to learn all the time, reviewing your plans, making changes, finding the ways to react to unexpected situations.

But while this might look like a tough thing to do, it is very convenient for everyone who wants to manage their business successfully. The planning takes a lot off your shoulders and makes the whole business running process easier. You are able to evaluate the effectiveness of your business by looking at the monthly income increase, at the goals you wanted to achieve, and so on. You are also able to predict the potential downfalls of your business and to use the tools you have to minimize all the risks.

You are able to evaluate the effectiveness of your business by looking at the monthly income increase, at the goals you wanted to achieve, and so on. You are also able to predict the potential downfalls of your business and to use the tools you have to minimize all the risks.

I hope that this guide will help you create strong and realistic budget and business plans, and successfully implement them in running your business. If you have some tips on business and budget planning that you want to share, please do so in the comment section below!

Author’s Bio:

Kevin Nelson started his career as a research analyst and has changed his sphere of activity to writing services and content marketing. Apart from writing, he spends a lot of time reading psychology and management literature searching for the keystones of motivation ideas. Feel free to connect with him on Facebook , Twitter , Google+ , Linkedin .

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Strategic Planning and Budgeting: A Roadmap to Business Success

by Ennio Bustos | Aug 17, 2023 | Administration , Management | 0 comments

Business success is not simply a matter of chance but a result of deliberate and well-executed strategies. Strategic planning and budgeting serve as the guiding lights for organizations, offering a roadmap to navigate challenges, seize opportunities, and achieve long-term growth. In this article, I will explain the importance of strategic planning and budgeting and how they collectively pave the way for business success.

The Foundation of Strategic Planning

Strategic planning involves the meticulous process of defining an organization’s vision, mission, and long-term goals. It’s about aligning every facet of the business towards a common purpose, ensuring that every action taken contributes to achieve the organization’s goals. These are the five stages of a strategic plan..

Vision and Mission: A strong vision and mission statement provide clarity and direction to the entire organization. They outline the organization’s purpose, values, and aspirations, acting as a North Star that guides decision-making.

SWOT Analysis: Conducting a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis allows businesses to assess their internal strengths and weaknesses and understand external opportunities and threats. This analysis informs strategic choices and helps in capitalizing on strengths and addressing weaknesses.

Goal Setting: Setting clear, specific, measurable, achievable, relevant, and time-bound (SMART) goals is integral to strategic planning. These goals serve as milestones and benchmarks to measure progress.

Market Research: Understanding market trends, customer behavior, and competitive landscapes allows organizations to define the strategic sales goals and strategies.

Strategic Initiatives: The final stage of the strategic plan, once you have defined vision-mission, SWOT matrix, market conditions, and strategic goal, is to identify the key initiatives, such as market expansion, product development, or operational improvements.

The Role of Budgeting

Strategic planning and budgeting goes hand in hand, translating high-level strategic goals into actionable financial plans. It provides a comprehensive financial framework that allocates resources efficiently and monitors financial performance. These are the fundamentals of a budgeting plan.

Resource Allocation: Budgeting helps allocate resources (financial, human, and material) effectively to support strategic initiatives. It ensures that funds are channeled to priority areas that drive growth.

Cost Management: A well-structured budget enables organizations to control costs, eliminate wasteful spending, and optimize resource utilization.

Performance Measurement: By comparing actual financial results with budgeted figures, organizations can track their progress towards strategic goals and identify any deviations that need corrective action.

Forecasting: Budgeting includes forecasting future financial performance based on historical data, long term goals, and anticipated changes.

Flexibility: Budgeting planning allows for flexibility in resource allocation, making it possible to reallocate funds as priorities shift or unexpected challenges arise.

Strategic Plan and budgeting: A Synergistic Approach

Strategic planning and budgeting are intertwined processes that complement each other. Strategic plans provide the context and direction for budgeting decisions, while budget provides the financial means to execute strategic initiatives. Together, they create a roadmap that guides the organization towards success. The figures below are an example of some of the output of a strategic plan combined with financial projections.

Strategic Planning and Budgeting Monitoring and Adjustment

One of the critical junctions where strategic planning, budgeting, and effective execution converge is in the process of monitoring and adjustment. Activation of strategic plans and the execution of budgets require constant monitoring of Key Performance Indicators (KPIs). By regularly assessing KPI performance against predetermined targets, organizations can identify discrepancies and trends, enabling them to make informed adjustments to both, strategic initiatives and budget allocations. This continuous feedback loop ensures that the organization remains agile, responsive, and capable of adapting its strategies and resource distribution to optimize outcomes and stay on course toward achieving its long-term objectives.

How Promoting USA Can Help

Promoting USA understands the critical importance of strategic planning and budgeting for business success. With our expertise, we offer tailored solutions that guide organizations through the intricacies of these processes. From defining a clear vision and mission to creating comprehensive budgets that align with strategic goals, our team ensures that your organization’s efforts are strategic, focused, and financially sound. Let us be your partner in shaping a path to success through strategic planning and budgeting. If you want to learn more about how we can help you with big retailers, give us your information to schedule a meeting.

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The essential components of a successful L&D strategy

Over the past decade, the global workforce has been continually evolving because of a number of factors. An increasingly competitive business landscape, rising complexity, and the digital revolution are reshaping the mix of employees. Meanwhile, persistent uncertainty, a multigenerational workforce, and a shorter shelf life for knowledge have placed a premium on reskilling and upskilling. The shift to a digital, knowledge-based economy means that a vibrant workforce is more important than ever: research suggests that a very significant percentage of market capitalization in public companies is based on intangible assets—skilled employees, exceptional leaders, and knowledge. 1 Intangible Asset Market Value Study, Ocean Tomo.

Learning and development—From evolution to revolution

We began in 2014 by surveying 1,500 executives about capability building. In 2016, we added 120 L&D leaders at 91 organizations to our database, gathering information on their traditional training strategies and aspirations for future programs. We also interviewed 15 chief learning officers or L&D heads at major companies.

Historically, the L&D function has been relatively successful in helping employees build skills and perform well in their existing roles. The main focus of L&D has been on upskilling. However, the pace of change continues to accelerate; McKinsey research estimates that as many as 800 million jobs could be displaced by automation by 2030.

Employee roles are expected to continue evolving, and a large number of people will need to learn new skills to remain employable. Unsurprisingly, our research confirmed our initial hypothesis: corporate learning must undergo revolutionary changes over the next few years to keep pace with constant technological advances. In addition to updating training content, companies must increase their focus on blended-learning solutions, which combine digital learning, fieldwork, and highly immersive classroom sessions. With the growth of user-friendly digital-learning platforms, employees will take more ownership of their professional development, logging in to take courses when the need arises rather than waiting for a scheduled classroom session.

Such innovations will require companies to devote more resources to training: our survey revealed that 60 percent of respondents plan to increase L&D spending over the next few years, and 66 percent want to boost the number of employee-training hours. As they commit more time and money, companies must ensure that the transformation of the L&D function proceeds smoothly.

All of these trends have elevated the importance of the learning-and-development (L&D) function. We undertook several phases of research to understand trends and current priorities in L&D (see sidebar, “Learning and development—From evolution to revolution”). Our efforts highlighted how the L&D function is adapting to meet the changing needs of organizations, as well as the growing levels of investment in professional development.

To get the most out of investments in training programs and curriculum development, L&D leaders must embrace a broader role within the organization and formulate an ambitious vision for the function. An essential component of this effort is a comprehensive, coordinated strategy that engages the organization and encourages collaboration. The ACADEMIES© framework, which consists of nine dimensions of L&D, can help to strengthen the function and position it to serve the organization more effectively.

The strategic role of L&D

One of L&D’s primary responsibilities is to manage the development of people—and to do so in a way that supports other key business priorities. L&D’s strategic role spans five areas (Exhibit 1). 2 Nick van Dam, 25 Best Practices in Learning & Talent Development , second edition, Raleigh, NC: Lulu Publishing, 2008.

• Attract and retain talent. Traditionally, learning focused solely on improving productivity. Today, learning also contributes to employability. Over the past several decades, employment has shifted from staying with the same company for a lifetime to a model where workers are being retained only as long as they can add value to an enterprise. Workers are now in charge of their personal and professional growth and development—one reason that people list “opportunities for learning and development” among the top criteria for joining an organization. Conversely, a lack of L&D is one of the key reasons people cite for leaving a company.
• Develop people capabilities. Human capital requires ongoing investments in L&D to retain its value. When knowledge becomes outdated or forgotten—a more rapid occurrence today—the value of human capital declines and needs to be supplemented by new learning and relevant work experiences. 3 Gary S. Becker, “Investment in human capital: A theoretical analysis,” Journal of Political Economy , 1962, Volume 70, Number 5, Part 2, pp. 9–49, jstor.org. Companies that make investments in the next generation of leaders are seeing an impressive return. Research indicates that companies in the top quartile of leadership outperform other organizations by nearly two times on earnings before interest, taxes, depreciation, and amortization (EBITDA). Moreover, companies that invest in developing leaders during significant transformations are 2.4 times more likely to hit their performance targets . 4 “ Economic Conditions Snapshot, June 2009: McKinsey Global Survey results ,” June 2009.
• Create a values-based culture. As the workforce in many companies becomes increasingly virtual and globally dispersed, L&D can help to build a values-based culture and a sense of community. In particular, millennials are particularly interested in working for values-based, sustainable enterprises that contribute to the welfare of society.
• Build an employer brand. An organization’s brand is one of its most important assets and conveys a great deal about the company’s success in the market, financial strengths, position in the industry, and products and services. Investments in L&D can help to enhance company’s brand and boost its reputation as an “employer of choice.” As large segments of the workforce prepare to retire, employers must work harder to compete for a shrinking talent pool. To do so, they must communicate their brand strength explicitly through an employer value proposition.
• Motivate and engage employees. The most important way to engage employees is to provide them with opportunities to learn and develop new competencies. Research suggests that lifelong learning contributes to happiness. 5 John Coleman, “Lifelong learning is good for your health, your wallet, and your social life,” Harvard Business Review , February 7, 2017, hbr.org. When highly engaged employees are challenged and given the skills to grow and develop within their chosen career path, they are more likely to be energized by new opportunities at work and satisfied with their current organization.

The L&D function in transition

Over the years, we have identified and field-tested nine dimensions that contribute to a strong L&D function. We combined these dimensions to create the ACADEMIES framework, which covers all aspects of L&D functions, from setting aspirations to measuring impact (Exhibit 2). Although many companies regularly execute on several dimensions of this framework, our recent research found that only a few companies are fully mature in all dimensions.

1. Alignment with business strategy

One of an L&D executive’s primary tasks is to develop and shape a learning strategy based on the company’s business and talent strategies. The learning strategy seeks to support professional development and build capabilities across the company, on time, and in a cost-effective manner. In addition, the learning strategy can enhance the company culture and encourage employees to live the company’s values.

For many organizations, the L&D function supports the implementation of the business strategy. For example, if one of the business strategies is a digital transformation, L&D will focus on building the necessary people capabilities to make that possible.

Every business leader would agree that L&D must align with a company’s overall priorities. Yet research has found that many L&D functions fall short on this dimension. Only 40 percent of companies say that their learning strategy is aligned with business goals. 6 Human Capital Management Excellence Conference 2018, Brandon Hall Group. For 60 percent, then, learning has no explicit connection to the company’s strategic objectives. L&D functions may be out of sync with the business because of outdated approaches or because budgets have been based on priorities from previous years rather than today’s imperatives, such as a digital transformation.

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To be effective, L&D must take a hard look at employee capabilities and determine which are most essential to support the execution of the company’s business strategy. L&D leaders should reevaluate this alignment on a yearly basis to ensure they are creating a people-capability agenda that truly reflects business priorities and strategic objectives.

2. Co-ownership between business units and HR

With new tools and technologies constantly emerging, companies must become more agile, ready to adapt their business processes and practices. L&D functions must likewise be prepared to rapidly launch capability-building programs—for example, if new business needs suddenly arise or staff members require immediate training on new technologies such as cloud-based collaboration tools.

