Absolute and Relative Budgeting  

Financial Focus and Alignment

Having Financial Focus is the fundamental responsibility to shareholders. Financial focus means that one is spending the money where it matters most, focusing on bottom-line, making investments which are aligned to the strategy, doing optimum zero-based budgeting and ensuring that the money spent is closely linked to the way an organization makes money.


Absolute and Relative Budgeting


To ensure that your budgeting and allocation is aligned & focus on the strategic priorities and on your money-making machine, one should adopt a mix of two methods. One is to allocate the money as per the needs of core priorities, and then distribute the rest of the monies to the non-core areas. This is the absolute approach. After you have done this, the next stage is to normalize your budgeting. You can look at the %age distribution of investments across your mission-critical, important and desirable agenda and see if the distribution makes sense. The other aspect of the relative investment is the time-span of the investments. If the investments related to your core priorities are skewed towards the later part of the year, there might be something wrong.