Strategy-based Resourcing

In modern management sciences, budgets are compiled in terms of the performance objectives and targets in the strategic plan. Strategic plans are translated into annual performance plans, where it is aligned with the budget. The requirements of these plans determine how budgets are compiled.​

The strategic plan contains the performance objectives (targets) of an organisation, while the budget fund (resource) activities to achieve these objectives.​

It is essentially important for all organisations, across sectors, to compile credible annual budgets to fund the objectives and activities in their strategic plans. These budgets set financial performance targets, and link the organisation’s resources, systems and processes to its plans and activities. ​

Organisations engage in activities to achieve objectives. These activities can only be performed if it is adequately resourced. These resources can be categorised as human resources, - capital resources, inventories and services). This workshop guides the participants to compile a strategic plan and allocate budgets based on the requirements thereof. This is done by utilising a variety of resources (spreadsheets, templates and presentations).​

For budgeting purposes, can be divided into the following categories: ​

1. Employees (the Human Resources budget)

2. Capital resources (the capital budget)

3. Inventories (the operational or inventories budget)

4. Services (the services’ budget)

The implications are that budgeting practitioners must have mastery of the following skills:

1. Compiling a budget in terms of the requirements of the strategic plan

2. Scheduling human resources, - capital resources, - operating resources (inventories) - and services

3. Compiling an HR budget

4. Compiling a capital budget

5. Compiling an operational budget

6. Compiling a services budget

7. Budget integration and reporting​

The theory of budgeting can be explained as follows:

1. Organisations decide what must be achieved, and translate these aims into a strategic plan.

2. Decisions are then taken about what must be done to achieve these aims.

3. Resources must be identified to perform these activities. These resources can be categorised as labour (the personnel budget), material (the capital – and operating budgets) and services (the services’ budget).

4. Money must be made available to purchase (or hire) these resources.

5. Measures must be identified and implemented to control the utilisation of resources and monitor progress made towards achieving the eventual aims.

Proper budgeting can only happen if adequate information is available to guide the processes. This information include, but are not limited to, the following:

·          What do we want to achieve, considering our mandate and the environment (including the sector) in which we operate?

·          What must be done to achieve it?

·          How much (or many) resources must be made available to the structures on our staff establishment to perform these functions?

·         How much money do we have available to purchase (or hire) the required resources? How much of this amount do we actually have? What are the implications for the activities that must be performance, and (ultimately) the aims that must be achieve?

·         Considering the answers to the questions asked above, we must prioritise to ensure that we achieve optimal productivity with the resources we are actually procuring (or hiring).

Remember that the aims of an organisation is translated into objectives, and the objectives into activities. The activities are subsequently translated into tasks and jobs. We hire employees to perform jobs, and material to perform tasks. It cost money to hire employees (labour) (and therefore to fund jobs) and to purchase material (and therefore to perform tasks). Collectively it add up to the cost of performing an activity. We must budget for these costs. Because we hire and procure different types of resources, we divided the budget as explained earlier.

Activities performed in organisations are clustered together into departments and eventually the entire organisation. If we allocate budgets to jobs and tasks it adds up to the total budget requirements for a specific activity. If the costs (and budget requirements) for a cluster of activities allocated to a specific department are added up, it provides details of the budget requirements for that department. If the budget requirements for all departments are added up, it gives us the total budget requirements for the entire organisation.

At each of these “levels” decision-makers must consider cost requirements against planned aims (objectives). Eventually the organisation as a whole must find criteria that can guide decision-makers to prioritise budget allocations in such a way that it optimise organisational performance.

Organisations identify their ultimate aims (objectives) by applying the principles of strategic planning, whereby they analyse the external and internal management environment, and apply a SWOT Analysis. (SWOT is an abbreviation for strengths, weaknesses, opportunities and threats). By doing this, the organisation can determine what it must achieve (opportunities) and the threats facing it in pursuing these aims (threats). However, it also provide information about internal, organisational capacity to pursue the opportunities and mitigate the risks by identifying an analysing organisational strengths and weaknesses.

During the process of compiling the labour budget, the following issues must be considered:

1. The requirements of the strategic plan

2. The human resources management needs of the organisations, based on the requirements

3. It is necessary to identify the gap between the employee (or labour) requirements and what the organisation can afford, considering the requirements of efficiency, effectiveness and economy (productivity)

4. In larger organisations, labour (and employee) policies must be considered during the process of labour planning – and budget scheduling.

5. The performance of employees, in relation to the performance requirements of their jobs, and ultimately the organisation, must be continuously assessed and improved (where – and when required).

An organisation’s capital budget is essentially involved with decision-making about investments. For instance, purchasing (or, alternatively renting) expensive equipment required for production, is essentially an investment decision. Various complicated capital budgeting methodologies, considering the time-value of money, have been developed to guide this process. In essence, it is important to keep in mind that the results of the capital budgeting process is the creation of expensive assets, which must be properly operated and maintained over its natural life-cycle (for which you must also make provision on the budget, because it often has implications for the operating budget). Major assets resulting from the capital budgeting processes, must be properly recorded on an asset register, and subsequently monitored and controlled accordingly.

The item purchased through the operating budget processes essentially relate to two broad categories, namely inventories and services. Because the cost factors on two components of the operating budget behave differently, it is best to separate them, and make provision for both an inventory, - as well as a services budget.

Inventories are the raw materials and related products consumed during the production process. Inventory planning must be done in such a way that holding cost, ordering cost and stock-out cost are finely balanced to the optimal benefit of the budget. Holding costs refers to the expense of storing, or holding, the inventory in the project’s warehouse or on its stock shelves. Examples of such costs are warehouse rental and utility bills on the storage facility. Ordering costsare the expenses involved in placing an order – mostly paperwork and management time. Stock out costs result when the project runs out of inventory. The dollar value of lost production time or the value of a lost sale and the possible decline in customer goodwill are examples of stock out costs. Inventories must also be properly recorded, issued and controlled through the organisational store-system.

What is important about the services’ budget, is that the performance expected of service providers must be included in a performance level agreement (where possible) and that the performance of the providers must then be continuously assessed accordingly.

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