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Linking Budget to Strategy in Local Government

In a time of unprecedented uncertainty, it’s more important than ever before to link your budget to your strategy. With strategy linked to budget, you can focus on what is critical and leverage the budget process to get stuff done.

Co-Founder & Alabama Native

 

Does your organization grow weary of an eight-month long budgeting process?  Does the budgeting process help your organization find any value, or is everyone just recycling budget requests from previous years?

Linking budget to strategy allows your organization to tell a story about its purpose and focus. For local governments, tying budget to strategy allows citizens to understand how tax dollars are being put to good use to support the community based on their input. No matter what approach you take to budgeting, you still have an opportunity to link it to strategy to help people see the value in your budgeting process. When you link budget to strategy, you can stop dreading the process and instead, get inspired by budgeting!

  1. Start by clearly defining long term goals (the first step in building your strategic plan).
  2. Define the budgeting process. Four options for approaching your budget:
    1. Priority-based budgeting (PBB)
    2. Zero-based budgeting (ZBB)
    3. Budgeting for outcomes (BFO)
    4. Base budgeting
  3. Communicate strategy and budgeting process clearly to departments.
    1. Ensure department budgets link to strategy
  4. Compare previous budget to plans (for sanity check, not to continue previous budgeting process).
  5. Consider creating a StratEx budget.
    1. This is a separate part of the bigger budget
    2. This type of budget is cross-departmental and designates strategic project funding
  6. Manage your budget within a strategy management cadence.
    1. Be aware of strategy reporting, strategy decision making, etc.
    2. Adapt and change at appropriate times (revisit budgets after strategy meetings).
    3. Provide appropriate reporting for decision making.

A tool like ClearPoint can really help

ClearPoint can serve as the central hub for all data and information about your budget and strategy. Our Data Loader tool allows you to import budget data from a variety of systems and can update your data live in ClearPoint from your existing data sources automatically. (Plus, we’ll help you get it all set up. From there, it’ll run automatically.)

With your data loaded in the tool, you can easily update all departments on their progress and aggregate up to show budget and strategy across the organization. (And with our permissioning features, you can ensure each user and department only accesses the information relevant to their particular priorities and needs).

You can also bring qualitative and quantitative information side by side to tell a story about the progress of your strategy and updates to your budget, plus chart budget performance against an average of previous years to see how you’re doing over time.

See ClearPoint Live

Start by linking budget to long-term goals

Just like your strategy, your budget needs to be linked to your long-term goals. Once you’ve developed those long term goals, you can start to build your 3-5 year strategic plan and a 1-2 year associated budget.

Define the budgeting process

Different budgeting processes make it easy to link your budget to your long-term goals.

List of definitions of various budget terms

Priority-based budgeting (PBB) involves linking budget priorities to your strategic plan goals. PBB is driven by the idea that the initiatives and programs that support an organization’s priorities are those that should be funded by the budget. This data driven approach ensures that all funding dollars help the organization work toward its strategic goals.

The great thing is that if you have done a good job communicating your strategy, and if you have a living strategic plan, your organization should already understand these goals, and thus priority-based budgeting is a natural outcome.

Zero-based budgeting

If you are using zero-based budgeting (ZBB), you take a similar approach—building your budget from the ground up based on the priorities. However, with zero-based budgeting, you don’t build off of last year’s budget; you start from zero, and then build from what you need. This might be a great approach for the current environment. (Curious why I think so?)

Zero-based budgeting helps to establish an organizational culture of ongoing cost management. It relies on increased visibility into what drives the costs of each budget item and requires setting aggressive budget targets going forward. In addition, continuous reviews of cost management and performance are crucial to its success. (See more below on ongoing budget management.)

Budgeting for outcomes

Budgeting for outcomes (BFO) is similar to priority-based budgeting, but it focuses on outcomes the organization is working towards rather than priorities. Imagine your outcomes are either your strategic plan goals or the measurable results from your strategic plan. Budgeting for outcomes allows local governments to create alignment between what the public wants and what the governments provide.

A key tenet of budgeting for outcomes is a focus on what you want and how much you’re willing to pay for it (as opposed to assessing what you currently have and how much it costs). The process will demand a lot of reorganizing, but your strategy and budget will benefit as a result.

A great place to start with budgeting for outcomes is looking at how much funding you have and then ranking your goals based on priority. You can then allocate money to the outcomes with the highest priority and continue distributing money until the funds are spent.

Base budgeting

Base budgeting uses the current year’s budget as the baseline for the new budget. The current year’s budget and allocations are adjusted according to actual spending that has occurred throughout the year as well as inflation and projections for the upcoming year; this forms the basis of the new budget.

Are you starting to see a pattern in these budgeting approaches? We’re not saying they are the same; certainly, different organizations have seen different results and benefits from each. But with a little creative thinking, you should be able to guide your organization to linking its budgeting approach to the strategy management process.

Communicate budget and strategy linkage to all departments

Now that you have developed your city-wide strategic plan, it’s time to communicate that plan to departments and explain that all funding requests from departments should be directly linked to a strategic priority or goal. This will ensure future funding requests maintain alignment between strategy and budget and keep all departments on the same page about the new approach.

Compare previous budgets to your current strategic plan

If you’re using either priority or outcome-based budgeting, once you’ve started to align budget numbers with your goals, it’s a good idea to take a look at previous year’s budgets and compare those with your current strategic plan. (If you’re doing base budgeting, this is of course where you’ll start as well.) Looking at the previous year’s budget will serve as a good reminder of any budget items that may be recurring that you should tie to your strategic objectives.

Consider creating a StratEx budget

A StratEx (or strategic expenditure) budget is a separate part of the bigger budget that is cross-departmental in nature. When using a StratEx budget, leaders decide what strategic projects will be necessary to achieve the priorities or outcomes of the organization’s strategic plan. These initiatives will then be those allocated appropriate funding.

With a StratEx line item in your budget, you can then start with allocating that budget to different areas of your strategy, sometimes called themes. Imaging having a $5M strategy budget allocated 40% to Connected Community, 30% to Public Safety, and 30% to Equity. In this scenario, you would have $2M allocated to building a more connected community. You could then look at all of your initiatives or projects that align with a connected community. Prioritize them and spend your $2M wisely.

With the StratEx budget, it will mean that you can have a process to make sure that you are focused on your priorities, while still making sure you spend an additional $1.5M each on public safety and equity areas of your strategy.

By the way, this StratEx budget is usually cross departmental, and would still mean that you have normal public safety departments like Police and Fire with their own budgets. The StratEx would be above the normal budget. StratEx was first written about in Norton and Kaplan’s book, The Execution Premium.

Managing your new strategy and budget

Once you have created your budget and tied it to your priorities or outcomes, you still face the challenge of actually managing that budget (and your strategy along the way). Budgets are spent at the department level and at the project level. Sometimes projects are neatly contained within departments (and thus your entire report can be at the department level), and other times, the projects are cross functional, and thus you need a project report. You want to keep an eye on your projected versus actual spending, plus see how departmental plans are progressing over time.

Linking Budget to Strategy in Local Government
 

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