L&D functions can enhance their partnership with business leaders by establishing a governance structure in which leadership from both groups share responsibility for defining, prioritizing, designing, and securing funds for capability-building programs. Under this governance model, a company’s chief experience officer (CXO), senior executives, and business-unit heads will develop the people-capability agenda for segments of the enterprise and ensure that it aligns with the company’s overall strategic goals. Top business executives will also help firmly embed the learning function and all L&D initiatives in the organizational culture. The involvement of senior leadership enables full commitment to the L&D function’s longer-term vision.

3. Assessment of capability gaps and estimated value

After companies identify their business priorities, they must verify that their employees can deliver on them—a task that may be more difficult than it sounds. Some companies make no effort to assess employee capabilities, while others do so only at a high level. Conversations with L&D, HR, and senior executives suggest that many companies are ineffective or indifferent at assessing capability gaps, especially when it comes to senior leaders and midlevel managers.

The most effective companies take a deliberate, systematic approach to capability assessment. At the heart of this process is a comprehensive competency or capability model based on the organization’s strategic direction. For example, a key competency for a segment of an e-commerce company’s workforce could be “deep expertise in big data and predictive analytics.”

After identifying the most essential capabilities for various functions or job descriptions, companies should then assess how employees rate in each of these areas. L&D interventions should seek to close these capability gaps.

4. Design of learning journeys

Most corporate learning is delivered through a combination of digital-learning formats and in-person sessions. While our research indicates that immersive L&D experiences in the classroom still have immense value, leaders have told us that they are incredibly busy “from eight to late,” which does not give them a lot of time to sit in a classroom. Furthermore, many said that they prefer to develop and practice new skills and behaviors in a “safe environment,” where they don’t have to worry about public failures that might affect their career paths.

Traditional L&D programs consisted of several days of classroom learning with no follow-up sessions, even though people tend to forget what they have learned without regular reinforcement. As a result, many L&D functions are moving away from stand-alone programs by designing learning journeys—continuous learning opportunities that take place over a period of time and include L&D interventions such as fieldwork, pre- and post-classroom digital learning, social learning, on-the-job coaching and mentoring, and short workshops. The main objectives of a learning journey are to help people develop the required new competencies in the most effective and efficient way and to support the transfer of learning to the job.

5. Execution and scale-up

An established L&D agenda consists of a number of strategic initiatives that support capability building and are aligned with business goals, such as helping leaders develop high-performing teams or roll out safety training. The successful execution of L&D initiatives on time and on budget is critical to build and sustain support from business leaders.

L&D functions often face an overload of initiatives and insufficient funding. L&D leadership needs to maintain an ongoing discussion with business leaders about initiatives and priorities to ensure the requisite resources and support.

Many new L&D initiatives are initially targeted to a limited audience. A successful execution of a small pilot, such as an online orientation program for a specific audience, can lead to an even bigger impact once the program is rolled out to the entire enterprise. The program’s cost per person declines as companies benefit from economies of scale.

6. Measurement of impact on business performance

A learning strategy’s execution and impact should be measured using key performance indicators (KPIs). The first indicator looks at business excellence: how closely aligned all L&D initiatives and investments are with business priorities. The second KPI looks at learning excellence: whether learning interventions change people’s behavior and performance. Last, an operational-excellence KPI measures how well investments and resources in the corporate academy are used.

Accurate measurement is not simple, and many organizations still rely on traditional impact metrics such as learning-program satisfaction and completion scores. But high-performing organizations focus on outcomes-based metrics such as impact on individual performance, employee engagement, team effectiveness, and business-process improvement.

We have identified several lenses for articulating and measuring learning impact:

• Strategic alignment: How effectively does the learning strategy support the organization’s priorities?
• Capabilities: How well does the L&D function help colleagues build the mind-sets, skills, and expertise they need most? This impact can be measured by assessing people’s capability gaps against a comprehensive competency framework.
• Organizational health: To what extent does learning strengthen the overall health and DNA of the organization? Relevant dimensions of the McKinsey Organizational Health Index can provide a baseline.
• Individual peak performance: Beyond raw capabilities, how well does the L&D function help colleagues achieve maximum impact in their role while maintaining a healthy work-life balance?

Access to big data provides L&D functions with more opportunities to assess and predict the business impact of their interventions.

7. Integration of L&D interventions into HR processes

Just as L&D corporate-learning activities need to be aligned with the business, they should also be an integral part of the HR agenda. L&D has an important role to play in recruitment, onboarding, performance management, promotion, workforce, and succession planning. Our research shows that at best, many L&D functions have only loose connections to annual performance reviews and lack a structured approach and follow-up to performance-management practices.

L&D leadership must understand major HR management practices and processes and collaborate closely with HR leaders. The best L&D functions use consolidated development feedback from performance reviews as input for their capability-building agenda. A growing number of companies are replacing annual performance appraisals with frequent, in-the-moment feedback. 7 HCM outlook 2018 , Brandon Hall Group. This is another area in which the L&D function can help managers build skills to provide development feedback effectively.

Elevating Learning & Development: Insights and Practical Guidance from the Field

Another example is onboarding. Companies that have developed high-impact onboarding processes score better on employee engagement and satisfaction and lose fewer new hires. 8 HCM outlook 2018 , Brandon Hall Group. The L&D function can play a critical role in onboarding—for example, by helping people build the skills to be successful in their role, providing new hires with access to digital-learning technologies, and connecting them with other new hires and mentors.

8. Enabling of the 70:20:10 learning framework

Many L&D functions embrace a framework known as “70:20:10,” in which 70 percent of learning takes place on the job, 20 percent through interaction and collaboration, and 10 percent through formal-learning interventions such as classroom training and digital curricula. These percentages are general guidelines and vary by industry and organization. L&D functions have traditionally focused on the formal-learning component.

Today, L&D leaders must design and implement interventions that support informal learning, including coaching and mentoring, on-the-job instruction, apprenticeships, leadership shadowing, action-based learning, on-demand access to digital learning, and lunch-and-learn sessions. Social technologies play a growing role in connecting experts and creating and sharing knowledge.

9. Systems and learning technology applications

The most significant enablers for just-in-time learning are technology platforms and applications. Examples include next-generation learning-management systems, virtual classrooms, mobile-learning apps, embedded performance-support systems, polling software, learning-video platforms, learning-assessment and -measurement platforms, massive open online courses (MOOCs), and small private online courses (SPOCs), to name just a few.

The learning-technology industry has moved entirely to cloud-based platforms, which provide L&D functions with unlimited opportunities to plug and unplug systems and access the latest functionality without having to go through lengthy and expensive implementations of an on-premises system. L&D leaders must make sure that learning technologies fit into an overall system architecture that includes functionality to support the entire talent cycle, including recruitment, onboarding, performance management, L&D, real-time feedback tools, career management, succession planning, and rewards and recognition.

L&D leaders are increasingly aware of the challenges created by the fourth industrial revolution (technologies that are connecting the physical and digital worlds), but few have implemented large-scale transformation programs. Instead, most are slowly adapting their strategy and curricula as needed. However, with technology advancing at an ever-accelerating pace, L&D leaders can delay no longer: human capital is more important than ever and will be the primary factor in sustaining competitive advantage over the next few years.

The leaders of L&D functions need to revolutionize their approach by creating a learning strategy that aligns with business strategy and by identifying and enabling the capabilities needed to achieve success. This approach will result in robust curricula that employ every relevant and available learning method and technology. The most effective companies will invest in innovative L&D programs, remain flexible and agile, and build the human talent needed to master the digital age.

These changes entail some risk, and perhaps some trial and error, but the rewards are great.

A version of this chapter was published in TvOO Magazine in September 2016. It is also included in Elevating Learning & Development: Insights and Practical Guidance from the Field , August 2018.

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Jacqueline Brassey is director of Enduring Priorities Learning in McKinsey’s Amsterdam office, where Nick van Dam is an alumnus and senior adviser to the firm as well as professor and chief of the IE University (Madrid) Center for Learning Innovation; Lisa Christensen is a senior learning expert in the San Francisco office.

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• Business strategy |
• 7 strategic planning models, plus 8 fra ...

7 strategic planning models, plus 8 frameworks to help you get started

Strategic planning is vital in defining where your business is going in the next three to five years. With the right strategic planning models and frameworks, you can uncover opportunities, identify risks, and create a strategic plan to fuel your organization’s success. We list the most popular models and frameworks and explain how you can combine them to create a strategic plan that fits your business.

A strategic plan is a great tool to help you hit your business goals . But sometimes, this tool needs to be updated to reflect new business priorities or changing market conditions. If you decide to use a model that already exists, you can benefit from a roadmap that’s already created. The model you choose can improve your knowledge of what works best in your organization, uncover unknown strengths and weaknesses, or help you find out how you can outpace your competitors.

In this article, we cover the most common strategic planning models and frameworks and explain when to use which one. Plus, get tips on how to apply them and which models and frameworks work well together. 

Strategic planning models vs. frameworks

First off: This is not a one-or-nothing scenario. You can use as many or as few strategic planning models and frameworks as you like. 

When your organization undergoes a strategic planning phase, you should first pick a model or two that you want to apply. This will provide you with a basic outline of the steps to take during the strategic planning process.

During that process, think of strategic planning frameworks as the tools in your toolbox. Many models suggest starting with a SWOT analysis or defining your vision and mission statements first. Depending on your goals, though, you may want to apply several different frameworks throughout the strategic planning process.

For example, if you’re applying a scenario-based strategic plan, you could start with a SWOT and PEST(LE) analysis to get a better overview of your current standing. If one of the weaknesses you identify has to do with your manufacturing process, you could apply the theory of constraints to improve bottlenecks and mitigate risks. 

Now that you know the difference between the two, learn more about the seven strategic planning models, as well as the eight most commonly used frameworks that go along with them.

1. Basic model

The basic strategic planning model is ideal for establishing your company’s vision, mission, business objectives, and values. This model helps you outline the specific steps you need to take to reach your goals, monitor progress to keep everyone on target, and address issues as they arise.

If it’s your first strategic planning session, the basic model is the way to go. Later on, you can embellish it with other models to adjust or rewrite your business strategy as needed. Let’s take a look at what kinds of businesses can benefit from this strategic planning model and how to apply it.

Small businesses or organizations

Companies with little to no strategic planning experience

Organizations with few resources 

Write your mission statement. Gather your planning team and have a brainstorming session. The more ideas you can collect early in this step, the more fun and rewarding the analysis phase will feel.

Identify your organization’s goals . Setting clear business goals will increase your team’s performance and positively impact their motivation.

Outline strategies that will help you reach your goals. Ask yourself what steps you have to take in order to reach these goals and break them down into long-term, mid-term, and short-term goals .

Create action plans to implement each of the strategies above. Action plans will keep teams motivated and your organization on target.

Monitor and revise the plan as you go . As with any strategic plan, it’s important to closely monitor if your company is implementing it successfully and how you can adjust it for a better outcome.

2. Issue-based model

Also called goal-based planning model, this is essentially an extension of the basic strategic planning model. It’s a bit more dynamic and very popular for companies that want to create a more comprehensive plan.

Organizations with basic strategic planning experience

Businesses that are looking for a more comprehensive plan

Conduct a SWOT analysis . Assess your organization’s strengths, weaknesses, opportunities, and threats with a SWOT analysis to get a better overview of what your strategic plan should focus on. We’ll give into how to conduct a SWOT analysis when we get into the strategic planning frameworks below.

Identify and prioritize major issues and/or goals. Based on your SWOT analysis, identify and prioritize what your strategic plan should focus on this time around.

Develop your main strategies that address these issues and/or goals. Aim to develop one overarching strategy that addresses your highest-priority goal and/or issue to keep this process as simple as possible.

Update or create a mission and vision statement . Make sure that your business’s statements align with your new or updated strategy. If you haven’t already, this is also a chance for you to define your organization’s values.

