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You're doing It Wrong - Top Reasons to Define Strategy First Budget Second

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© May 2015 | 01 T 800.443.9441 E solutions@blackbaud.com W www.blackbaud.com YOU'RE DOING IT WRONG. Why you should define your strategy first and budget second. They are more than a record of what you think you'll earn and what you think you'll spend. At least that's what a budget should be. With the proper planning and preparation, a budget can be a reflection of the strategic, long-term plans for your organization. It can serve as an annual framework against which your organization can measure financial success and directional movement towards its goals. Do not simply take last year's budget number and add or subtract dollars or percentages. Rather, utilize a zero-based approach to budgeting. Each year you should be evaluating your annual operating plan, reviewing metrics and benchmarks, and determining the ratios and drivers you will use to determine the most effective areas to which to allocate your resources and capital to achieve the optimal return on investment. Remember to align your metrics and drivers with your long-term strategic goals, rather than focusing narrowly on "cutting postage expense in Q1." What are the steps budgeting strategically? Set the Long Term Strategy with Your Management Team The budgeting process is about linking long-term strategic objectives to achievable tactical goals and actions. Your budget will function as a roadmap to help you guide your organization where it needs to go, but that can't happen until you've decided what that destination is. Create an Annual Operating Plan by Division This step translates a high level strategy into more detailed operational planning and action items, which should (of course) align with the overall organizational strategic plan. As opposed to the strategy determined in Step 1, the Continued… 1 2 Example Metrics • Revenue per employee • Expense per employee • Compensation per employee • Cost per unit of service • Earned income to total income (autonomy and flexibility) • Earned income to total expense (self- sufficiency) • Program service expense to total expense (mission delivery) • Fundraising expense/contributions (cost to generate charitable contributions)

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