Goal setting in most organizations takes place during strategy sessions, during ROI preparation and during annual budgeting. Each has its own timeframe, all are interconnected. At least in theory.
In practice, things can be quite different. Without collaboration and cooperation, strategy gets set by one group, functional units prepare ROIs for their pet projects and budgeting, well, this typically ends up being a trending exercise where upward/downward minor adjustments from one time period to the next are kept on a short leash.
Let’s consider basic dependencies between operations budgeting, ROIs and strategy.
First we have timing. Budgets are annual, ROIs can either span part of a fiscal year or span multiple fiscal years and strategy is long term.
A budget authorizes expenditure and documents anticipated revenue. The expense side has two components, operational expense and expense relating to that portion of an ROI that overlaps the budget timeframe.
Strategy sets or should set high level Key Performance Indicators (KPIs) and provide an indication of how far along the organization should be at specific points in time with respect to quantified goals and objectives.
If your strategy fails to quantify the organization’s goals and objectives, it becomes difficult to comment on the merits of any budget.
If your ROIs fail to carry forward from acquisition to implementation and ongoing support you will see ROI specific expense followed by general expense. If an initiative backs out early chances are you will never know which ROI benefits have been met and which ones have not been met.
I could rail on about the inadvisability of simply trending numbers forward each year. This usually is indicative of a dysfunctional organization and we can take a look at this some other time.
For the purposes of this post, let’s agree that a budget is the principal vehicle for operations management and should at all times be supportive of active ROIs and of corporate strategy.
Tight integration between the various groups that set strategy, prepare ROIs and prepare annual budgets is one of the cornerstones of operational excellence.