Create action plans. These will help you address your organization’s goals, resource needs, roles, and responsibilities. 

Develop a yearly operational plan document. This model works best if your business repeats the strategic plan implementation process on an annual basis, so use a yearly operational plan to capture your goals, progress, and opportunities for next time.

Allocate resources for your year-one operational plan. Whether you need funding or dedicated team members to implement your first strategic plan, now is the time to allocate all the resources you’ll need.

Monitor and revise the strategic plan. Record your lessons learned in the operational plan so you can revisit and improve it for the next strategic planning phase.

The issue-based plan can repeat on an annual basis (or less often once you resolve the issues). It’s important to update the plan every time it’s in action to ensure it’s still doing the best it can for your organization.

You don’t have to repeat the full process every year—rather, focus on what’s a priority during this run.

3. Alignment model

This model is also called strategic alignment model (SAM) and is one of the most popular strategic planning models. It helps you align your business and IT strategies with your organization’s strategic goals. 

You’ll have to consider four equally important, yet different perspectives when applying the alignment strategic planning model:

Strategy execution: The business strategy driving the model

Technology potential: The IT strategy supporting the business strategy

Competitive potential: Emerging IT capabilities that can create new products and services

Service level: Team members dedicated to creating the best IT system in the organization

Ideally, your strategy will check off all the criteria above—however, it’s more likely you’ll have to find a compromise. 

Here’s how to create a strategic plan using the alignment model and what kinds of companies can benefit from it.

Organizations that need to fine-tune their strategies

Businesses that want to uncover issues that prevent them from aligning with their mission

Companies that want to reassess objectives or correct problem areas that prevent them from growing

Outline your organization’s mission, programs, resources, and where support is needed. Before you can improve your statements and approaches, you need to define what exactly they are.

Identify what internal processes are working and which ones aren’t. Pinpoint which processes are causing problems, creating bottlenecks , or could otherwise use improving. Then prioritize which internal processes will have the biggest positive impact on your business.

Identify solutions. Work with the respective teams when you’re creating a new strategy to benefit from their experience and perspective on the current situation.

Update your strategic plan with the solutions. Update your strategic plan and monitor if implementing it is setting your business up for improvement or growth. If not, you may have to return to the drawing board and update your strategic plan with new solutions.

4. Scenario model

The scenario model works great if you combine it with other models like the basic or issue-based model. This model is particularly helpful if you need to consider external factors as well. These can be government regulations, technical, or demographic changes that may impact your business.

Organizations trying to identify strategic issues and goals caused by external factors

Identify external factors that influence your organization. For example, you should consider demographic, regulation, or environmental factors.

Review the worst case scenario the above factors could have on your organization. If you know what the worst case scenario for your business looks like, it’ll be much easier to prepare for it. Besides, it’ll take some of the pressure and surprise out of the mix, should a scenario similar to the one you create actually occur.

Identify and discuss two additional hypothetical organizational scenarios. On top of your worst case scenario, you’ll also want to define the best case and average case scenarios. Keep in mind that the worst case scenario from the previous step can often provoke strong motivation to change your organization for the better. However, discussing the other two will allow you to focus on the positive—the opportunities your business may have ahead.

Identify and suggest potential strategies or solutions. Everyone on the team should now brainstorm different ways your business could potentially respond to each of the three scenarios. Discuss the proposed strategies as a team afterward.

Uncover common considerations or strategies for your organization. There’s a good chance that your teammates come up with similar solutions. Decide which ones you like best as a team or create a new one together.

Identify the most likely scenario and the most reasonable strategy. Finally, examine which of the three scenarios is most likely to occur in the next three to five years and how your business should respond to potential changes.

5. Self-organizing model

Also called the organic planning model, the self-organizing model is a bit different from the linear approaches of the other models. You’ll have to be very patient with this method. 

This strategic planning model is all about focusing on the learning and growing process rather than achieving a specific goal. Since the organic model concentrates on continuous improvement , the process is never really over.

Large organizations that can afford to take their time

Businesses that prefer a more naturalistic, organic planning approach that revolves around common values, communication, and shared reflection

Companies that have a clear understanding of their vision

Define and communicate your organization’s cultural values . Your team can only think clearly and with solutions in mind when they have a clear understanding of your organization's values.

Communicate the planning group’s vision for the organization. Define and communicate the vision with everyone involved in the strategic planning process. This will align everyone’s ideas with your company’s vision.

Discuss what processes will help realize the organization’s vision on a regular basis. Meet every quarter to discuss strategies or tactics that will move your organization closer to realizing your vision.

6. Real-time model

This fluid model can help organizations that deal with rapid changes to their work environment. There are three levels of success in the real-time model: 

Organizational: At the organizational level, you’re forming strategies in response to opportunities or trends.

Programmatic: At the programmatic level, you have to decide how to respond to specific outcomes or environmental changes.

Operational: On the operational level, you will study internal systems, policies, and people to develop a strategy for your company.

Figuring out your competitive advantage can be difficult, but this is absolutely crucial to ensure success. Whether it’s a unique asset or strength your organization has or an outstanding execution of services or programs—it’s important that you can set yourself apart from others in the industry to succeed.

Companies that need to react quickly to changing environments

Businesses that are seeking new tools to help them align with their organizational strategy

Define your mission and vision statement. If you ever feel stuck formulating your company’s mission or vision statement, take a look at those of others. Maybe Asana’s vision statement sparks some inspiration.

Research, understand, and learn from competitor strategy and market trends. Pick a handful of competitors in your industry and find out how they’ve created success for themselves. How did they handle setbacks or challenges? What kinds of challenges did they even encounter? Are these common scenarios in the market? Learn from your competitors by finding out as much as you can about them.

Study external environments. At this point, you can combine the real-time model with the scenario model to find solutions to threats and opportunities outside of your control.

Conduct a SWOT analysis of your internal processes, systems, and resources. Besides the external factors your team has to consider, it’s also important to look at your company’s internal environment and how well you’re prepared for different scenarios.

Develop a strategy. Discuss the results of your SWOT analysis to develop a business strategy that builds toward organizational, programmatic, and operational success.

Rinse and repeat. Monitor how well the new strategy is working for your organization and repeat the planning process as needed to ensure you’re on top or, perhaps, ahead of the game. 

7. Inspirational model

This last strategic planning model is perfect to inspire and energize your team as they work toward your organization’s goals. It’s also a great way to introduce or reconnect your employees to your business strategy after a merger or acquisition.

Businesses with a dynamic and inspired start-up culture

Organizations looking for inspiration to reinvigorate the creative process

Companies looking for quick solutions and strategy shifts

Gather your team to discuss an inspirational vision for your organization. The more people you can gather for this process, the more input you will receive.

Brainstorm big, hairy audacious goals and ideas. Encouraging your team not to hold back with ideas that may seem ridiculous will do two things: for one, it will mitigate the fear of contributing bad ideas. But more importantly, it may lead to a genius idea or suggestion that your team wouldn’t have thought of if they felt like they had to think inside of the box.

Assess your organization’s resources. Find out if your company has the resources to implement your new ideas. If they don’t, you’ll have to either adjust your strategy or allocate more resources.

Develop a strategy balancing your resources and brainstorming ideas. Far-fetched ideas can grow into amazing opportunities but they can also bear great risk. Make sure to balance ideas with your strategic direction. 

Now, let’s dive into the most commonly used strategic frameworks.

8. SWOT analysis framework

One of the most popular strategic planning frameworks is the SWOT analysis . A SWOT analysis is a great first step in identifying areas of opportunity and risk—which can help you create a strategic plan that accounts for growth and prepares for threats.

SWOT stands for strengths, weaknesses, opportunities, and threats. Here’s an example:

9. OKRs framework

A big part of strategic planning is setting goals for your company. That’s where OKRs come into play. 

OKRs stand for objective and key results—this goal-setting framework helps your organization set and achieve goals. It provides a somewhat holistic approach that you can use to connect your team’s work to your organization’s big-picture goals.  When team members understand how their individual work contributes to the organization’s success, they tend to be more motivated and produce better results

10. Balanced scorecard (BSC) framework

The balanced scorecard is a popular strategic framework for businesses that want to take a more holistic approach rather than just focus on their financial performance. It was designed by David Norton and Robert Kaplan in the 1990s, it’s used by companies around the globe to: 

Communicate goals

Align their team’s daily work with their company’s strategy

Prioritize products, services, and projects

Monitor their progress toward their strategic goals

Your balanced scorecard will outline four main business perspectives:

Customers or clients , meaning their value, satisfaction, and/or retention

Financial , meaning your effectiveness in using resources and your financial performance

Internal process , meaning your business’s quality and efficiency

Organizational capacity , meaning your organizational culture, infrastructure and technology, and human resources

With the help of a strategy map, you can visualize and communicate how your company is creating value. A strategy map is a simple graphic that shows cause-and-effect connections between strategic objectives. 

The balanced scorecard framework is an amazing tool to use from outlining your mission, vision, and values all the way to implementing your strategic plan .

You can use an integration like Lucidchart to create strategy maps for your business in Asana.

11. Porter’s Five Forces framework

If you’re using the real-time strategic planning model, Porter’s Five Forces are a great framework to apply. You can use it to find out what your product’s or service’s competitive advantage is before entering the market.

Developed by Michael E. Porter , the framework outlines five forces you have to be aware of and monitor:

Threat of new industry entrants: Any new entry into the market results in increased pressure on prices and costs. 

Competition in the industry: The more competitors that exist, the more difficult it will be for you to create value in the market with your product or service.

Bargaining power of suppliers: Suppliers can wield more power if there are less alternatives for buyers or it’s expensive, time consuming, or difficult to switch to a different supplier.

Bargaining power of buyers: Buyers can wield more power if the same product or service is available elsewhere with little to no difference in quality.

Threat of substitutes: If another company already covers the market’s needs, you’ll have to create a better product or service or make it available for a lower price at the same quality in order to compete.

Remember, industry structures aren’t static. The more dynamic your strategic plan is, the better you’ll be able to compete in a market.

12. VRIO framework

The VRIO framework is another strategic planning tool designed to help you evaluate your competitive advantage. VRIO stands for value, rarity, imitability, and organization.

It’s a resource-based theory developed by Jay Barney. With this framework, you can study your firmed resources and find out whether or not your company can transform them into sustained competitive advantages. 

Firmed resources can be tangible (e.g., cash, tools, inventory, etc.) or intangible (e.g., copyrights, trademarks, organizational culture, etc.). Whether these resources will actually help your business once you enter the market depends on four qualities:

Valuable : Will this resource either increase your revenue or decrease your costs and thereby create value for your business?

Rare : Are the resources you’re using rare or can others use your resources as well and therefore easily provide the same product or service?

Inimitable : Are your resources either inimitable or non-substitutable? In other words, how unique and complex are your resources?

Organizational: Are you organized enough to use your resources in a way that captures their value, rarity, and inimitability?

It’s important that your resources check all the boxes above so you can ensure that you have sustained competitive advantage over others in the industry.

13. Theory of Constraints (TOC) framework

If the reason you’re currently in a strategic planning process is because you’re trying to mitigate risks or uncover issues that could hurt your business—this framework should be in your toolkit.

The theory of constraints (TOC) is a problem-solving framework that can help you identify limiting factors or bottlenecks preventing your organization from hitting OKRs or KPIs . 

Whether it’s a policy, market, or recourse constraint—you can apply the theory of constraints to solve potential problems, respond to issues, and empower your team to improve their work with the resources they have.

14. PEST/PESTLE analysis framework

The idea of the PEST analysis is similar to that of the SWOT analysis except that you’re focusing on external factors and solutions. It’s a great framework to combine with the scenario-based strategic planning model as it helps you define external factors connected to your business’s success.

