This article examines the relationship between budgeting and strategic management, especially in terms of strategic planning. Strategic management presents managers with a process for making decisions and guiding a firm's actions, while budgeting provides information on funding and accountability. The article takes the position that the two processes should be tightly integrated as they serve complimentary but distinct purposes.
The article develops a model of how strategic management and budgeting should be intertwined. The model describes a cascading process by which a firm's general strategic direction and financial condition drive tactical decisions and resources allocations at lower organizational levels.
The article discusses ideas on how the budgeting and strategic management might be administered so as to have the best impact on firm performance. A key observation in the article is that overall firm performance is likely to be improved when the two types of planning are use properly. The article argues that disconnections between the two will result in budgets that hinder implementation of the firm's strategies or strategies which cannot be supported by the firm's finances.
The article provides several ideas for managers on how to achieve better integration between strategic planning and budgeting. They include creating a cascading planning process, in which strategic and financial decisions progressive move down through an organization's hierarchy, establishing standing strategic review committees, using rolling budgets, and the proper application of available technological tools.
