In the early 2000s, Apple CEO Steve Jobs faced a dilemma. Apple needed to enter the new world of mobile devices while maintaining a presence in the heavily contested personal computer market. How could the company he founded do both at the same time with a limited budget?

The dilemma Jobs faced is remembered as one of the most pivotal and challenging moments in the history of strategic budgeting. Somehow, he pulled it off. To better understand how and why, let’s talk a bit more about what strategic budget processing is.

The strategic budgeting process in Financial Planning and Analysis (FP&A) is a critical element of the overall financial planning process for any organization. It involves developing a budget that aligns with the organization's long-term strategic goals and objectives.

The process typically involves several steps, including:

1. Defining strategic goals and objectives: The first step in the process is to define the organization's long-term strategic goals and objectives. This helps to establish the overall direction for the budgeting process and ensures that the budget aligns with the organization's strategic priorities.

2. Developing a financial forecast: Based on the strategic goals and objectives, the next step is to develop a financial forecast. This involves projecting the organization's revenue, expenses, and cash flow for the budgeting period.

3. Identifying budget drivers: Once the financial forecast has been developed, the next step is to identify the budget drivers. These are the key factors that will impact the organization's financial performance during the budgeting period.

4. Allocating resources: With the budget drivers identified, the next step is to allocate resources. This involves determining how much funding should be allocated to each area of the organization to support the strategic goals and objectives.

5. Setting targets and KPIs: The final step is to set targets and key performance indicators (KPIs) for each area of the organization. This helps to ensure that everyone is working towards the same goals and provides a way to measure progress and success.

Overall, the strategic budgeting process in FP&A is a critical tool for organizations to ensure that their financial resources are being used in the most effective and efficient way to achieve their long-term strategic objectives.

What kinds of strategic planning are there?

Back to Jobs. His budgeting strategy to have Apple enter the world of mobile devices is a classic case of top-down budgeting. In this approach, the highest level of the organization – IE Jobs, the CEO and founder – determines budget and aligns the rest of the organization with goals and priorities.

Top-down is a fairly common approach yet there are other types of strategic budgeting, some similar, overlapping or entirely opposite, to consider such as:

1. Bottom-Up Budgeting: This strategy involves developing the budget at the department or individual level, based on each unit's specific needs and priorities. This approach can lead to more accurate budget estimates, as those closest to the work are better able to estimate the resources required. Municipalities, for instance, sometimes employ this type of budgeting seeking directions and ideas from its citizens and then building expenses around their needs.

2. Zero-Based Budgeting: This strategy involves building the budget from scratch each year, rather than basing it on the previous year's budget. This approach can help identify inefficiencies and unnecessary spending, and ensure that resources are allocated only to the most critical activities. Unilever famously used zero-based budgeting in 2016 asking its marketing department to determine spending on all new brand activity claiming it was “data-driven” rather than based on habit.

3. Rolling Forecasting: This strategy involves continuously updating the budget based on current information, rather than developing a budget for a fixed period. This approach can help organizations adapt more quickly to changes in the business environment.

4. Capital Budgeting: This strategy involves allocating resources to long-term investments, such as capital expenditures, research and development, or mergers and acquisitions. This approach can help organizations prioritize investments that will provide the greatest long-term strategic benefit.Long-term, expensive products of projects that return investments many years later include infrastructure like the Suez Canal or a subway, or in the business world the construction of a theme park or commissioning of a cruise ship.

Firmbase reduces risk from strategic planning

Risk is involved in any kind of strategic planning – the biggest risk is not planning at all . For Apple, this meant knowingly shifting resources away from the personal computer division and investing heavily in the development and marketing of new mobile devices that became hits like the iPhone and iPad.

As software has become more and more powerful, its ability to crunch numbers. make forecasts and reduce risk has improved. Firmbase’s goal is to have its software remove doubt whenever possible, making FP&A teams and budget owners aware of and ready for any kind of financial scenario. Intuition like Steve Jobs had is rare.