PEST stands for political, economic, sociological, and technological factors. Depending on your business model, you may want to expand this framework to include legal and environmental factors as well (PESTLE). These are the most common factors you can include in a PESTLE analysis:

Political: Taxes, trade tariffs, conflicts

Economic: Interest and inflation rate, economic growth patterns, unemployment rate

Social: Demographics, education, media, health

Technological: Communication, information technology, research and development, patents

Legal: Regulatory bodies, environmental regulations, consumer protection

Environmental: Climate, geographical location, environmental offsets

15. Hoshin Kanri framework

Hoshin Kanri is a great tool to communicate and implement strategic goals. It’s a planning system that involves the entire organization in the strategic planning process. The term is Japanese and stands for “compass management” and is also known as policy management. 

This strategic planning framework is a top-down approach that starts with your leadership team defining long-term goals which are then aligned and communicated with every team member in the company. 

You should hold regular meetings to monitor progress and update the timeline to ensure that every teammate’s contributions are aligned with the overarching company goals.

Stick to your strategic goals

Whether you’re a small business just starting out or a nonprofit organization with decades of experience, strategic planning is a crucial step in your journey to success. 

If you’re looking for a tool that can help you and your team define, organize, and implement your strategic goals, Asana is here to help. Our goal-setting software allows you to connect all of your team members in one place, visualize progress, and stay on target.

Related resources

Unmanaged business goals don’t work. Here’s what does.

How Asana uses work management to effectively manage goals

Beat thrash for good: 4 organizational planning challenges and solutions

How Asana uses work management to streamline project intake processes

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… to be in hell is to drift: to be in heaven is to steer.

… to be in hell is to drift: to be in heaven is to steer. G. B. SHAW, Man and Superman

In general, planning is of two types—substantive planning and fiscal planning. Substantive planning, which is also known as development planning, involves the planning of societal goals and objectives and the mobilization of natural, human, and financial resources needed for their achievement. Fiscal planning, which is narrower in scope and is one of the instruments of substantive planning, consists of planning future budgets—current and future budget decisions, the implications for financing, and the methods of obtaining the necessary resources and allocating them in accordance with overall national goals. This chapter considers the nature of development planning and its institutional, operational, and procedural relations with budgeting, as well as the role of budgeting in the broader framework of national planning. The discussion in this chapter deals largely with the experiences of developing countries, while the responses of industrial countries to planning are discussed in Chapter 7 .

Development planning, which is now practised in one form or another in more than a hundred countries, has been viewed primarily as a feature of the developing countries. 1 Planning in a general sense is, of course, common to all governments, although the specific emphasis and the techniques of planning depend on the prevalent political philosophy. In developing countries, planning is primarily concerned with the delineation of the role of the government sector in national economic development. In industrial countries, the government's role as investor, regulator, and stabilizer has been a major influence on the planning of the private sector activities. In developing countries, the formulation of development plans and related strategies is a distinct activity, while in industrial countries, some of these functions have been allocated to budget agencies. In each case, problems have arisen in regard to the nature and form of government planning and budgeting. The persistence of such problems and the continuing search for new policy and institutional alternatives merit comprehensive consideration.

N ature of P lanning

The issue that has not lost any vigor despite a long debate is, why plan at all? This issue has been revived so many times that one is reminded of Plato's anamnesis and the more graphic descriptions by George Santayana. 2 The main reason for economic planning is the belief that the market has become anarchic, that it cannot provide stability or full employment, that scarcities would be fully exploited adversely affecting the common interests of the community, and that the goal of equity would not be reached. Associated with this is the recognition that the main objective of developing countries is to attain economic and social development, which in itself is a long-term task. If the achievement of this objective is to be undertaken and if development is to be orderly, it is necessary to establish priorities and set forth a plan of action consistent with the available resources; channeling resources to serve the broad goal of development or to improve the living standards requires deliberate planning efforts to ensure optimal results. In turn, these requirements contribute to the idea, as Myrdal noted, that “the state shall take an active, indeed, decisive role in the economy, by its own acts of investment and enterprise, and by its various controls—inducements and restrictions—over the private sector the state shall initiate, spur and steer economic development” and that policies would be “rationally coordinated and the coordination [made] explicit in an overall plan for a number of years ahead.” 3

If the main consideration for economic planning in developing countries is the need for orderly development, the main consideration in industrial countries in recent years is the need to minimize the ad hoc and piecemeal approach to economic management. The spread of government agencies and their functions has been so extensive in these countries and so pervasive that lack of integration has not only been “wasteful in its efficiency but outright harmful in its shortsightedness.” 4 As the lack of coherence in national objectives has proved to be a liability, economic planning is considered essential for providing guidance to the participants in the economy. Yet another factor that necessitates economic planning is the general uncertainty faced by the economy. The government has to reckon with this and initiate measures geared to deal with it. As the eighth French national plan put it “the cloudier the future, the more necessary the plan.” 5 The need for state planning has been implicitly accepted in the developing world, although there have been different approaches to the choices involved in resource utilization and in the forms of planning, as discussed below. In the industrial countries, particularly in the United States, the objections to state planning cover a wide ground. Stare planning is considered to be wasteful by some and infinitely worse than the free market mechanism because it imposes value systems and priorities that do not properly reflect the role of the community. Government intervention is believed to have been responsible for the alleged anarchy in the market. 6 Implicit in these arguments is the fear that state planning may be tantamount to government coercion and “creeping socialism.” The differences between those who favor or oppose state planning are fundamental. Given the choice, however, several countries have opted for formal planning. For countries that have adopted formal planning, the issue is academic; for countries that are considering its introduction, the distinction between the two choices may be vital.

Economic planning for development involves several choices—on the relative roles of public and private sectors, on the place of agriculture in the economy, on the relative importance of import substitution and export promotion, on the approaches to population control or its unrestrained growth, between economic stability and growth, and between growth and distribution. These choices are generally of a political nature. While economic forces are important, they are not necessarily the final determinants of choice. A combination of these approaches is used to formulate development strategy. The concern here is not with the development strategy but with the forms of planning and their implications for budgeting. The importance of development strategy needs to be recognized, however, for the failure or success of planning efforts is due equally to the strategy adopted and the technical or institutional factors.

G rowth of P lanning

In the literature on growth, planning has been associated with movements toward independence and as arising after World War II. In reality, however, planning efforts started anew in the early 1930s at the time of the Great Depression. Planning efforts took place in both colonies and independent countries. In India, for example, the first effort was for a ten-year plan published in 1933, with the objective of doubling the national income. 7 Mexico published its first plan in 1934. The Philippines set up a National Economic Council in 1935, with responsibility for the preparation of sectoral programs as well as integrated socioeconomic programs. 8 These efforts were given further impetus with plans for postwar reconstruction, which were even initiated in some colonies during World War II. A reconstruction committee was set up, for example, in India in 1943. But, by and large, these efforts received added stimulus in the late 1940s both in colonies and independent countries. For example, the British Colonial Office formulated the first plan for development of its Caribbean islands in 1949 and made extensive grants for the purpose during the late 1940s and early 1950s. 9 Countries in Latin America that were free from the ravages of war and the effects of colonization had initiated organized planning efforts by the early 1950s. Argentina prepared its National Economic Budget in the early 1950s. Mexico, which pioneered in the publication of its plan, subsequently carried out its efforts mostly at the departmental level until 1976, when national planning re-emerged. 10 From the early 1950s, national planning also received a substantial boost from government and international aid agencies that preferred to make loans and grants in accordance with national development plans.

The economic approaches of the plans and the underlying assumptions have evolved over the years. In the initial period, formulation of the plans was influenced by the approach of Harrod and Domar, which implied that parameters such as capital/output ratios and saving as a ratio of GNP were likely to remain steady and that there need be no apprehension of diminishing returns. By the mid-1950s, planning became synonymous with industrialization. Later, Rosentein Rodan's emphasis on “big push” as a leverage for the rest of the economy lent support to the approach for industrialization. In due course came Myrdal's “circular cumulative causation” and Rostow's “take off” philosophy that growth, once initiated, would feed on itself. Planning for economic development was considered essential for solving a wide variety of objectives, such as acceleration in the rates of saving and capital formation, expansion of employment, improvement in the balance of payments, diversification of domestic production, and self-sufficiency in food and associated goods. By the mid-1970s, the goals of growth were tempered by a recognition that equal attention to equity was needed. Over the last three decades, plans that were initially considered to be identification symbols of independence have acquired multiple dimensions. Although the major goals continue to be increased investment and growth in GNP, emphasis has also been devoted to the less quantitative aspects of growth. All these have also influenced the techniques adopted for planning and, therefore, the approaches to budgeting. It is in order that these are considered in terms of the types and techniques of planning and the implications for budgeting.

P lanning : T echniques and I nstruments

Economic planning is essentially of two types—planning by inducement and planning by direction. The former places reliance on the pricing mechanism, modified by taxes and subsidies to bring about needed investment in directions that are generally accepted. This approach is an antithesis of planning by direction, which implies a regulation of all aspects of economic life. Adherents of this latter school of thought, who are also inspired by a paternalistic view of the role of government, contend that the price mechanism is faulty, that the adoption of laissez-faire policies does not promote the welfare of the community, and that the state should assume a more active role. Supporters of the price mechanism approach suggest that the main problem of economic development is to motivate the millions of people who constitute the private sector and that this could be achieved more easily by incentives than by administrative fiat. A more pragmatic view is that there are areas where positive government stimulus is necessary, but there are also a number of areas where controls could be counterproductive and could work as impediments to economic efficiency and growth. 11 The extent of support given to these two major themes and the purposes of the plans determine the specific techniques of planning adopted by governments.

Two types of planning have emerged, depending on varying economic and social systems. Countries following the directional approach have become centrally planned economies, while those that relied on a mixture of direction and inducement have come to be considered as mixed economies (see Table 11 for a schematic framework of the approaches and techniques of planning). In centrally planned economies, the principal means of production are owned by state enterprises and institutions, and the activities and tasks of each production unit are reflected in the national plan. Such plans involve detailed estimates of material balances with their actual and intended use. The main purpose of the material balances method is to maintain equality of supplies and utilization of resources over a specified period. The method is employed at different levels of aggregation—for example, at the sectoral and national levels. At both levels, a balance is needed between resource availabilities and uses. Central planning involves the use of measures for the determination of aggregate output, investment, targets for each sector, central determination of prices, and regulation of personal incomes. This system, with its emphasis on detailed structuring (or, perhaps, overstructuring) of the economy is practiced in socialist countries. During recent years, however, there has been a gradual relaxation of central controls in those economies, and increasing reliance is placed on the market mechanism or its proxies. The budgets in these countries do not differ from the plans and are essentially financial expressions of quantitative targets.

Schematic Framework

Planning in mixed economies implies the adoption of two approaches—a detailed plan for government outlays and informal guidance to the private sector on its activities. The formulation of the overall objectives and the specifications of priorities—and even indications of resource plans and sectoral targets—are prepared by the government, but its decisions do not replace the private sector decision making. Decision making in the private sector is sought to be influenced by incentives and selective use of fiscal instruments. An eclectic combination of detailed and direct planning of government activities and use of the market mechanism therefore influences private sector operations. A variant of this approach is the indicative planning utilized in France during the 1960s. The French approach stressed the process of influencing private sector operations through persuasion, while areas such as consumption were to be regulated by fiscal and monetary mechanisms. French indicative planning was undertaken in two major steps. The first was to determine the feasible growth rate for the economy as a whole. The second consisted of an analysis and assessment of the requirements of each industry in terms of its linkages with the specified rate of growth before checking the mutual consistency of overall, as well as sectoral, rates of growth. The second step was a collective exercise in which both public and private sector industries participated. The main advantage of this approach, which is also called planning by concertation ( l'économic concertée ), is that planning is viewed in a broader framework beyond the traditional choice between the market mechanism and direction, and as a horizontal process of participation and consent. Planning then becomes possible with the advice, participation, and informal approval, which is in some ways morally binding. It encourages mutual exchange of information and facilitates the coordination of activities. In view of the greater involvement of government in economic management and the growing difficulties faced in that task, particularly the countervailing power of trade unions and associated wage rigidity, there has been a renewed plea for a greater spread of concertation. 12 Concertation imposes some limitations on the government policymaker. In particular, it implies that outlays on infrastructural elements must be consistent with the agreed rate of growth for various sectors. The budget in such circumstances is necessarily subordinate to the framework of planning.

