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

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

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

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

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

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

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

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

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

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

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

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