Financial and Strategic Planning Relationship

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Table of Contents

Introduction
Relationship between strategic planning and financial planning
Conclusion
References

Introduction

Corporate entities combine strategic planning and financial planning in order to survive in a dynamic and competitive business environment. The integration of the two types of planning allows corporate managers to prioritize projects based on the viability of resources and anticipated growth (Moyer & Moyer, 2012). Strategic planning is the determination of the overall direction to be taken by an organization in achieving the goals. The two aspects determine the achievement of goals and objectives of an organization. On the other hand, financial planning, involves managing finances over time in such a manner that financial needs can be met without experiencing difficulties (Moles, Parrino, & Kidwell, 2011).

Relationship between strategic planning and financial planning

Both financial planning and strategic planning encompass defining objectives, collecting and analyzing data, implementing of plans as well as monitoring the outcomes. For example, if a budget of £50,000 is provided a financial plan and there are three projects to invest: Costing £80,000, £45,000 and £49,500. Since the first project costing £80,000, either of the remaining two projects may be chosen based on the strategies. Such a strategic plan is important because it provides a guide to achieve efficient business processes. Strategic planning is intertwined with financial planning in the sense that, if any change is made in the budget, the current assets must be revolutionized (Kennedy, Nash, Saks & PricewaterhouseCoopers, 2007).

Prior to the amendment of the strategies, one must verify whether the available finances can be able to implement the available projects. Through capital budgeting, it is easy to apply discounted and non-discounted cash flow techniques to assess the viability of the available projects with respect to a company’s strategic plans (In Lee, 1985). In financial and strategic planning, monitoring the progress and changes in a project is important. Additionally, a significant correlation between financial planning and strategic planning exist because, both plans act as a tool for measuring growth and success of a company.

Strategic and financial planning affect the cost in the sense that, prior to the implementation of a strategic plan, the cost to be incurred must be factored in the financial plan. This is carried out to see whether, the budgeted financial resources meet the anticipated cost for investment. On the contrary, the two types of planning may be affected by the sales; whereby, sales cycles may fluctuate significantly. This means that, sales cycle may be longer than anticipated, and this may cause adverse financial problems that may fundamentally impact on the strategic planning (Hope, & Fraser, 2003). The best practice in management of such unprecedented changes is that, corporates should diversify their strategies instead of relying in only one strategy (Hope & Fraser, 2003).

Conclusion

Corporate managers integrate both financial and strategic planning in the management of the overall organization. The two types of the planning are vital tools in the management of a company because they complement each other. From the above discussion, it can be observed that, for strategic plans to be successful, financial plans must be implemented. Any change in strategic plans must be in liaison with financial planning. This is because a project cannot be successfully implemented if there are no adequate financial resources for project implementation. Therefore, strategic and financial planning provides a way through which a company can be effectively and efficiently be managed.

References

Hope, J., & Fraser, R. (2003). Beyond budgeting: How managers can break free from the annual performance trap. Boston, Mass: Harvard Business School Press.

In Lee, C. F. (1985). Advances in financial planning and forecasting. Greenwich, Conn: JAI Press.

Kennedy, M. B., Nash, M. T., Saks, B. B., & PricewaterhouseCoopers LLP. (2007). Price water house coopers 2008 guide to Tax and financial planning. Hoboken, NJ: Wiley.

Moles, P., Parrino, R., & Kidwell, D. S. (2011). Fundamentals of corporate finance. Hoboken, NJ: Wiley.

Moyer, R. C., & Moyer, R. C. (2012). Contemporary financial management. Mason, OH: South-Western, Cengage Learning.

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Financial and Strategic Planning Relationship

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