Plans in developing countries, reflecting the predicaments of a mixed economy, tended to be in the initial stages what were derisively called “shopping lists.” In the early 1950s, plans were aggregations of the projects that were already under implementation or that were awaiting implementation. This phenomenon was not isolated but was broadly applicable to countries in Asia and Africa. Effective unity of aims and basic priorities was not attempted in a coherent way, and the tentative development plans underlined the need for an aggregate economic framework and for formulation of priorities. Meanwhile, lack of statistical data, which prevented the rigorous economic analysis of the proposed strategy, was partly compensated for. By the middle and late 1960s, the role of government in economic management received better attention and plans came to be evolved within the national account framework to ensure consistency. Conventional plans sought optimal solutions, but a macroeconomic framework was lacking. Formal econometric models, reflecting the interrelationships among the important variables of the economy and for which the parameters are estimated by an analysis of time series of data, had therefore come into vogue. 13 By the early 1970s, macroeconomic analysis and econometric models had come to be firmly recognized, although the usefulness of the models was vitiated partly by the methodology adopted and partly by deficient statistical data.

There has been a growing recognition, over the years, of the importance of sectoral planning, with specific attention to intersectoral linkages and the need for their harmonization. Sectoral planning permits the formulation of clear subgoals within the previously established framework of the economy. It also helps to direct resources to areas where they are most needed. In practice, however, the full potential of sectoral planning has not been achieved in many countries for two reasons. First, there is the limitation of data, and often sectoral planning has been restricted to the more obvious sectors or to those that have better statistics. Second, in some cases, it is feared that overconstructed plans might reduce flexibility in terms of the revision of plan targets. However, most development plans go through the motions of the formulation of strategies for various sectors, which are then translated into specific projects and programs in the public sector. Sectoral planning places greater responsibilities on the tasks of budgeting in that the financial aspects of each sector and its components are required to be reviewed at each stage of the planning and budget cycle.

The time span of the plans has also, over the years, undergone a change. In the early periods, when plans were largely consolidations of existing and proposed projects and when there was no macroeconomic framework, plans were for a five-year period. By the early 1960s, however, it became apparent that difficulties were being experienced in the implementation of medium-term plans and that they were not sufficiently flexible to permit greater attention to short-term problems. Unexpected declines in exports or foreign aid receipts made adherence to the medium-term plans difficult. Furthermore, in some countries, the implementation of medium-term plans contributed to exhaustion of the available foreign exchange reserves and common resort to deficit financing. Such a policy led to serious imbalances and inflationary pressures in the economy, and it became clear that policies and plans better adapted to the short term (annual plans) were necessary. 14 Yet another factor that contributed to the adoption of annual planning was that the formulation of medium-term plans took longer and the political processes of deliberation on them were often slow. During the mid-1960s India showed greater enthusiasm for annual plans because of this difficulty. Political instability and economic uncertainty, as well as the desire to have greater flexibility in planning and to achieve greater synchronization with the annual budget, contributed to strengthening the annual plan. While the reasons in each country may be different, France, India, the U.S.S.R., and Yugoslavia were among the countries that first introduced annual plans. Several Asian and African countries adopted a similar approach. 15 In some countries, medium-term plans were replaced by annual plans.

The purposes of the annual plans are to facilitate the conversion of general policies into specific policy actions, to provide a corrective for changes in the economic situation and, more significantly, to be a plan of action. The medium-term plans were not to be considered as being immutable or as being implemented mechanically. Each annual plan was to have its own focus but was not to be seen as an independent phase. It was a link that provided continuity and permitted change. Relative to the medium-term plan, it had some limitations, however. For example, saving, which is mainly determined by production, is an exogenous factor in the annual plan but is a part of the medium-term plan. Operationally, the annual plan consists of an assessment of progress in both physical and financial terms relative to the plan targets, an analysis of current developments, and a forecast of the immediate future. Its role is to review the plan projects, so that changes can be made and policies aimed at specific problem areas. The annual plan also pays detailed attention to resource constraints and crucial scarcities such as foreign exchange. In all these endeavors, the purpose is to adjust government policies for maintaining budgetary and economic stability and the pace of development and for ensuring consistency in the sectoral framework. Implications for annual budgeting are, in theory, clear. Inasmuch as it is an operational framework, it permits greater rapport with the budget and reduces some of the load that budgets have to carry in a medium-term context. The success achieved is, however, dependent on the way in which annual plans have fulfilled their expectations.

The techniques adopted for planning are usually described in terms of planning from the top down, planning from the bottom up, and mixed systems. In reality, however, it is often a mixture of planning from the top down and planning from the bottom up, depending on the areas of the plan. Broad national objectives tend to be given from the top or could be a meaningful aggregation of the preferences of the various levels of government according to the political leadership. During some periods of national leadership, for example, in India, Korea, and Tanzania, the framework of objectives may be specified at the top and ratified through the normal consensus framework. In regard to economic analyses and projections, as well as the use of econometric models, direction tends to be more from the top. The projects and programs included in the plan are generally built up from the bottom and are processed through various stages of review and analysis. No central authority can hope to compile the whole plan from the top alone, but in the final specification of targets, however, it is quite likely that the wishes of the “bottom” are not given due regard and, therefore, the agencies might feel that the targets have been imposed from the top. The formulation of targets often involves a goal toward which the agencies should strive and, therefore, may be set higher than the agencies consider feasible. This factor contributes to the expanded image of planning from the top down.

The advent of development planning has also led to the establishment of new instruments of budgeting. Traditionally, government budgets consisted of a revenue budget (receipts), a recurrent budget (expenditure), and, in some cases, a capital budget. After development plans came into vogue, some countries used the capital budget as a means of incorporating a major part of the plan outlay. In a few countries, development budgets became coterminus with the plan. Similarly, to cover the extensive loans and investments, investment budgets were set up. To facilitate consideration of the balance of payments and to conduct more orderly management of foreign exchange resources, foreign exchange budgets, or finance budgets, came into being. Also, to consider the overall implications of plan finances for monetary and credit management, many developing countries established finance and credit plans. These were, however, informal, and did not become part of the budget that was approved by the legislature. The growth of the variety of budgetary instruments illustrates the complexities of development planning and its implications for budgeting.

B udgeting and Planning

Budgeting in the public sector had its origins in the needs of legislative accountability. Its focus, which was on the allocation of resources to the various agencies and on the provision of a basis for control, was different from the approaches in the commercial world. In commercial firms, budgeting was concerned with the anticipation of investment needs, cost efficiency, and assessment of working capital and other investment requirements. With more progress in industrial activities, planning had come to be associated in the commercial world with optimal selection of product markets, with technological and market responsiveness, and with threats of discontinuity in each of these areas. Planning became a part of the responsibilities of administrators, and the philosophy of management came to be symbolized by the acronym POSDCORB (planning, organization, Staffing, directing, coordinating, reporting, and budgeting) that has long since become a part of folklore. In due course, the budgetary process became one that brought together for analysis the problems and the information relevant for solutions, as well as the administrative structure through which the decisions would be implemented, controlled, monitored, and evaluated.

Planning, in its simplest form and as it came to be used in governments, is considered as organized, rational thought that is essential for a determination of the national objectives, the instruments to be used, and needed inputs. In more diversified forms, planning is considered as a projected course of action, as a means of teaching an end, as a special process for reaching a rational decision, as full utilization of all the materials of the community, as an art, and as a process of preparing a set of decisions for action in the future directed at achieving goals by optimal means. 16 Budgets and plans are, therefore, facets of the same process. Budgeting without planning ceases to be a plan of action, and plans that do not have a realistic recognition of the budgetary constraints have little functional value. Each disciplines the other, and the end products should ideally bear the imprint of both.

In practice, however, plans and budgets are different, reflecting the approaches, content, and purposes of each. The plan is concerned with the whole economy, while the budget is concerned with the government sector. The difference between the two is less in centrally planned economies, where the state-run economy may not be very different from the total economy. The time span and the perspective of time may also be different. Budgets are usually made for one year. No budget can, however, be formulated strictly for a year, because it leaves a legacy for the future; it is not as though the slate is wiped clean each time and a fresh start is made. The budget is like a myopic patient whose view of the future may be indistinct. The plan, as noted earlier, can also be annual, but it views with greater clarity the implications of today's actions for the future, as well as the requirements for the future.

Both plans and budgets are concerned with policy analysis and allocation of resources. The differences lie in the combination of economic and financial aspects. In planning, the economic aspects dominate, while in budgeting more attention is paid to financial aspects. The two cannot be viewed in isolation, but degrees of expertise and tradition have an influence on their approaches. 17 Plans approach the economy in terms of various sectors. Budgets view them in terms of systems of control over the use of funds by government agencies. Plans provide a conceptual framework and represent the thinking process. Budgets are operational documents on the basis of which laws are drawn up, funds appropriated, contracts made, and funds spent and accounted for to the legislature. Over the years, plans have developed their own accountability to the legislature. Plans are debated by the legislature, but the purse strings are released only through budgets. In the context of a plan, budgets proceed on the assumption that goals have already been established and they become subordinate to the planned objectives. Plans are the quantitative expressions of governments goals, but the determination of the financial resources and the responsibility for ensuring the implementation of programs are a part of the budgetary framework. Essentially, therefore, while all budgets are plans, not all plans are budgets. The preparation of both takes place within a specified timetable, but the relative flexibility of the plan permits a deductive approach, while budgets, constrained by the short period within which they have to be made, tend to be inductive. In philosophical terms, the two tasks complement each other.

The functional symbiosis should ideally be reflected in organizational forms as well. As planning came to be organized, however, it took a different form and came to be established in several countries, separate from the finance and budgetary agencies. Considerations that influence this approach range from political ones to those more pragmatic. Budgeting has been a part of government organization for a long time and has well-established practices, but these practices are not considered entirely appropriate for the new vision needed. In India, it was recognized that “we do not at present possess either sufficient knowledge and statistical information or sufficiently extensive control over economic activity,” and it was felt that a separate body directly responsible to the Cabinet would be more appropriate. Planning was to be undertaken “through an organisation free from the burden of the day-to-day administration but one which is in constant touch with the Government at the highest level.” 18 Similar considerations prevailed elsewhere. The routine approaches of the budgetary agencies, which traditionally were more concerned with the limited objectives of economy and regularity, appeared obsolete for carrying out the new challenges that required greater awareness of social, economic, and technological development. In some countries, planning was to be undertaken for the whole country, implying the need for greater and continuous coordination between various levels of government. It was believed that budget and finance agencies, which are a part of the government, would not permit the desired coordination and might give the impression of vertical integration. Planning bodies were, therefore, organized differently and were expected, in principle, to serve the requirements of state and local governments. However, as the full potential and implications of these proposed organizations were not too clear, it was considered better to organize them as advisory bodies, with the final decision making left to the normal government channels.

Over the years, the organizational, philosophical, and policy differences and operational divergences between planning and budgeting agencies have, in many countries, generated a series of problems that affected both the plan and the budget, as well as the outcome of both.

D ivergences B etween P lans and B udgets

The budget in the context of the development plan has a policy function and a program function. The policy function involves determination of the size of the government budget and of the composition of the outlays. The program function ensures that the programs and projects in the plan are included in the budget and that results expected from the outlays are actually achieved. In an ideal situation this would be true, but a cursory glance at any plan indicates that there is a vast difference between ideal and actual situations. Depending on the degree of optimism or pessimism of the analyst, the situation could be interpreted either as flexibility of the instruments to respond to the changing situation, or as failure of the instruments to respond because they had not adequately anticipated the situation. Although it may appear paradoxical, both are true. Over the years; economies have been buffeted by crosscurrents that have required changes in plans. Plans and budgets, for their part, reveal that they have not fully anticipated some of the developments in the economy. These conclusions are inevitable on the basis of hindsight, but it is debatable whether a better prognosis could have been made in those situations. The countries that experienced success might illustrate better planning and, conversely, those that experienced stagnation or declining rates of growth may have had bad planning or policy advice. Successes or failures are easier to explain after the event. But success might not lend itself to replicative treatment, because, as noted earlier, institutional differences among countries act as either constraints or as locomotives. The purpose here is to examine the divergences between budgets and plans, as well as the extent to which they are influenced by differences in planning, procedural, and organizational factors.

