Question

How much budgeting information should Board Members and executives be given and expected to understand in order to serve as strategic planners?

Answer 1

Strategic planning requires a long term understanding of the business and its financial requirements.The budgeting information required by board members and planners can be broadly divided into following categories -

1. Capital Expenditure Requirements -
   1. Board members and managers must have capex requirements for next few years(at least 5). Number of years of projection required for this expense might depend on the industry. For example an energy company with a very long gestation period might need planning for 30 years, but a consumer durable company might need it only for next 5-10 years.
   2. Along with the money required for the CAPEX, plan for the repayment of the financing must be clearly chalked out.
   3. Cashflow expected to be generated by the CAPEX projects must also be presented to the board.
2. Working Capital Requirements -
   1. For a long term strategic planning often what gets ignored is the working capital requirements of the company, which again depends on the industry and operating structure of the company.
   2. Effective management of Working capital ensures that company does not face any liquidity crunch in its operations.
   3. Management has to ensure that short term funding is not utilized by the company for the long term projects.