An organization uses a variety of methods to achieve goals. It makes plans for managing its resources, including planning how to assign resources to each program area. The way the manager of each program area spends assigned resources must help the organization accomplish its goals. On a large scale, managers using resources for goal achievement help the organization succeed as a whole.
Manifesting a Plan
A strategic budget is closely linked with an organization's strategic plan. An organization uses a strategic plan, usually about five years in length, to set goals. It develops an annual operating plan to break down these long-term goals into annual goals. A strategic budget manifests the annual operating plan by displaying categories in quantities. A budget details the assignment of dollars to each program area -- including expenses for employee wages, overhead, equipment and so on.
Tied to Long-Term Planning
A strategic budget should be tied to an organization's long-range plan. If an organization does not consider how the short-term assignment of budget dollars to program areas will help it reach its program goals, it can spend in ways that aren't helpful. The concept behind strategic budgeting is that spending is purposeful, and that's why tying spending to a strategic plan's objectives makes sense. If an organization revises its long-term plan, it can adjust its budget document for the next year accordingly.
A strategic budget may represent the complex needs of a public or nonprofit agency. This type of non-private organization has multiple needs, but not every need can be met equally. An organization has to prioritize its needs to appease stakeholders. Reviewing a budget document enables managers to identify how dollar amounts are strategically assigned to program areas. Usually, programs with the largest budgets reflect the highest priorities of the stakeholders and the agency. If a public or nonprofit organization uses strategic planning, the strategic budget also reflects short-term and long-term objectives.
Another advantage of the strategic budget comes later, in the implementation phase of the budget. Called budgetary control or performance monitoring, this is the phase in which the organization considers how each program area spends compared with its budget allocation. This monitoring also examines whether the budget allocations to each program were the best ways to get results for the whole organization.
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