When it comes to budgeting, organizations often choose between incremental and strategic approaches. Incremental budgeting, a traditional method, involves adjusting the previous year’s budget to account for factors like inflation, cash flow, or minor financial changes. This approach is straightforward and relies heavily on historical data, making it easy to implement and maintain.
In contrast, strategic budgeting is a forward-thinking approach that integrates budgeting with strategic planning. It focuses on aligning financial allocations with long-term strategic initiatives, prioritizing investments, and optimizing cash flow for sustained competitiveness and agility. Unlike incremental budgeting, strategic budgeting requires real-time data to create a detailed, measurable, and adaptable budget. This method ensures that financial resources are directed towards initiatives that drive long-term success and innovation.
Below we’ll outline the four essential steps to achieve strategic budgeting for local governments.
4 Actionable Steps to take toward Strategic Budgeting
Step 1: Engage Stakeholders for Input
Kick off the budgeting process by collecting insights from the community using participatory platforms like awareness campaigns, community workshops, and online surveys, or software solutions like Polco’s Balancing Act to garner community input. The finance team plays a crucial role in collaborating with department leaders to allocate resources effectively. This approach ensures the budget represents diverse perspectives and shared priorities.
Additionally, this type of engagement builds transparency and trust from the start and ensures that government planning efforts reflect the community’s lived experience.
Step 2: Define Strategic Priorities and Objectives in the Strategic Budgeting Process
Clearly communicate the city’s strategic goals and establish specific, measurable objectives and initiatives for each. Revenue growth is crucial in defining long-term organizational goals and objectives, ensuring that budgeting decisions align with revenue targets and support overall growth strategy.
By setting clear strategic priorities and objectives in the budgeting process, local governments can better allocate resources, align with long-term goals, boost transparency and accountability, make informed decisions, engage the community, and stay adaptable to changing circumstances.
Step 3: Link Budget Line Items to Strategic Priorities
For each strategic priority, it’s all about zeroing in on specific budget line items that directly help achieve those goals. Selecting appropriate strategic budgeting methods based on the organization’s size and priorities is crucial for achieving long-term goals in the budgeting process.
By linking these line items to strategic priorities, local governments ensure that resources are funneled into the most impactful initiatives, resulting in increased financial accountability and transparency.
This clear connection between spending and strategic initiatives helps agencies to better prioritize funding and make informed choices that truly reflect community needs, leading to more effective and efficient public services.
Step 4: Implement Continuous Reviews and Adjustments in the Budgeting Process
Embrace a dynamic budgeting approach that lets you make ongoing tweaks based on feedback, shifts in strategic goals, or changes in financial capacity. This involves a strategic budgeting process, which includes setting objectives, allocating resources, utilizing historical data for forecasts, promoting collaboration among departments, and measuring budget performance.
This approach allows agencies to make real-time adjustments to changing circumstances, such as economic shifts or evolving community needs, so that the budget remains relevant and effective.
Regularly reviewing financial allocations and performance increases financial transparency and accountability, empowering trust with the public and stakeholders.
Overcoming Common Challenges
Addressing Resistance to Change
Implementing strategic budgeting can often mean encountering resistance to change, as departments or stakeholders may be reluctant to alter their current financial processes or resource allocations. To overcome this challenge and achieve a strategic budget, it’s important to engage stakeholders and the community throughout the budgeting process, making sure there is clear and consistent communication about how the budget aligns with organizational goals and priorities.
Creating a sense of urgency and incentivizing performance can also help reduce resistance. Senior leadership should take the lead in bringing everyone to the table, fostering a collaborative environment where the importance of strategic budgeting is understood and embraced. By addressing these challenges head-on, organizations can successfully implement strategic budgeting processes that drive financial stability, growth, and innovation.
By understanding the budgeting process, comparing budgeting approaches, and addressing common challenges, organizations can create a strategic budget that aligns with their goals and priorities to ensure financial stability and drive growth and innovation.
How Cloud-based Software Can Enhance the Strategic Budgeting Process
Using the right purpose-built tools for strategic budgeting helps to foster transparency and accountability in resource management to ensure that taxpayer dollars are directly put towards initiatives that produce the best results possible.
Our cloud-based software, Strategic Budgeting by Euna Budget Professional, empowers your agency to seamlessly link strategic planning with the entire budget lifecycle to create a future where budgetary accountability and strategic achievements go hand in hand.
If you’re ready to achieve strategic budgeting to elevate positive outcomes for your community? Schedule a demo with a member of our Solutions team today!