Video 2 - Strategy and the budget at business level

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From the course by Fundação Instituto de Administração

Budgeting essentials and development

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Fundação Instituto de Administração

Budgeting essentials and development

28 ratings

The Budgeting Essentials and Development course focus on an integrative and practical view of concepts, methods, and techniques to develop a budget. After finishing this course, learners will be able to: - Develop the budget with a broad view of the corporate functions; - Integrate the strategic guidelines into the discussions of budgeting process; - Structure the budget planning and development in a logical sequence - Coordinate the project of budget planning with the different areas of the company - Actively promote assumptions discussions to improve the process of developing the budget - Apply financial concepts to support the budget planning process - Design a budget monitoring and control model to support the performance management - Evaluate the performance of the company by managing the results and the budget In this course, learners will have a deeper understanding of the budgeting process, its challenges, common issues, and approaches to mitigate the problems and improve the learning curve of budget planning. It is integrative by emphasizing the transition between the corporate strategy and the budget. It is practical by following a structured process of going through a framework that illustrates and demonstrates how to analyze, develop and control the budget.

From the lesson

MODULE 2 - Corporate budgeting

The corporate budgeting process begins with the strategic guidelines, goes through the discussions of what may be the influence of the guidelines on the assumptions, and culminate in supporting the budget planning process. In this module, the discussions are about the aspects related to this process. Learning objectives include understanding the link between corporate budgeting and the business unit budgeting process; aligning strategic guidelines with planning guidelines, and assessing the connections of the corporate budget to the business level budget.

Video 1 - Strategy and the budget at corporate level7:33

Video 2 - Strategy and the budget at business level5:40

Meet the Instructors

Alberto Sansiviero Jr.
MBA
FIA Futures Studies Program
Samantha Mazzero
MSc, MBA, BS Math
FIA Profuturo – Futures Studies Program
Nelson Yoshida
Ph.D., MBA, B.Eng.
FIA Profuturo – Futures Studies Program
Roberto Dumas Damas
M.Sc., CFA
FIA Profuturo - Futures Studies Program
Fernando Fleury
Ph.D.
FIA Profuturo - Futures Studies Program

[SOUND] Hi there,

we're back.

In this session,

we'll talk again about the concept of more planning versus more controlling.

Now we'll a apply business level view of the connection between strategy

and budget.

Why?

Because some approaches that apply to budgeting process demand

strategic analysis outcomes.

Look at this illustration that we use to support the discussions.

So let's think about this decision on how to precision the company,

in the middle of more planning or more controlling.

Of course, I'm not saying the managers will decide where to position the company,

to stay there.

The company approach to planning and budgeting, can be one that allows

flexibility to dynamically move towards one side to another.

For example, managers of companies in dynamic sectors of the company may choose

a lean, agile planning model.

This approach for planning maybe recommended in situations

when managers conclude that the efforts for

accuracy in the plan don't pay back the diligence in developing the plan.

So we're talking about keeping the plan options open and

monitor the environment to respond rapidly.

In this case, the focus is in the short term and rough plan will be done for

the long term.

Lean, agile planning is about being closer to the more controlling side,

so the company would be to the left.

Look at the figure, if the planner does a lean agile approach,

then the budget will also follow the same method.

And this would indicate that managers

would be reviewing planning and budgeting more frequently.

The monitoring system and

knowledge management will be reinforced in the company.

Lean, agile leads the company to have a light plan in the budget.

Because a broad and

extensive plan would certainly be a straight jacket for the company.

Some scholars like Ralph Stacey argue that when turbulence and volatility are high,

there may be no point in investing too much time in strategic planning.

So the best approach to apply is to monitor and scan the environment and

react rapidly to respond to an imminent threat.

Guess what?

He has a point, because the changing environment engulfs people

that may have a cognitive bias, which is the illusion of control.

A sector of the economy that presents such a dynamic

is the Internet technology sector.

In Internet industry, things change so

fast that we may not realize what's going on.

Well, let's move on to the other side of the coin, the side of more planning.

The company would be located to the right side.

In this approach,

managers certainly have concluded that the business environment is relatively stable.

Therefore, they can invest more time in planing and less in controlling.

Now, a question that comes out of our minds at this point.

Would you adopt the chaos and

complexity model if the dynamics of the market were highly turbulent and volatile?

Well, I don't know about you, but I'll tell you about me.

I would, but only if the board of directors aligns with this approach.

The risk of adopting this strategic manage approach are in two areas.

First, despite any rational and supported explanation for

the adoption of such approach, people is still are prone to the planning side.

And let's not forget, either you or your senior managers have fiduciary

responsibilities for the company performance.

We don't want to hear the question, but didn't you prepare for that situation?

Second, remind that the company may

have relevant variables that don't present high variability.

If this is the case,

even having adopt a less planning approach, you should take care of these

variables as much as you would do if you had adopted more planning side.

But we still need something more prescriptive to support the decisions on

where to position our budgeting approach.

Check the variability of the most relevant variables in this scope of the budget.

Look at this chart, you can evaluate the variables.

And by positioning them in the chart,

you can assess which ones should have a close attention.

The ones in red are the primary candidates.

The ones in blue could be the second in the line.

Common sense would tell us to apply more planning to variables with high relevance

and low variability.

And more control into variables with high relevance and high variability.

But, maybe we have an additional upside from checking the variables for

their relevance and variability.

We might be able to analyse the viability of mixing approaches.

Like for example, more planning for

the variables with high variability and relevance, and controlling for

the variables with low variability and high relevance.

Of course, this might not be possible for all variables.

Nonetheless, you may benefit from analyzing the variables

with this technique.

Well, we have concluded our discussion on strategy and cooperate budgeting.

The next session will be about governance aspects in budgeting.

Thank you for your attention, please follow the steps of the course.

Stay tuned, and see you soon, bye.

[SOUND]

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