An important area in which development plans and budgets are expected to be congruent is “development finance,” which comprises resource mobilization and resource allocation. In a large number of developing countries, both development plans and budgets estimate revenues in terms of public saving (or balances from current revenues at rates of taxation prevalent before the plan), surpluses from public enterprises, external resources (including borrowing from abroad), additional taxation proceeds, and the extent of deficit financing. Revenue planning, as noted earlier, has traditionally received neither due importance nor the attention of the public, partly because of its arcane nature and partly because of the organizational division of labor. Collection of taxes has been the traditional preserve of the revenue agencies, and the planning agencies had neither the power nor the technical severity to carry out the necessary financial planning. This has had a twofold effect. First, planning agencies were content to draw up resource estimates in aggregate, leaving the more technical work to the revenue agencies. Second, in some countries where new resources such as external aid were concerned, planning organizations acquired control over their management. In some countries, such as the Islamic Republic Iran, allocation of revenue was also transferred from the revenue or budget agency to the planning agency. Revenue planning does not require a transfer of the respective jurisdictions to the planning agencies but it implies that it should be done with realistic foundations. Additional revenue has been obtained with a greater degree of success by taxation measures than by other means. For example, in India, estimates of additional taxation were fulfilled (and even exceeded) during the second and third five-year plans and the following annual plans. In some other countries, however, this was not true, as the budget did not “incorporate the overall policy measures required for the success of the plan.” 19 This was, in turn, due to the fact that the planners were apt to assume that needed efforts would be made but had not paid heed to political difficulties. Although distinctions are drawn between planners and budgeteers, in effect, neither role is independent and each involves a little of the other. Indeed, in India, estimation of resources for the plan is a common responsibility of both planning and finance agencies.

Estimates of balances from current revenues, surpluses from public enterprises, and foreign aid included in both plans and budgets have proved to be too optimistic. Plans often did not have the necessary detail or specifications not did they take into account the rate of growth of expenditures. India in the mid-1960s and Kenya in the mid-1970s assumed in their development plans that the rate of growth in nondevelopmental expenditures would be restricted to 3–5 percent annually, but this proved to be vastly underestimated. Revenue from public enterprises represents a major area which is considered in Chapter 14 . Foreign aid is often pegged at a high figure as a reflection of the requirement for aid or as a goal rather than as a practical matter. Thus, the whole resource base of the plan tends to be unrealistic. As a result, budgets came to act as major correctives for the plan and for the economy. But, as the size of the plan was determined by resource availability and became, in due course, fixed in terms of its imperatives, the implication was that the plan had to be carried out even if its execution required resort to massive inflationary finance. Another important aspect was that planning and budgeting were undertaken as financial exercises, with little or no attention given to the impact of proposed resource mobilization on productive activity, consumption and distribution, and inflation.

Resource allocation also reveals a number of divergences between the plan and the budget. Two features dominated the early plans. Unrealistic targets were set for outlays which strained the capability of the administrative machinery. Plans were also vague and did not always represent specific investment decisions related to the national objectives. This initial situation may partly have been due to a desire to minimize conflict but, to a major extent, it was due to time schedules that would not permit fulfillment of the ambitions. Although some of these problems have been mitigated, experience over the past three decades shows that divergences between plans and budgets were not surprising at all, given that plans were not sufficiently articulate and budgets had to compensate for them. Whereas, in the ideal setting, budgets would follow the precepts, in the everyday world, it appeared that budgets had to compensate for the plans. Specifically, the plans did not offer a consistent investment frame and the amount of detail varied from sector to sector. 20 More significantly, projects and programs that had not been reviewed thoroughly were included in the plan. As inclusion in the plan acquired a legitimacy of its own, they also had to be included in the budget. 21 For example, about one third of the outlays provided in the budget of Bangladesh in 1976/77 were for unapproved, or as yet unexamined, projects. Apart from the implication of a lack of advance programming, this meant that scarce resources were allotted to programs that were not presumably ready, while those that were ready for implementation were denied allocations. To some extent, this was due to the inordinate emphasis on financial targets in which operational agencies felt obliged to try to include programs that had not been properly evaluated.

In some countries the determination of the annual size of the budgetary outlays was sought in terms of the levels indicated in the plans. However, as these were not adjusted for inflation, for the economic climate, or for slippages in implementation, the outcome of the budgets tended to be different from the plans. Implicit in the process has been the relatively low attention to the annualization of outlays. While part of this has been mitigated, depending on the progress made in formulation of plans, the plans themselves have not been without problems in specifying the annual amount of the outlays. A consequence of this approach has been the vast shortfalls in plan expenditures. For example, in the 1970s, the budget of Sri Lanka routinely provided for a 20 percent underexpenditure in its plan outlays to accommodate the built-in overestimation. Yet another feature was that the plans had not taken into account the continuing outlays on completed projects; lack of recognition of this led to distortions in decision making and to increased budget deficits. A significant shortcoming of the plans is the lack of contingency plans for carrying out short-term adjustments in expenditures when warranted by resource constraints and it became, by default, a responsibility of the budgets.

At a procedural level also divergences are to be found between plans and budgets. Different procedures and timetables are adopted in various countries for the compilation of the plan or development budget and the current budget. In some countries, development budgets are compiled by the planning agency and the current budget is determined by the finance agencies. The review in the planning agency emphasizes economic aspects, and that in the finance agencies emphasizes the financial side. As the respective agencies usually work in isolation, in some cases, a vast area lies between the two. The current budget is more detailed, while often the development budget is brief. The structure of the budget is also different from the plan. Harmonization of approaches to budget making has been one of the main aims of budgetary reforms since the early 1960s, but problems persist. A source of aggravation over the years has been the link between the annual plan and the budget. Ideally, the annual plan should take stock of the economy and provide the needed guidance for the formulation of the budget. In practice, however, because of politics and different timetables, annual plans have come to be prepared after the budget. Thus, plans cease to offer a consistent framework or the visionary guidance for the formulation of the budget, in some cases, the planning responsibility shifted to the budget agency. In many countries, the procedures for annual budgeting have recently improved. Specific mention should be made of the overall resources budget prepared annually in Korea, which sets priorities and allocates funds for various sectors.

The divergences between plans and budgets are, in part, ascribed to the separate organizational forms of the two agencies, which reflect the fundamental differences in the approaches of planners and budgeteers. Budgeting, in this school of thought, is viewed as a specialized way of looking at problems and involving certain values relating to fiscal policy and coordination. The budgeteer is believed to be conservative and, therefore, inclined to reduce expenditures, being concerned with annual increments. The planner, on the other hand, is considered a big spender, who would be inclined to support increased outlays. In his decision making, the planner might be more rational, stressing allocative efficiency. Implications of these approaches have already been considered. Extremes of these portraits have been drawn in the literature, and the differences between plans and budgets have been ascribed to them. 22 It was pointed out earlier in this chapter that it is too simplistic to view these divergences as an issue only between two organizations, as in practice it appears that decision making is fragmented among different instruments and units that are separately organized and that the problems relate to techniques, as well as to coordination among the various divisions in government. More important is the fact that the divergences have, over the years, contributed to the establishment of new values in administration and to new problems. These pervasive problems need more attention. The most important is dualism.

P roblem of D ualism

Boeke in his pioneering work on dual societies 23 essentially referred to the distinct cleavage of two synchronic and full-grown social styles that in the normal, historical evolution of societies are separated from each other by transitional forms. He made the qualification, however, that one of the prevailing systems—as a matter of fact, always the most advanced—“will have been imported from abroad and have gained its existence in the new environment without being able to oust or assimilate the social system that has grown up there.” He also suggested that there was bound to be a clash between imported and indigenous styles. In extending this approach to financial management in government, it should be recognized, as described earlier, that these systems have undergone several adaptations in their implementation in developing countries. Also, what occurs between traditional styles of financial control and the newly introduced systems of planning should perhaps be considered as conflict rather than clash. A clash implies a fight in which one of the contenders has to yield to the other. Although Boeke applied his dualism thesis primarily to emphasize the contrast between subsistence and exchange sectors, more recently there have been attempts to extend the approach to a wider range of economic and social dichotomies.

Dualism, which reflects two separate approaches to budgetary matters, is largely the result of the continuation of traditional institutions and related approaches, on the one hand, and the emergence of new institutions and approaches reflecting the requirements of development, on the other. 24 The simultaneous existence of these two strands and their everyday working has a vast impact on the very structures of institutions, as well as on the approaches to policy formulation and the implementation of policies. While it is debatable whether dualism of this type has impeded or facilitated economic development, it has undoubtedly given rise to numerous problems and, to some extent, avoidable conflicts.

Based on the experience of a number of developing countries, certain aspects of dualism may be enumerated. First, reflecting the economic and institutional demands, dual and multiple budget structures have emerged—and in their wake, dual standards for budget formulation ( Table 12 ). This dualism has contributed to a predictable “project gap” in the development (or capital) budget, while conservative attitudes toward the current budget have strengthened the desire to resort to escape mechanisms. Second, as a consequence of dualism, a new type of distribution of power has emerged. Development projects are often accompanied by a substantial decentralization of power to the operational and managerial levels, while powers in regard to spending on the current budget continue to be heavily centralized in the ministries of finance or budget bureaus. Third, financial control has changed so that the degree of control varies with the nature of the currency. It tends to be relatively lax when expenditures are incurred in domestic currency and becomes rigid and centralized when expenditures are in foreign currency. Fourth, dualism also has given rise to a number of institutional problems. For example, the traditional systems of accounting and auditing were not able to develop new approaches to the treatment and evaluation of expenditures. 25 Consequently, planning organizations developed their own evaluation institutions that occasionally overlapped with audit bureaus. Dual approaches have, over the period, resulted in the hardening of the respective standpoints and the growth of distinct spheres of institutional activities. 26 But the way in which such hardening has come about is not by a recognition of dualism and its extended prevalence in government but as a part of systems politics—a struggle over the processes by which decisions or policies are made rather than on the substance of policies. Policy differences become major issues that may cut across government, while minor differences about who should make decisions tend to become irritations leading to delays and unprofitable activities.

Dualism in Government Financial Management

Aspects of systems politics emerged in the initial stage, as finance agencies felt that their traditional power was eroded by the planning machinery. But their reactions were ambivalent. Sometimes they refused to concede the power and what was lost they sought to retrieve at the various stages of planning and budgetary processes. 27 This meant determining the size of the plan and its financing by the finance ministry, or determining the annual budget ahead of the annual plan, and planning bodies were left with the more routine business of reviewing development projects. To a great extent, the shift of power depended on the respective political strengths of finance and planning agencies. Available experience indicates that there are planning agencies that have precedence over finance ministries, and countries where the finance ministry continues to hold its traditional primacy. The contribution of systems politics was to make the planner leave the postulated rational approaches and to make greater adjustments to the political environment. Although these adjustments implied a different kind of rationality, it also showed that planning could not work in isolation and was a part of the real world. 28

A lternatives : I ntegration or S eparation

Conflict between organizations and the prevalence of systems politics have contributed over the years to situations that are admittedly not efficient and may have even functioned in such a way as to divert attention from more important policy issues. The solutions to the problems were sought at one stage through integration of the two functions. The proposals for integration were of two types—that planning should take over the budgetary functions and that budgeting should also include planning. Although the problem itself was perceived to be primarily applicable to developing countries, the theoretical foundation for both came from western democracies. Bloch-Lainé argued that, regardless of the extent of consultation between budget and planning agencies, the existence of the former with final responsibility concerning public expenditure could itself be a negative force and might oppose the more expansionist views of the planning agency. 29 He, therefore, advocated a Ministry of Planning incorporating the sections of the Ministry of Finance that exercise financial control, thus ensuring that the annual budget would be integrated with the plan. Variants of this approach are to be found, in practice, in Korea where the Bureau of Budget functions as a part of the Economic Planning Bureau. In Brazil, the Ministry of Planning is responsible for the annual budget. A less sophisticated version is that the planning agency is responsible for a part of the budget. This practice, as noted earlier, has actually contributed to dualism.

