Bank Strategic Planning and Budgeting Process

CHAPTER 10
BANK STRATEGIC
PLANNING AND
BUDGETING PROCESS
WHAT IS STRATEGIC
PLANNING?
is a process through which a firm

determines what it seeks to accomplish and
the actions required to achieved desired
outcomes.
is a process that we use to determine what
(outcomes to be reached) and how (actions
to be taken to reach outcomes).
is an organized thought process that utilizes
the participation of employees,
management, and the board of directors.
The ultimate result is the

determination of long-term goals and
objectives and short-term
implementation of specific goals using
techniques and tactics that permit the
corporation to meet long-term goals
and objectives.
Strategic planning is not too difficult
or time consuming, and the results of
a good plan are easily measurable.
IMPORTANCE OF STRATEGIC
PLANNING
1. Strategic planning is important to
the survival of the bank because
without it an organization lacks
foresight, goals, and objectives. It is
the process of strategic planning, not
necessarily the result, that is crucial
to the banks future course of
direction.
2. The ultimate goal of strategic

planning is the full involvement of
management and the board of
directors (as proxy for shareholders)
in determining the future course of
the bank.
The strategic planning process compels
bankers to examine what will happen
1,3,5,or 10 years in the future and whether
their livelihoods will be protected and
hopefully advanced through the successful
operations of their employer.
3. Strategic planning can make

outside directors aware of
administrative and operational
problems faced by bankers on a
day-to-day basis.
In general, the more directors know of
the problems bankers face, the better
they will do their jobs as directors.
4. Strategic planning is a calculate

business risk of management and
the banks direction over the next 5
to 10 years through the
implementation of specific policies
and procedures.
STEPS IN THE STRATEGIC

PLANNING PROCESS
Although the planning formats may vary, the
fundamental elements of strategic planning
are fairly consistent. The most essential
components include:
1. Completing a situation analysis
2. Drafting a corporate vision and mission
statement
3. Determining
organizational goals and
objectives
4. Identifying
strategies
for
attaining
predetermined goals and objectives
5.
6.
7.
8.
Defining actions or steps to execute

various strategies
Assigning individuals to carry out
suggested action plans
Establishing
deadlines
for
completion of various action plans
Monitoring, evaluating, and revising
planning components
Steps in The Strategic

Planning Process
1.
Situation analysis and corporate vision and

mission
After outlining the situation analysis, a corporate
vision and mission should be prepared which will
assist the board of directors, senior
management, and staff in determining the
overall understanding (vision) of the institution.
Subsequent development of a corporate mission
can be used to reveal the institutions goals and
purpose to shareholders (if applicable),
creditors, customers, and the general public.
2. Establishing goals and objectives

Establishing attainable and meaningful
actions requires confining goals and
objectives to the broadest scope possible
which have a priority readily accepted over
other goals and objectives
A
commonly accepted structure divides
organizational goals and objectives into
three categories:
1. Financial
2. Nonfinancial
3.
Marketing.
Goals and objectives that are not included in the

strategic plan are often incorporated into
departmental operating plans.
Generally limited to 3 years, goals and objectives are
assigned for each year of the planning horizon.
Attempting to develop a plan beyond a 3 years
horizon is more complex and can diminish the
documents overall credibility.
Each goals or category of goals, for each plan year,
should have its own set of strategies and actions,
target dates, and assignment of responsibility.
Financial goals and objectives outline for senior
management and staff the desires goals for the
financial performance of the institution. These goals
and objectives are contingent upon the financial
strengths and deficiencies of the organization and the
planning direction.
Most strategic plans include financial goals

encompassing total assets, equity capital, equity
capital ratios, net income, return on assets, return
on equity, earnings per share, investment value
per share, market share, and key expense targets.
Nonfinancial goals encompass other types of
objectives to be achieved by the community bank.
Some items might include: Should the computer
be replaced? Should we sell?
The nonfinancial goals are not usually directly
involved in the annual financial budgets but are
longer-term projects designed to improve the
performance of the community bank.
3. Strategic
action plan development

Various methods may be used to
accomplish this task. Each strategy or
action plan will have its own set of
pathways, constraints, costs, and
implications.
The strategic planning process
ultimately is an attempt to specify
those strategies and actions which are
most relevant to the successful
attainment of goals and objectives.
Began with a specific target.
If the banks strategic planning goals

is to make RM500,000, strategies and
actions are available to the bank to
accomplish this goals. This could
involve increasing service charges,
increasing lending volume, decreasing
deposit rates, or perhaps revising
investment strategies.
Each of these strategies has its own
set of potential reverberations on
other that are likely to be ineffective,
unreasonable, or costly or otherwise
conflict with other planning priorities
and responsibilities.
4. Monitoring, controlling, and revising the
strategic plan
Initially, the plan should establish what

area should be monitored. Obviously,
goals and objectives that require the
most attention would be monitored on an
ongoing basis
Secondary goals and objectives can be
monitored by department heads and
managers who have closer contact with
activities related to those specific
targets.
Perhaps the most overlooked aspect of strategic

planning is that the process never ends. As
circumstances within the bank or in the external
environment continue to evolve or change, the
planning document must be updated and revised to
reflect new planning realities.
Events such as changes in managerial

responsibilities, promotions, executive departures,
the failure of a local savings and loan, the closing of
a holding company branch, or the establishment of
a competitive branch facility all would have
significant repercussions on planning priorities and
activities.
The most important aspect of monitoring and

controlling the strategic plan is to revise the written
strategic plan on at least an annual basis to reflect
the changes in the banking environment. Utilize the
same board of directors and senior management
team to analyze the deficiencies which occurred
during the year and to implement new goals and
objectives and strategic action plans
A vital residual benefit of developing a written

strategic plan is that it reinforces a level of
responsibility and accountability often lacking in
community banking organizations. Names and dates
on planning documents inspire action and follow
through. Such a level of accountability avoids the I
thought you were going to do it syndrome.

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CHAPTER 10

is a process through which a firm

The ultimate result is the

2. The ultimate goal of strategic

3. Strategic planning can make

4. Strategic planning is a calculate

STEPS IN THE STRATEGIC

Defining actions or steps to execute

Steps in The Strategic

Situation analysis and corporate vision and

2. Establishing goals and objectives

Goals and objectives that are not included in the

Most strategic plans include financial goals

action plan development

If the banks strategic planning goals

4. Monitoring, controlling, and revising the

Initially, the plan should establish what

Perhaps the most overlooked aspect of strategic

Events such as changes in managerial

The most important aspect of monitoring and

A vital residual benefit of developing a written

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