Budgeting the traditional way is becoming out-dated, with old frameworks that use aging data, assumptions and indicators no longer capable of providing an agile budgeting strategy. This can leave you with inflexible budgets that are disconnected from your strategy and operations – or deprive you from finding future opportunities and new methods of real-time resource deployment.
By introducing a Target Operating Model (TOM), or TARGET framework, into your budgeting process, you can more effectively align the process with your strategic objectives. We’ll explore what a TOM is, then break down our framework for utilising TARGET for better budgeting.
A Target Operating Model is a framework for ideal operation in a business or process. They describe how a certain operation should be organised, performed and managed to best meet desired business objectives. Target Operating Models can be created and utilised for a number of different functions, processes or operations at all levels of business operation, from individual components to the entire running of the organisation.
In short, they provide a clear blueprint and set of instructions for an operation to best deliver on its business objectives in a clear and transparent method that all members of the operation have visibility on.
There are a number of different TOMs, each designed for different processes and business objectives. Our TARGET framework has been developed to best help finance teams run their budgeting processes.
Our target operating framework provides a step-by-step approach to aligning your strategic objectives with budgeting. We have split out the “target” into an acronym that represents a wholistic budgeting process.
Following the TARGET Framework, steps TARG are performed in depth during budgeting season, then E and T throughout the year.
Here is an overview of our target model for budgeting:
T: Translate Objectives
Convert high-level strategic objectives into specific, actionable goals.
A: Align Departments
Ensure all departments align their plans with the strategic objectives.
R: Resource Allocation
Allocate resources effectively to support strategic objectives.
G: Generate Metrics
Establish KPIs to measure progress towards goals.
E: Evaluate Performance
Regularly assess performance against strategic objectives.
T: Tweak and Improve
Continuously refine and improve plans based on feedback and data.
Let’s break down each of these individual sections in more detail to learn how they can be best-utilised and applied to budgeting.
Translating objectives can be achieved best through the “MOST” framework (Mission, Objectives, Strategies, Tactics), which is a powerful tool for translating high-level strategic goals into actionable plans. We’ve seen firsthand how more finance teams are applying this simple framework to boost their strategic decision-making abilities.
Definition | Application |
Mission: The overarching purpose and vision of the organization. | Start by clearly defining the company’s mission to ensure all strategic objectives align with the broader vision. For example, if the mission is to become the leading provider of innovative CFO software solutions, all subsequent objectives should support this aim. |
Objectives: Specific, measurable goals that support the mission. | Break down the mission into concrete objectives. Ensure these objectives are SMART (Specific, Measurable, Achievable, Relevant, Time-bound). For instance, an objective might be to increase market share by 15% over the next three years. |
Strategies: High-level plans to achieve the objectives. | Develop strategies that outline how each objective will be achieved. This could involve expanding into new markets, launching new products, or enhancing customer service. Each strategy should be detailed enough to guide the development of specific tactics. |
Tactics: Detailed actions and steps to implement the strategies | Define the specific actions required to execute each strategy. For example, if the strategy is to expand into new markets, tactics might include market research, hiring local sales teams, and developing regionspecific marketing campaigns. |
Engaging with department leaders is crucial for aligning the budgeting process with strategic objectives. Here are some general questions for each department to gather insights and ensure their plans align with overall company goals.
Alongside these questions, you should also tailor questions to specific departments. For instance, asking your Sales department about the resources they would need to increase quota attainment, or asking Marketing about the campaigns they have for next year and the budget they require for them.
Introducing scenario planning is key for successful resource allocation, offering a structured approach to anticipate various future environments.
Imagine presenting a scenario where a market downturn is predicted, and you’ve already allocated resources to cost-cutting measures and efficiency improvements. Or another scenario forecasting rapid growth, where you’ve planned investments to scale operations and expand market reach. Scenario planning isn’t just a tool; it’s your secret weapon for driving strategic success and making a lasting impact on your company’s future.
In its simplest form, this uses a series of plausible future environments to assess how each scenario could impact the strategic goals or resources of your business. Scenario planning is holistic and considers multiple factors such as economic conditions, market trends, regulatory changes, and technological advancements.
Here we’ve provided some common non-finance metrics by department.
Key guidelines.
By concentrating on a clear set of metrics, you can better manage and drive performance, making your metrics truly actionable and impactful. This focused approach helps maintain clarity and alignment, driving more effective decision making and strategic execution across the entire organization.
After the budgeting process, maintaining performance and accountability is crucial.
As a finance leader, elevate your role to become an agent of performance. Actively engage in business partnering by scheduling regular performance meetings with key stakeholders. Arrive armed with insightful data and actionable recommendations. Drive meaningful discussions and maintain a close connection with the business to understand its ongoing dynamics and challenges.
To operationalize this, you can utilize tools like dashboards, templates, and scorecards. However, always remember that the core aim is to drive impactful performance and align actions with your strategic goals.
Continuous review of the budget in the latest context is essential for adapting to changes and optimizing performance. Regular forecasting is not only a tool to test if the budget is still valid but also a means to enhance predictability, update your execution plan, accelerate performance, and manage investor expectations.
Decide which methodology is better for your business.
Translate Objectives
Align Departments
Resource Allocation
Generate Metrics
Tweak and Improve
By using the TARGET framework to structure your budgeting process, you can budget more effectively to help your organisation align your budget with strategic goals while being more flexible in your resource deployment.
For more information about better budgeting processes, take a look at our complete business budgeting guide.