Similarly, in the early stages of development planning, programming, and budgeting systems (PPBS) in the United States, planning was included to define all the functions of budgeting and budgeting was considered merely as a determination of men and materials and provision of resources in the budget (see Chapter 11 ). The planning phase itself was to comprise appraisal and comparison of various government activities in terms of their contributions to objectives and related aspects. The agency that should undertake this was not clearly specified nor was such a specification considered necessary, as there was no separate planning agency in the United States. The work was undertaken as part of the annual cycle with appropriate subdivisions for the planning, programming, and budgeting steps to ensure an orderly approach.” 30 Planning was to be an integral part of the system and was to be undertaken by the budgetary agency. This ambitious approach was influenced, among other factors, by the fear, on the one hand, that a widening of the gap between planning and budgeting tended to generate an air of unreality by a compulsive need for breaking away from the traditional modes, and, on the other, by the views of economists, who felt that planning involved a greater degree of centralization that, in turn, was helpful to government decision making. It appears, however, that this approach also ignored the institutional implications of such integration, one problem of which is the fact that the budgeteer, by tradition, is ill equipped to be a visionary. More significantly, there was a danger that operational requirements and procedures of budgeting might drive out the creativity required for good analysis. 31 Even integration requires coordinating devices between the two broad functions and unless these are properly attended to, integration by itself will not solve the problems. Integration can also lead to the creation of a monolithic organization that can be more problematic. Practical experience reveals that developing countries ranging from the Bahamas to Zambia have gone through a cycle of operations. Planning agencies were initially organized as separate agencies and were later brought under the aegis of a single ministry with finance, an arrangement found to be rather unwieldy. Without appropriate techniques of coordination, however, harmonious working could not be achieved. To some extent this was inevitable where the problem was perceived to be between two functions rather than building up a network of relations among different units that function within budgeting and planning. 32 Further, some of these units developed a style of their own, irrespective of the formal organizational pattern of budgeting and planning. Aided by other political considerations, the integrated form was once again divided and planning and finance began to function separately. In each case, however, there were valid reasons in favor of either arrangement, although their contribution was limited where the problems were of policy rather than organizational.

I mprovements

The above types of problems were recognized and efforts were made to solve them. Some of these improvements have been mentioned earlier and the present state of planning reflects this evolutionary growth. The impact of the improvements may not always be evident, however, either because they were slow in coming, because of a change in the economic climate in the meantime, or because of both. The improvements and approaches recognized that if a harmonious relationship were to be achieved both budgeting and planning needed change. This recognition itself is a significant one, for it implied that the bitter debate as to who was responsible was over. The improvements may be analyzed as those that are organizational and those that are technical inputs.

Organizationally, a major effort was made in a number of countries to improve coordination at the processing and working levels. At the processing level, the linkages between macroeconomic analysis, sectoral planning, and budgeting were recognized and procedures established to coordinate them. At the working level, joint teams, comprising representatives of finance, planning, and the spending agency, were also set up. In order to facilitate the budget linkages, improved classification on a uniform basis for the plan, budget, and accounts was introduced. (Considerable progress on this was made in India and Korea.)

In terms of technical inputs, the use of improved techniques of sectoral planning and their utilization has increased. Greater emphasis on sectoral planning has provided opportunities for disaggregating the national plan in detail and permitted working more directly with the ministries and agencies and improved the involvement of managerial levels in the formulation and implementation of plans. Similarly, improved annual planning has facilitated the building up of rapport with the annual budget. Efforts have also been made to improve budget programming for each major project included in the budget. As an integral part of this effort, calculations are made of the exact timetable of expenditure for subsequent years and of its annual effect on the operational budget. These improvements are modest and the dimensions of the remaining tasks to be fulfilled come into bolder relief when it is recognized that few countries have been able to achieve all-round progress in the above areas. As a report of the United Nations emphasized, “the results in most cases left much to be desired, for a variety of reasons.” 33 The continuing tasks of government financial management make it imperative that more attention be devoted to these areas.

For a complete listing of countries that have medium-term or annual development plans, see World Bank (1973) .

Santayana wrote in Tipperary “each generation breaks its eggshell with the same haste and assurance as the last, pecks at the same indigestible pebbles, dreams the same dreams, or others just as absurd, and if it hears anything of what former men have learned by experience, it corrects their maxims by its first impressions and rushes down any untrodden path which it finds alluring, to die in its own way, or to become wise too late and to no purpose.”

Gunnar Myrdal (1970) , p. 175.

During 1975, serious efforts were made in the United States to organize a forum for national planning. For the above quotation and associated arguments, see Hubert H. Humphrey (1975) , p. F12.

VIIIth Plan 1981–85, quoted in A. Latham-Koenig (1980) , p. 16.

Thomas A. Murphy (1975) , p. F12. For a more recent exposition of the virtues of the market mechanism and the problems of planning, see Milton Friedman (1979) , p. 289. Earlier exponents of this approach include Frederick von Hayek, The Road to Serfdom , and Ludwig von Mises, Socialism .

For a detailed account of the growth of planning in India, see Premchand ( 1966b ), pp. 130–35.

See United Nations, Government Budgeting and Economic Planning in Developing Countries (1966b).

See Barbu Niculescu ( 1958 ). for a description of grants and the status of finances in some of the West Indies, see J. R. Hicks and U. K. Hicks ( 1955 ); and A. R. Prest ( 1957 ).

For an account of the subsequent efforts and problems, see John J. Bailey ( 1980 ).

' For an application of the relative effects of controls and inducements, particularly in the area of foreign trade, see Emile Depres (1973 ). Chapter 9 (pp. 133–45) of the book is a reproduction of Depress memorandum, “Price Distortions and Development Planning: Pakistan,” addressed to the Planning Board, Government of Pakistan, 1956.

See David Coombes (1974) , pp. 86–94; and Norman H. Keehn (1978 ), pp. 538–62.

See Economic Commission for Asia and the Fat East (1969) , pp, 31–49

For a case study of Tunisia during this period, see Sadak Bahroun (1971) , pp. 60–95.

For a review of the approaches to the Asian countries, see Economic Commission for Asia and the Far East (1969) , p. 31. in the early years of the introduction of the technique, it was considered as a “weak area” requiring greater attention (ibid., p. 32).

For an interesting review of these definitions, see Yehezkel Dror (1963) , pp. 44–58; and Bertram Gross (1962) .

See Gerhard Colm (1968) ; and A. W. Johnson (1959) , pp. 145–53.

See Premchand (1966) , pp. 124 and 128.

See United Nations, Government Budgeting and Economic Planning in Developing Countries (1966), p. 4.

For a review of the experiences of several Asian countries, see Dennis A. Rondenelli (1978) , pp. 45–74. See also Edward Mason (1964) .

In Japan, for example, the medium-term plans prepared by the Economic Planning Agency were frequently used by the spending agencies to buttress their arguments for inclusion of the it programs in the budget. Apparently, however, the success of this strategy was limited. See John Creighton Campbell (1977) .

Caiden and Wildavsky (1974) suggest that the Finance Ministry is likely to acquire accountants, lawyers, and low-level technicians, and that the planning bodies are likely to have economists and others “whose rationale is to overcome the regular apparatus,” p. 241. This implies a value judgment that personnel other than economists do not function too well in planning and that economists assume the responsibility for reforming the government. Admittedly, neither proposition is sustainable: several planning bodies have more administrators than economists and some budgetary agencies that have shown greater reliance on lawyers have done very well (for example, the Federal Republic of Germany).

See J. H. Boeke (1953) . For recent extensions of the approach, see I. Adelman and C.T. Mortis (1967).

Hoselitz (1963) observes “On the one hand, the time-honored fashioned ways of government and administration are extolled, and at the same time the pressure for economic advancement places stress on the development of a streamlined highly rationalized modern bureaucracy” (p. 183). He does not, however, undertake any assessment of whether indeed the new institutions that have come to be organized have the features of a modern bureaucracy or are only variations of the existing institutions. See Hoselitz, Bert, in J. La Palombra, ed., Bureaucracy and Political Development (1963).

A similar problem was experienced by the industrial countries in an earlier period. For a discussion of these experiences, see E.L. Normanton (1966) .

Riggs argues that “the phenomenon of development involves the differentiation of separate structures for performing services and that in doing so structures adapted from western models could come into existence. The older institutional base of a traditional system, however, lingers on. Although eroded and embattled, it struggles to remain alive, to retain positions of influence,…. We find then, in the transitional society, a dualistic situation. Formerly, superimposed institutions patterned after western models coexist with earlier indigenous institutions of a traditional type in a complex pattern of heterogenous overlapping” (see Fred Riggs “Bureaucrats and Political Development: A Paradoxical View,” in La Palombra (1963) , p. 123). Riggs does not extend his analysis to inquire whether such a coexistence would be peaceful or otherwise. He does not also consider whether coexistence would be rendered any easier and transition made smoother, if those institutions modeled on western practices were hybridized to meet local requirements and to mix easily in the indigenous milieu.

There was a view in India that the relationship between the planning and finance agencies was one of a division of responsibilities—finance responsible for the implementation of the plan, while the responsibility of the Planning Commission was that of analysis, review, and advice. See Premchand (1966b) , p. 133.

For an analysis of these aspects, see S. Kenneth Howard (1970) , pp. 151–52.

See F. Bloch-Lainé (1962) . Also see, G. Denton (1968) . pp. 241–42. A more recent exposition of a similar view is to be found in Stephen Margin, Partha Dasgupta, and Amartya Sen (1972) . While recognizing that budgeting is the cutting edge of the national planning sword, they felt that the finance ministries are often conservative, old-fashioned, and preoccupied with short-term issues, and therefore suggested integration as the most important step for the introduction of any quantitative analysis.

See David Novick (1965) .

Wildavsky (1969) wrote in terms of rescuing policy planning from the PPB trappings, pp. 835–64. Schick (1969) also reaches the same conclusion but for different reasons. To him, planning needs to be separate because budgeting involving routine takes place only during a specific part of the year and, on the whole, budgeteers are insulated from the outside world. Schick's portrayal of the budgeteer is fortunately not typical (see “Systems for Analysis: PPB and its Alternatives,” pp. 817–34. Both papers are included in United States, The Analysis and Evaluation of Public Expenditures: The PPB System , Vol. 3.

A. W. Johnson (1959) warned that the integration of the agencies without developing requisite coordinating devices would have undesirable consequences (p. 153).

See United Nations, Survey of Changes and Trends in Public Administration and Finance for Development (1978b), p. 37.

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• chapter seven Expenditure Planning and Forecasting
• chapter twelve Budget Execution and Cash Management
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Table of Contents

• Front Matter
• chapter one Fiscal Policy Parameters for Budgeting
• chapter two Purposes of Budget and Determinants of Public Expenditures
• chapter four Approaches to Decision Making
• chapter five Organizational Aspects
• chapter six Development Planning and Budgeting
• chapter eight Inflation Budgeting
• chapter nine Short-Term Adjustments In Public Expenditures
• chapter thirteen Government Accounting and Financial Information Systems
• chapter fourteen Public Enterprises and Autonomous Agencies
• chapter fifteen Intergovernmental Fiscal Management
• Back Matter
• Nature of Planning
• Growth of Planning
• Planning: Techniques and Instruments
• Budgeting and Planning
• Divergences Between Plans and Budgets
• Problem of Dualism
• Alternatives: Integration or Separation
• Improvements

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How to Prepare a Budget for an Organization: 4 Steps

• 16 Nov 2021

An organization’s budget dictates how it leverages capital to work toward goals. For this reason, the ability to prepare a budget is one of the most crucial skills for any business leader —whether a current or aspiring entrepreneur, executive, functional lead, or manager.

