Why Budgeting Should Be a Strategic Planning Imperative

Rather than view budgeting as an annual exercise, CEOs should fully integrate it into the strategic planning process. Doing so will help “close the loop” between planning and execution, as well increase engagement, ownership and even productivity of your staff.

Here are 5 benefits that will be gained by incorporating budgeting into the strategic plan, including tips for success.

1. Employees will feel like they belong to an organization, not just a department. No matter who signs a paycheck, employees feel most connected to the departments that hired them. And understandably so. Budgeting as a channel for communicating the corporate strategy to employees will help each department understand its unique role in fulfilling a CEO’s vision for their company, including specific goals and objectives from a budgeting standpoint. And when employees are able to communicate their department’s needs while keeping the company’s mission at the forefront—“strategy” suddenly becomes actionable.

2. The C-suite and other leaders will gain valuable insight. Budgetary transparency—the ability to see where everyone stands in the process—can greatly impact leadership’s ability to meet strategic objectives. Budget holders should be asked to include documentation to justify their numbers, demonstrating how each line item or project aligns to specific strategic objectives. This will provide valuable insight and enable more informed decision making by the CEO and his or her leadership team as they consider funding requests and budget cuts.

3. The numbers will be more accurate. CEOs hire individual department leaders because they are the “experts” in their respective domains. Engaging them in determining how they will execute against corporate objectives gives you the best possible thinking across the organization, and will greatly improve the accuracy of your final numbers. Having a plan with numbers you can trust means less money tied up in “cushioned” numbers or contingency funds—and the potential to put those dollars to work throughout the year.

4. “Owners” of a budget will be more engaged. In real estate, owners likely care more about their homes than renters because…well… they own their home. Similarly, research reveals that the ownership achieved from being involved in the budgeting process actually improves employee engagement. When budget holders in a company are given more control over planning and performance—including an understanding of how their work contributes to the greater good—they feel ownership of their budgets, and as a result, are more engaged.

5. Productivity and profitability will increase, often dramatically. Face it, no budget manager wakes up and says, “Oh good, today I get to do a budget!” But engaging employees in the budgeting process—clearly sharing the overall strategy, encouraging two-way communication, and providing ownership of numbers is one of the best ways to ensure your organization meets it financial and strategic goals. It also gives the CEO more confidence in the numbers that are presented. In fact, according to Gallup’s 2013 State of the American Workforce Study, companies in the top quartile for employee engagement showed 21% higher productivity and 22% higher profitability.

In closing, a CEO can elevate their strategic plan by incorporating a strong and empowering budgeting process that engages employees, creates ownership and delivers insight into an organization’s growth through the expression of accurate dollars and cents. Further, when all employees feel a part of the whole pie (the company) rather than a single piece (a department) the CEO’s goals are more easily met.