Business

Budgets and implementation of business strategies: availability of resources

To simplify this article, strategy and planning will be used to mean the same thing. Budgets and objectives are related, as is the implementation of business strategy. The implementation of a business strategy is considered as the final stage of the business strategy (before monitoring and control). It could be defined as the translation of strategy into organizational action through organizational structure and design, resource planning, and strategic change management. ” Analyzing the definition, it becomes obvious that the implementation of a business strategy would therefore be how well various components to carry it out are successfully integrated.

The organizational structure and design aspect of the definition has to do with how the human resources of the organization are used, mobilized and organized to find them through the use of the organization; And the design aspect is that most employers can leave the company if they are not motivated or given the right position to operate in the organization, in other words, underutilized.

The next aspect of implementing a business strategy, resource planning, establishes which resources to create and which to delete. It is about identifying the resources needed, how those resources will be deployed and controlled to create the competencies needed to implement the strategies successfully. This resource configuration depends on the protection of unique resources, that is, when a strategy depends on the uniqueness of a particular resource, such as legal means, resource adjustment (that is, mixing resources to create competition), reengineering of business processes (that is, creating a dynamic improvement in performance) and leveraging experience by continuously learning and improving to improve competition. One of the many problems is the conflict that arises between departments over the allocation of funds, especially when money is involved in the implementation of the business strategy.

Managing strategic change is the next component in the implementation stage. This change implies an incremental change that is simply based on the skills, routines and beliefs of the organization for the change to be efficient, and a transformational change, which requires the organization to change its paradigm over time.

When building a strategic management system, the budgeting process must be linked to business strategy. Therefore, at the beginning of the budgeting process, budget managers establish budget objectives and organizational goals for the next budget period, whose main task is to produce a master budget that combines the business units and budgets of the functional period. From the budgets for the period, the budget manager creates the master budget. This is then adjusted to calculate the expected shareholder value, which in turn acts as a test of corporate strategy. This is the point where the strategic analysis can be verified. If the strategic plans do not create shareholder value, they are carried out through the strategy modification cycle. Once the master budget and, therefore, the strategic plans have been finalized, the budget to be used and the strategy to be implemented are established.

Acquiring a sufficient budget is one of the main requirements for an efficient implementation of business strategy. The question is where do the budget and the implementation of the business strategy interact?

There is evidence of numerous series of failures in business strategy plans and implementations despite reasonable analysis. Someone has said that good planning can greatly reduce the risks of business failure.

A plan is a projection of future activity. It usually translates into budget if it is quantified. Therefore, for a next period of time in which the budget expressed in monetary terms is related. It is defined as a financial or quantitative statement, prepared before a specific accounting period, which contains the plans and policies to be followed during that period.

Budgets are generally prepared procedurally and systematically followed by most organizations (although procedures may differ depending on the size, type, and leadership style of organizations) are as follows:

Communication of details: Those responsible for preparing the budget must know and keep informed of the strategic plans of the company (plans or objectives) so that the budget is adapted accordingly. This means that the organization’s long-term plans must be taken into account when budgeting.

The main budget factor that limits the performance of an organization. It is usually demand for sales. If an organization cannot make and sell more products because consumers do not accept that price, it restricts the demand for the company. Management may not know the limiting factor, say, machine capacity, layout, and sales resources, until a draft budget has been prepared. This is the starting point in preparing the budget. Once this factor is determined, the extraction of the rest of the budget is established.

Sales budget preparation: Generally, this is the base or primary budget prepared based on sales projections and from which most of the other budgets come because it has been established that the main budget factor for most organizations .: Good finished stock, production, resources for production. , overhead, raw materials (stock), raw materials (purchase)

It is when all budgets are in complete alignment with each other that they are summarized in the master budget consisting of the budgeted profit and loss account, the budgeted balance sheet, and the cash budget.

The cash budget is one of the most important planning tools that any organization can use. Its usefulness is felt when it shows that there are not enough cash resources to finance planned operations. The cash budget can show four positions or scenarios that give management an indication of potential problems that may arise so that management can avoid them.

The implication of the position is one of the areas where the budget interacts with the implementation of the business strategy. For example, when the cash budget shows a short-term surplus position, management must make short-term investments, pay creditors in advance to get the discount, or increase sales by increasing debtors and stocks, in case of short-term deficit, the appropriate action for Management should take them to increase creditors, reduce debtors and organize overdrafts to finance the deficit. The rest of the long-term cash-surplus position is addressed by making long-term investments, expanding organically or through acquisitions or diversifying, among others; and the long-term deficit could be managed by obtaining long-term financing or divestment opportunities.

Budgets and objectives (strategies) are clearly assigned to those areas and activities of the organization that are considered priorities. If important goals are to be achieved and priority strategies must be implemented, resources must be provided.

However, research in interorganizational settings identifies the acquisition of resources (i.e., the budget), the acquisition of cooperative interaction, and the acquisition of organizational power as the difficult part of the implementation processes. Therefore, struggles between organizations for larger budgets also influence budget planning and affect strategy implementation. For example, when resources are limited and finite, strategic opportunities may be limited. Since budget planning is usually annual, budgets are often different from the needs of the current situation, especially towards the latter part of the budget period. Because of this, flexible budgets are designed to allow for changes in activity level, which can result from adaptive changes in functional and competitive strategies.

It should also be noted here that while the role of today’s financial managers is moving rapidly upwards on the strategic plane, the challenge becomes even greater in light of the accelerating pace of change. This reality is rendering traditional approaches to corporate governance, such as 3-5 year static annual planning and static budgets, obsolete. To provide useful financial information, sooner rather than later, managers must think of business strategy as an ongoing process that is corrected more as a series of real options than as a single projected cash flow statement.

The implementation of a business strategy could be compared to a human body without a soul (budget). If there is no soul in a body, it is considered dead; in the same vein, the budget is that soul (especially when implementing a new business strategy) for the implementation of a business strategy; therefore, the two are linked and interdependent.

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