Before preparing your first organizational budget, it’s important to understand what goes into a budget and the key steps involved in creating one.

What Is a Budget?

A budget is a document businesses use to track income and expenses in a detailed enough way to make operational decisions.

Budgets are typically forward-looking in nature. Income is based on projections and estimates for the periods they cover, as are expenses. For this reason, organizations often create both short- (monthly or quarterly) and long-term (annual) budgets, where the short-term budget is regularly adjusted to ensure the long-term budget stays on track.

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Most organizations also prepare what’s known as an “actual budget” or “actual report” to compare estimates against reality following the period covered by the budget. This allows an organization to understand where it went wrong in the budgeting process and adjust estimates moving forward.

Budget vs. Cash Flow Statement

If the definition above sounds similar to a cash flow statement , you’re right: Your organization’s budget and cash flow statement are similar in that they both monitor the flow of money into and out of your business. Yet, they differ in key ways.

First, a budget typically offers more granular details about how money is spent than a cash flow statement does. This provides greater context for making tactical business decisions, such as considering where to trim business expenses.

Related: The Beginner’s Guide to Reading & Understanding Financial Statements

Second, a budget is, quite literally, a tool used to direct work done within an organization. The cash flow statement plays a different role by offering a higher-level overview of how money moves into, throughout, and out of an organization.

Instead of thinking of the two documents as competing, view them as complementary, with each playing a role in driving your business’s performance.

Steps to Prepare a Budget for Your Organization

The steps below can be followed whether creating a budget for a project, initiative, department, or entire organization.

1. Understand Your Organization’s Goals

Before you compile your budget, it’s important to have a firm understanding of the goals your organization is working toward in the period covered by it. By understanding those goals, you can prepare a budget that aligns with and facilitates them.

Related: The Advantages of Data-Driven Decision-Making

For example, consider a business that regularly experiences year-over-year revenue growth that’s offset by rising expenses. That organization might benefit from focusing efforts on better controlling expenses during the budgeting process.

Alternatively, consider a company launching a new product or service. The company may invest more heavily in the fledgling business line to grow it. With this goal, the company may need to trim expenses or growth initiatives elsewhere in its budget.

2. Estimate Your Income for the Period Covered by the Budget

To allocate funds for business expenses, you first need to determine your income and cash flow for the period to the best of your ability.

Depending on the nature of your organization, this can be a simple or complicated process. For example, a business that sells products or services to known clients locked in with contracts will likely have an easier time estimating income than a business that depends on active sales activity. In the second case, it would be important to reference historical sales and marketing data to understand whether the market is changing in a way that might cause you to miss or exceed historical trends.

Related: How to Read & Understand an Income Statement

Beyond income from sales activity, you should include other income sources, such as returns on investments, asset sales, and bond or share offerings.

3. Identify Your Expenses

Once you understand your projected income for the period, you need to estimate your expenses. This process involves three main categories: fixed costs, variable expenses, and one-time expenses.

Fixed costs are any expenses that remain constant over time and don’t dramatically vary from week to week or month to month. In many cases, those expenses are locked in by some form of contract, making it easy to anticipate and account for them. This category usually includes expenses related to overhead, such as rent payments and utilities. Phone, data, and software subscriptions can also fall into this category, along with debt payments. Any expense that’s regular and expected should be included.

Related: 6 Budgeting Tips for Managers

Variable expenses are those your business incurs, which vary over time depending on several factors, including sales activities. Your shipping and distribution costs, for example, are likely to be higher during a period when you sell more product than one when you sell less product. Likewise, utilities such as water, gas, and electricity will be higher during periods of increased use. This is especially true for businesses that manufacture their own products. Sales commissions, materials costs, and labor costs are other examples of variable expenses.

Both fixed expenses and variable expenses are recurring in nature, making it easy to account for them (even if variable expenses must be projected). One-time expenses , also called “one-time spends,” don’t recur and happen more rarely. Purchasing equipment or facilities, developing a new product or service, hiring a consultant, and handling a security breach are all examples of one-time expenses. Understanding major initiatives—and what it will take to accomplish them—and what you’ve spent in previous years on similar expenses can help account for them in your budget, even if you’re unsure of their exact values.

4. Determine Your Budget Surplus or Deficit

After you’ve accounted for all your income and expenses, you can apply them to your budget. This is where you determine whether you have enough projected income to cover all your expenses.

If you have more than enough income to cover your expenses, you have a budget surplus. Knowing this, you should determine how to use additional funds best. You may, for example, move the money into a rainy day fund you can access should your actual income fall short of projections. Alternatively, you may deploy the funds to grow your business.

On the other hand, if your expenses exceed your income, you have a budget deficit. At this point, you must identify the best path forward to close the gap. Can you bring in additional funds by selling more aggressively? Can you lower your fixed or variable expenses? Would you consider selling bonds or shares of company stock to infuse the business with additional capital?

An Important Financial Statement

The person responsible for generating a budget varies depending on an organization’s nature and its budgetary goals. An entrepreneur or small business owner, for example, is likely to prepare an organizational budget on their own. Meanwhile, a larger organization may rely on a member of the accounting department to generate a budget for the entire business. Individual department heads or functional leads might also be called on to submit budget proposals for their teams.

With this in mind, anyone who aspires to start their own business or move into an organizational leadership position can benefit from learning how to prepare a budget.

Do you want to take your career to the next level? Consider enrolling in our eight-week Financial Accounting course or three-course Credential of Readiness (CORe) program to learn financial concepts that can enable you to unlock critical insights into business performance and potential. Not sure which course is right for you? Download our free flowchart .

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By  Asif Masani , Founder of FP&A Professionals

Strategic planning, annual planning, budgeting and forecasting are often interchangeably used, but they are very different.

Strategic planning : Strategic plan looks 2 to 5 years into the future to crystallise what you wish to achieve and then prioritise the strategies for achieving those aspirations.

Annual budgeting : An annual budget is a blueprint for how the company is expected to do business in the next financial year.  It forms the basis of Business Operations in the year ahead. It dictates the decisions relating to where to invest, what costs to cut, where to allocate more resources, and where to focus specific efforts. Most organisations do their annual operating plans and budgets once a year with the best available information at that point in time.

Forecasting : A forecast is an estimate of what the company will achieve if it keeps performing as it is. It shows you to what extent you would end up off budget if you continue as is. 

After the budgets are done. Every quarter we reflect on what has happened (actuals) versus the budget. Obviously, not everything goes as it was planned. This is where quarterly forecasting becomes important. It helps to quantify and manage the gap between the original budget and the reality. According to the latest insights, a forecast is where the company is genuinely headed.   Coming back to strategic planning. This involves setting goals and objectives, developing plans to achieve these goals, and measuring progress.

Strategic Plans ensure that the company stays on track with its goals, meets deadlines and avoids any potential setbacks. However, these processes can be complicated and time-consuming, so it is important to have an experienced professional help you carry out these tasks.

Business strategy is the vision of where the organisation wants to be in three to five years’ time. 

It includes, 

• Setting overall objectives so that the organisation and everyone working there are clear about what they are hoping to achieve.
• Analysing the environment in which an organisation operates and its resources using SWOT analysis – an assessment of business strengths, weaknesses, opportunities, and threats.
• Identifying different courses of action that the organisation can take to achieve its objectives.

Budgeting is a relatively short-term measure.  It is just one part of the overall business strategy. It is a tactic tool that is used to implement the activities and projects which senior management has planned.

On one hand, organisations plan for the long-term using a strategic plan.  Senior management chooses the strategic options that will have the greatest potential for achieving the organisation’s objectives and then create long-term plans to implement those strategies.

On the other hand, we also plan for the short-term using a business plan which dictates what the organisations must do now to achieve the long-term strategic plan. Budgeting is the tactical implementation of the business plan. It is incorporated in both the business planning and control processes.

These long-range plans are translated into the departments annual operating plans. The business plan is put into practice using the planning and budgeting procedures : what to do when, and the necessary controls (including budgeting) to ensure that planned results are actually achieved.

  Figure 1

Let's look at the two levels of budgeting and planning, the corporate level and the business level.

At the corporate level , we have the policies, strategic guidelines, and corporate development plans. So, the aspects we are discussing here are related to strategic foresight, vision, values, corporate development plan, strategic policies, and guidelines. These corporate strategy aspects shape the business process. 

At corporate level planning, major assumptions are defined, such as the macro-economic trends, the GDP growth, inflation, interest rate, the minimum required rate of return (hurdle rate), exchange rates etc. The corporate level emphasises key indicators, such as the company's earnings and cash flows .

The Business Unit / Operational level comprises most of the budgeting aspects. The function/ business unit level budget is related to the areas of a company, such as marketing, sales, manufacturing, controlling, and others. 

The budgeting process should not start without strategic guidelines. The planning process precedes the budgeting process. The budget should follow the strategy. 

Strategy -> Planning -> Budgeting

Here are the steps in detail:

• Senior management engagement: This might sound obvious. But I've personally experienced cases where people in the company experience lack of engagement from senior management.
• Organisational structure analysis: By analysing the organisation's structure, we can assess who does what from the budgeting perspective.
• Identification of accounting structure: If the company accounting structure is established, the responsibilities of the areas are already defined.

Based on 2 and 3 above, Managers of relevant areas are invited to participate in the budgeting process.

• Identification of strategic guidelines: By analysing the business environment , senior management defines strategic guidelines. These guidelines serve as a reference to drive the discussion in the planning process.
• Communication: No planning would be effective without communication.
• Opportunity and feasibility analysis: It helps identify opportunities and detect threats. Awareness of a potential threat on the radar could help mitigate bigger risks.
• Execution: Next, the plan is supposed to be implemented. The outcome of the planning naturally goes into the budgeting process.
• Monitoring and controlling: After the budget is implemented.This is the post-budgeting phase, which comprises the analysis of results compared to the budget.

Conclusion: 

• At a very high level, the board and executive staff will define the strategic plan. The guidelines include decisions on markets, new products, long-term capital budget etc. 
• As we move from the corporate level to the department level, the plan becomes less strategic and more tactical Forecast at the business unit (BU) level is converted into the department budget.
• Tactics on the pricing and marketing of each BU are consolidated into the total company revenues and costs. 
• In some cases, if the market conditions prove to be very different from the original expectation. In such instances, the unit's tactical plan needs to be revised. And possibly, the company strategy may also require adjustment. This is called reactive planning. 

In conclusion, it is very important to have well-established mechanisms for planning and budget control. So, managers can quickly correct the unit's tactical plan based on present market conditions, and faster it rolls up into the corporate's strategic plan. 

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Linking Strategy and Planning to Budgets

By: David P. Norton

Most organizations grapple mightily with the inherent structural conflict between a holistic strategy and a siloed organizational design. And the stakes are high. A successfully linked strategic…

• Length: 6 page(s)
• Publication Date: May 15, 2006
• Discipline: Strategy
• Product #: B0605A-PDF-ENG

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Most organizations grapple mightily with the inherent structural conflict between a holistic strategy and a siloed organizational design. And the stakes are high. A successfully linked strategic planning/budgeting process depends not only on integrating all the entities of an enterprise, but also on reconciling long-term goals with budgeting's short-term realities. There is a solution, though: using strategic themes to identify a portfolio of strategic initiatives and creating a separate new class of expenditure--the strategic expenditure. This article describes how to integrate strategy planning with budgeting.

This is Part One of a two-part series.

May 15, 2006

Discipline:

Harvard Business Publishing Newsletters

B0605A-PDF-ENG

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