3. Budgeting
The art and science of allocating
and aligning Resources to
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strategic plans
4. Budgeting: Some thoughts…
Two major roles of Budgeting:
1.
1 Provide real life CONSTRAINTS to strategic planning
real-life
2. Provide RESOURCES to realize strategic plans
Why Constraints?
1. Over aggressive unrealistic planning, usually by
Marketing/Sales need to be grounded to real life
2. Creative entrepreneurial thinking when resources are
limited
3. Enforce the need f A
3 E f th d for Accountability i.e. ‘ROI’ thinking
t bilit i thi ki
for all Managers
5. Alignment: 4-Wheels
Model
M d l
Business
Person
Structure Model
Strategic
Planning
Culture
Leadership
Resources
6. Alignment: Framework
• Focus point
Culture
C lt
• Alignment
• Quality
• Innovation & Differentiation
• Risk taking
Ri k t ki g
• Performance Management
• Corporate obsession
• Decision making
7. Alignment: Framework
• Org Structure
• Job Design
Structure • C&B
• Policies & procedures
p
• Decision making
• Job fit
• Management Systems
• BSC and KPIs
• Decentralized & Empower
8. Strategy: Framework
• Role modeling
• V s o M ss o
Vision/Mission/Philosophy
losop y
Leadership
• Leadership Style
• Delegation & Empowerment
• C&B, Promotions
• Sense of Urgency
• Speak regularly about
p g y
Performance
10. Strategy: Framework
Enablers
• Technology
Resources
• Equipment Funding
• M t i l
Materials • CAPEX
• OPEX
• Human
• Intellectual
p y
Property
• Partners
• Property
11. Alignment: 4-Wheels
Model
M d l
Business
Person
Structure Model
Strategic
Planning
Culture
Leadership
Resources
12. Each Discipline Requires Different Priorities &
Resources
Organization, jobs,
skills
Culture, values,
norms
Operational Product Customer
Information and Excellence Intimacy
systems Leadership
Management
systems
13. Each Discipline Requires Different Priorities &
Resources
Operational Excellence
Organization,
Organization •Central authority, low level of empowerment
authority
jobs, skills •High skills at the core of the organization
Culture, values,
, , •Disciplined Teamwork
Disciplined
norms •Process, product- driven
•Conformance, 'one size fits all' mindset
Information and
systems •Integrated, low cost transaction systems
•The system is the process
Management •Command and control
systems •Quality management
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14. Each Discipline Requires Different Priorities &
Resources
Product Leadership
Organization, jobs, •Ad hoc, organic and cellular
skills
kill •High skills abound in loose-knit structures
Culture, values,
C lt l •Concept future driven
Concept, future-driven
norms •Experimentation and 'out of the box' mindset
Information and
•Person-to-person communications systems
P t i ti t
systems •Technologies enabling cooperation
Management •Rewarding individuals' innovative capacity
systems •Risk and exposure management
•Product Life Cycle profitability
15. Each Discipline Requires Different Priorities &
Resources
Customer Intimacy
Organization jobs, •Empowerment close to point of customer contact
Organization, jobs
skills •High skills in the field and front-line
Culture, values, Customer driven
•Customer-driven
norms •Variation and 'have it your way' mindset
Information and
I f ti d •Strong customer databases, linking internal and
systems external information
•Strong analytical tools
Management •Customer equity measures like life time value
systems •Satisfaction and share management
•Focus on ‘Share of Wallet’
16. Managing Gaps between actual and
planned budgets
1. Budgeting vs. Priorities
2. Basic Budgeting policies
3. Activity Grid to determine budget
priorities
4.
4 Budgeting for Investments based on the
‘BCG Matrix’ principles
18. Budgeting vs. Priorities
Example: Business Situation vs. R&D P i i i
E l B i Si i Priorities
Upturn Flat Downturn
Fight Complacency Innovation Sales
Sharpen Edge Acquire Cash Flow
Keep Momentum Profits
Conquer Build momentum
NPD Cycle Time Focused on
F d
Improve Top 15%
‘Breakthrough’
Improve Edge revenue-generating
JV, In-source, Out-
, , p
products
Extensions source
Counter Competitor Eliminate bottom 20%
↓ R&D, ↑Sales
19. Basic Budgeting policies
• Flexibility to switch between line items
• Reserve Funds
• Loans/External Funding
20. Activity Grid to determine
budget i iti
b d t priorities
Increase (↑) Create (+)
What are features/ What are features/
activities/services to activities/services to
increase? introduce?
Reduce (↓) Eliminate (-)
What are features/ What are features/
activities/services to activities/services to
reduce? eliminate?
1. Manage conflicts where limited resources should go
2. Solve problem of compounding activities & resources
21. Budgeting for Investments based on the ‘BCG
Matrix’ principles
p p
Market
Potential
Business Performance
22. How to maximize Budget?
1. Align budget to priorities
2.
2 Integration of businesses and
functions for teamwork
3. Do practical, implementable stuff
that bring real results (hard work)
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