Why it's important to integrate operational planning, budgeting, and rate setting....

Cost planning develops an operational plan, translates it into a budget, and then derives rates -- all as one integrated process.

Budgeting cannot be separated from operations planning. Managers cannot forecast costs if they don't know what business will be conducted and how it will be executed. In simple terms, you have to know how much you are going to sell in the year ahead before you know what resources you need.

Similarly, rates should not be calculated separately from the budget. It makes no sense to promise one cost in the budget, then charge a rate during the year that adds up to a different number.

An effective planning process begins with an operational (tactical) plan that defines what the organization will deliver in the year ahead. Based on this business forecast, it plans how it will produce those products and services, and what resources staff will need to do so. This is the basis for a budget. Rates are then extracted directly from the plan/budget data, ensuring consistency and saving time.

An anecdotal story that illustrates the need for an integrated process....