Introductory
The main reason teams miss their targets is because their cost management systems do not align with their strategic goals. The guide contains instructions to diagnose Failure to Link Costing to Strategy and outlines required maintenance tasks for this week and demonstrates how to connect budget choices to decisions. Acceptance: (N) or (A-B).
The study examines GCC budgeting through KSA as a case study to understand how costing strategies operate for budgeting purposes in relation to Vision 2030.
acceptance: (N) or (A-B)
Failure to Link Costing to Strategy
The automated costing systems from the previous year generated precise spreadsheets which took you away from your strategic goals. Failure to Link Costing to Strategy represents the core gap because financial standards and unit costs and budgeting systems fail to connect with the limited set of strategic initiatives that generate substantial results. The outcome leads to missed market opportunities and growth-stifling cash that fails to reach any meaningful target.
The observer should note (N) when Failure to Link Costing to Strategy is absent but should record (A–B) whenever any space in this area appears.
Symptoms you will see on the ground
The present budgeting system encounters problems because it uses cost centers to develop budgets which makes it difficult to track how spending affects strategic KPIs.
The drive to achieve lower cost-per-unit production creates adverse effects on customer promise because it causes longer delivery times and lower local production levels and reduced business stability.
The capital expenditure payback period calculations do not include strategic benefits such as resilience and localization and time-to-market advantages.
The quarterly re-forecast process only adjusts financial numbers instead of affecting business decisions because pricing and costing teams rarely meet during this time.
The supply chain policies undergo changes through dual-source and localization but standards need months to get updated. https://3msbusiness.store/capacity-costing-charge-for-the-plant-you-actually-use/
Why this matters now (KSA/GCC context)
The strategic priorities of Vision 2030 demand specific cost trade-offs for efficiency and localization and financial sector development rather than general budget reductions (Vision 2030 overview; Financial Sector Development Program).
Middle East firms are shifting from tactical cash fixes to sustained working-capital and cost optimization, which only sticks when tied to strategy (PwC Middle East Working Capital Study 2024).
The current global market instability requires organizations to establish a specific plan for resilience expenses which boards will accept as an open cost structure instead of concealing these expenses within operational costs (BCG, 2025).
The article in HBR (2025) states that budgets need to follow strategic plans instead of the other way around.
The diagnostic (fast, blunt)
Run these three checks. If any fail, tag CO-031 = (A–B).
- Strategy-to-Chart-of-Accounts Trace
The team needs to establish direct connections between strategic pillars and budget lines and cost drivers which enable the achievement of “Localize 30% of spend” and “Cut order-to-delivery by 20%” goals.
o Pass = ≥90% of pillar spend is traceable to named lines and drivers. Fail otherwise.
The following is a CoA Map of the strategy: https://3msbusiness.store/navigating-the-strategic-risks-of-pursuing-multiple-market-opportunities/
- The strategic planning process determines the Unit Cost that will result from organizational decisions.
The standard cost of one flagship SKU requires recalculation under two scenarios which include both strategic choices (dual sourcing and local content and service level).
o Pass = the delta is explicit in the standard and forecast. The system will fail when it is integrated into overhead systems.
The following guide provides a step-by-step approach to target costing and Kaizen costing.
- Pricing–Costing Loop
The system should perform a monthly handshake to update target costs using pricing scenarios and value metrics and price floors using cost changes.
The Pass section contains documented scenarios which establish specific thresholds. The project will fail when the team plans to review it during the upcoming quarter.
The following document contains the RACI matrix for Pricing–Costing.
Root causes (what’s really broken)
The current cost systems operate at departmental levels instead of decision-making points because they do not have TDABC and driver models for strategic control.
The KPI packs display performance differences between planned and actual results which makes every option seem expensive.
The Capex/Opex gates do not consider strategic limitations that go beyond financial considerations which include both local content requirements and service level agreements for resilience.
- Working-capital policy set centrally, but SKU/segment economics are not segmented.
The following sources provide background information about current cost methods and the value creation process of alignment:
The 2025 literature review about strategic cost management and value creation can be found at https://www.researchgate.net/publication/395027855_The_Link_Between_Strategic_Cost_Management_and_Value_Creation.
The following report provides information about Middle East supply-chain localization and performance for 2024: https://www.pwc.com/m1/en/publications/documents/2024/localising-supply-chains-and-its-impact-on-performance.pdf.
The fix (one-week sprint to green)
- Name the bets. Convert strategy into 5–7 funded “choices” with hard targets (e.g., “Local content 35% by 2026-12-31; 2pp margin impact tolerated; 12-day lead-time cap”).
- Build driver view. For the top 10 SKUs, model cost as:
The total cost consists of material expenses and conversion costs and logistics expenses and resilience premium and localization premium and learning and kaizen expenses.
The premiums need to be displayed openly instead of being concealed within small print.
- Target costing by segment. Set target cost from willingness-to-pay and price fences; back-solve permissible cost and assign owners.
- The process of budget decision-making should rely on individual choices instead of following departmental rules set by the organization. The FY budget needs to be reorganized so that every Strategic Action Requirement (SAR) corresponds to a strategic bet while all non-essential items should be frozen.
- Working-capital guardrails. The targets for DIO/DSO/DPO need to match segment economics because cash flow days should be the focus instead of inventory tons.
- Close the loop monthly. The standard deck brings together pricing and supply chain and finance elements through price floors and cost deltas and mix and resilience KPIs.
https://3msbusiness.store/value-based-pricing-charge-for-outcomes-not-hours/
What “good” looks like (accept “N”)
The development of budget narratives follows strategic betting approaches which function as an alternative to conventional functional guidelines.
Standard costs include line items for resilience/localization which procurement teams receive incentives based on Total Cost of Ownership (TCO) per strategy instead of unit prices.
The price architecture of one page establishes a link between target costs and segment margins and price points.
- Quarterly board update reports SAR gains and pp move explicitly tied to choices (e.g., “Resilience +1.1pp cost; churn ↓0.8pp; NPS +6; net margin +0.3pp”).
Guardrails & trade-offs
The organization should avoid selecting the cheapest unit cost when it would damage the selected value proposition (speed, resilience, local content).
The company needs to establish resilience and localization as fundamental product features which should be priced as standard components rather than extra features.
The external benchmarks need to stay current and relevant to GCC markets because they include VAT/e-invoicing rules and IPO liquidity trends that affect cost of capital.
External references (3–5, ≤5 years; ≥1 GCC/KSA)
Saudi Vision 2030 — Financial Sector Development Program (KSA): https://www.vision2030.gov.sa/en/explore/programs/financial-sector-development-program
PwC Middle East Working Capital Study 2024 (GCC/MENA): https://www.pwc.com/m1/en/publications/documents/2024/2024-middle-east-working-capital-study-report.pdf
The BCG (2025) study examines Cost & Resilience as a new supply chain challenge in its publication https://www.bcg.com/publications/2025/cost-resilience-new-supply-chain-challenge.
The article “How to Sync Your Budget with a Strategic Plan” from Harvard Business Review (2025) provides guidance on this topic. https://hbr.org/2025/08/how-to-sync-your-budget-with-a-strategic-plan
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