Preparation of position papers provides the background on which strategic budget is prepared. Such position papers include environment, organizational resources and constraints, past performance and direction for future activities.
Position Paper on Environment: The position paper on environment may include economic, regulatory, political, marketing and competitive and technological factors. The paper may cover the environment’s trends likely to affect the organization’s performance specifying the assumptions involved. This position paper is likely to provide reference base for the development of annual plan to ensure the required alignment between strategic plan and annual plan.
Position Paper on Organizational Constraints and Resources: This paper would specify, at a broad level, the resources available for achieving the targets by way of personnel, funds, technology, capital expenditure, etc. Similarly the paper also suggests the likely constraints faced by the organization so that the resources are deployed keeping these constraints in mind.
Position Paper on fast Performance: This would discuss the results of organizational performance in quantitative terms. The paper can show the performance based on strategic business units, or responsibility centers. Such an analysis would aid in deciding the relative emphasis to be provided to the different business lines so ‘that there is alignment between market needs and products and the process of organizational resource allocation among product/business.
Position Paper on Future Direction of Activities: This paper would suggest the various short-term and long- term targets to be fulfilled. The targets may be identified again for the organization as a whole and for different strategic business units and responsibility centers. The paper would also indicate the way the organization will take over various activities to match itself with the environmental requirement, like meeting the competitive threats. The paper may also include the various tactics to be adopted to meet the above objectives. These may include the fixation of levels for working capital, credit level, wastage of materials and other physical factors.
The various position papers may be prepared by the corporate planning division, if it exists, or by respective functional executives, or by any other executive who has been entrusted specifically with the responsibility for preparing these, with the active collaboration of other functional and operational executives. These papers may then be discussed among functional and operational heads so as to identify issues pertaining to the organizational context. Subsequently the papers may be discussed at the corporate level so that specific guidelines are prepared. These position papers and policy guidelines would be sent to various levels of managers who may take up the job of preparing actual budgets.
Preparation of Budget: The strategic budget is prepared through the interaction between corporate level and SBU level in the light of position papers. The process will go like the one given in Figure Figure: Process of strategic budgeting
Budget preparation will actually start when the SBU managers are communicated about the likely course of future action in the light of environmental factors, organizational resources and constraints: and past performance. It is better to initiate the budget preparation from the bottom in the light of position papers. However, the exercise will not merely be restricted to taking previous figures with some pluses or minuses but everyone responsible in the organization must ask for resource allocation with details of various activities and the way these activities will contribute to the overall organizational objectives. Such demands for resource allocation will be integrated at successive levels and finally integrated in a master budget for the organization as a whole. Since budget demand at each -’ on the chosen strategy of the organization, there is every possibility that master budget will show the allocation of various resources according to the needs and importance of various functions, products, or businesses, thereby ensuring the better use of organizational resources and achievement of organizational objectives.
