Post #16: Aligning Strategy & Finance

In my previous post on strategic planning I discuss why I always work backwards, starting from the long-term vision and gradually moving toward more concrete details as we approach the present day. This approach allows me to ensure that short-term goals are aligned with the long-term strategy, with each step informed by a dynamic financial model. The model is designed to evolve as new information comes in, enabling real-time adjustments during forecasting discussions.

In the short-term strategy, financial forecasting plays a critical role. Each tactic and goal should be tied directly to the financial forecast, allowing for clear measurement of performance versus cost. The first-year forecast & strategic plan is where I dive deep, adding as much detail as possible, defining KPIs, and linking every activity and goal to financial targets or costs. It's important to expect small adjustments to the model’s assumptions, but if variances exceed 10%, it’s a sign that the model is flawed. On the other hand, variances between 0.5% and 3% fall within a healthy margin of risk.

The second year forecast typically carries forward most fixed and personnel costs, with adjustments made for any projects or initiatives rolling over from year one. By year 3-5, the forecast becomes more conservative. At this stage, I aim to adjust the financial outlook whenever new information emerges, ensuring that the long-term plan remains realistic and flexible.

Ultimately, aligning strategic and financial planning comes down to building a model that is both dynamic and precise, ready to adapt as new details emerge but solid enough to guide the organization toward its goals with confidence.