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How do you link the balanced scorecard to your budget?

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The balanced scorecard (BSC) is a strategic management tool that helps you align your vision, mission, and goals with your actions and measures. It helps you monitor and improve your performance across four perspectives: financial, customer, internal process, and learning and growth. But how do you link the BSC to your budget, which is another essential tool for planning and controlling your resources and results? In this article, you will learn how to integrate the BSC and the budget in a coherent and effective way.

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Vick Tipnes

Healthcare Entrepreneur I Founder of The Rise Conference | Amazon Best Selling Author “Did You Sell Your Soul?”

1 Why link the BSC and the budget?

The BSC and the budget are complementary tools that serve different but related purposes. The BSC helps you define and communicate your strategy, identify and track your key performance indicators (KPIs), and align your organization and stakeholders around your vision and goals. The budget helps you allocate and manage your resources, estimate and compare your revenues and expenses, and evaluate your financial performance and profitability. By linking the BSC and the budget, you can ensure that your strategy and your operations are consistent and aligned, that your budget reflects your strategic priorities and assumptions, and that your performance measures are linked to your financial outcomes.

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Vick Tipnes

Healthcare Entrepreneur I Founder of The Rise Conference | Amazon Best Selling Author “Did You Sell Your Soul?”
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Combine the BSC and budgeting with dynamic scenario planning. Instead of relying on a static budget, create multiple financial scenarios that account for different strategic outcomes.

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Dickson Assan

| Accountant of 10+ Years of Experience | Resume Writing & Interview Coaching Expert | Tax and Compliance Expert in the Gaming Industry of Ghana
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Start by defining your organization's strategic objectives, which should be derived from your overall strategic plan. For each strategic objective, identify the key performance indicators (KPIs) that will help you measure progress. Determine how each KPI is related to financial outcomes. Establish specific targets or benchmarks for each KPI. These targets should align with your strategic objectives and be achievable within your budget constraints. Based on your strategic objectives, KPIs, and targets, allocate resources within your budget to support the initiatives required to achieve these objectives. This includes allocating funds for projects, training, technology, and other resources necessary to drive performance improvements.

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2 How to link the BSC and the budget?

Linking the BSC and the budget can be done in four steps. First, define your strategic objectives and KPIs for each BSC perspective, which should reflect your vision, mission, and goals. Then, map out the cause-and-effect relationships between objectives and KPIs across the four perspectives. After that, estimate your budget for each objective and KPI based on strategic assumptions and scenarios. Lastly, monitor and review your performance and budget regularly using the BSC as a dashboard and feedback mechanism. This will help track progress, identify any gaps or deviations, and adjust strategy and budget as needed.

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Vick Tipnes

Healthcare Entrepreneur I Founder of The Rise Conference | Amazon Best Selling Author “Did You Sell Your Soul?”
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Take a step further by instituting a system of continuous alignment. Rather than treating the linking of the Balanced Scorecard (BSC) and budget as a one-time event, make it an ongoing process.

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3 What are the benefits of linking the BSC and the budget?

By linking the BSC and the budget, you can gain several advantages for your organization. This includes aligning your strategy with operations to ensure that your actions and resources are in line with your vision and goals. Additionally, you can use the BSC as a guide for prioritizing and allocating resources while also improving decision making. The budget serves as a tool for communicating and reporting performance to stakeholders and customers, thus enhancing accountability and transparency. Furthermore, the BSC and the budget can be used as sources of feedback for identifying strengths and weaknesses, opportunities and threats, as well as best practices and lessons learned. In this way, you can foster learning and improvement.

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Vick Tipnes

Healthcare Entrepreneur I Founder of The Rise Conference | Amazon Best Selling Author “Did You Sell Your Soul?”
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Extend the utility of this alignment by incorporating robust risk management practices. While the BSC and budget integration helps in decision-making, it can also serve as a foundation for identifying and mitigating risks.

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4 What are the challenges of linking the BSC and the budget?

Linking the BSC and the budget can be challenging, but it is possible. You must balance short-term and long-term goals, manage uncertainty and risk, coordinate collaboration and integration, and maintain relevance and adaptability. Your budget should reflect your realistic assumptions and scenarios, as well as have contingency plans and reserves for unexpected changes. To ensure alignment across the organization and departments, you need a clear understanding of roles and responsibilities, expectations and incentives, processes and systems. Finally, it is important to update your BSC and budget as needed, based on changing environment and performance.

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5 How to overcome the challenges of linking the BSC and the budget?

To effectively link the BSC and the budget, it is important to adopt some best practices and principles. Involving stakeholders and customers in the development and implementation of your BSC and budget ensures that their input is taken into account. Additionally, aligning your BSC and budget with your organizational culture and values reinforces your identity, purpose, and norms. Furthermore, simplifying and streamlining your BSC and budget makes them easier to understand and use. Lastly, focusing on value creation and impact allows you to create stories that demonstrate how you create value for your stakeholders and customers.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How do you link the balanced scorecard to your budget?

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3

4

5

6

1 Why link the BSC and the budget?

2 How to link the BSC and the budget?

3 What are the benefits of linking the BSC and the budget?

4 What are the challenges of linking the BSC and the budget?

5 How to overcome the challenges of linking the BSC and the budget?

6 Here’s what else to consider

Business Strategy

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How do you link the balanced scorecard to your budget?

1

2

3

4

5

6

1 Why link the BSC and the budget?

2 How to link the BSC and the budget?

3 What are the benefits of linking the BSC and the budget?

4 What are the challenges of linking the BSC and the budget?

5 How to overcome the challenges of linking the BSC and the budget?

6 Here’s what else to consider

Business Strategy

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