Strategic budgeting is developing a long-term budget that covers a period longer than a year. This kind of budgeting aims to create a strategy that underpins a long-term vision for the position of a business. This may, for instance, entail expanding into new geographical areas, conducting the necessary research and development to launch a new product line, switching to a new technological platform, or reorganizing the company. In these situations, it is impossible to do the necessary tasks within the constraints of a single annual budget.
If only yearly budgets are used, for instance, the money required for a multi-year effort might not be maintained for the initiative’s whole term, leading to the project’s non-completion. Therefore, a business can only hope to make long-term gains in its strategic position through strategic budgeting.
The specific income and cost line items that are generally seen in an annual budget are less important to a strategic budget. Instead, a lower number of line elements comprise these groupings. By doing this, the emphasis is placed more on the overall objectives to be met.
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