The Strategic FinancialPlanning Process
The Strategic Financial Planning Process
The strategic financial planning process is distinctive in
the sense that it incorporates the tasks of strategy creation as well as
financial planning. For many years, these two processes have been thought to be
independent in most businesses throughout the globe. Strategic financial
planning blends these procedures and produced a hybrid method.
In a broad sense, strategy formulation relates to the market
in which the organization intends to establish itself. This implies that the
corporation chooses to offer particular items and services and excludes all
other products and services. This choice in turn determines the possibilities
that the firm has as well as the competitors that it is likely to encounter.
Using strategic financial planning to set a firm in a strategically favorable
position provides more advantages than having an ordinary strategic position
and then competing. This long-term picture of where the corporation sees itself
a few years from now is kept in mind when making strategic financial choices.
In this post, we will take a deeper look at the strategic
financial decision-making process.
Scanning the External Environment
The initial phase in the strategic financial planning
process is scanning the external environment. This simply implies that the
company pays great attention to social, political, demographic, and more
crucially technology changes occurring in the environment. The company seeks to
comprehend what the business environment will look like in the future. It seeks
to make an informed judgment about the sort of competition they will be facing
and what competitive advantage will they have vis-Ã -vis their opponents. This
procedure is done in the proper course of strategic management as well.
However, in the strategic financial management process, there is a lot of focus
on figures. Decisions are based on quantitative knowledge instead of being
relied on intuition.
Internal Introspection
The second phase is for the firm to fully identify its
strengths and deficiencies. The organization has to take a fair and
uncompromising look at what its competitive advantage is now. The next stage is
for them to comprehend that this competitive advantage will alter with time. A choice needs to be taken on whether the firm should continue
on the same route that it is on now, or if it should alter its strategic goals
and establish a new competitive edge. Internal introspection may be tough for
many firms owing to the scarcity of relevant data. However, some resources
should be invested in gathering this data if it benefits the ultimate
decision-making. After all, the strategic goals which the business establishes
as a consequence of this process are likely to persist in the long term and
will influence the financial destiny of the firm.
Clear and Compelling Goals
The approach demands the formulation of clear and appealing
objectives for the company. In principle, mission and vision statements are
present in every company. However, in actuality, they are generally neglected.
Also, the vision statements tend to be general and may be utilized to
incorporate practically any area of the company. This is done purposefully to offer
the organization flexibility. However, it might turn out to be unfavorable
in the long term. Also, these objectives are often built out during company-level goal alignment meetings. Hence, the head office is often under pressure
from other departments to incorporate their aims into the strategic goals as
well. The ultimate result is a list of objectives that dilute the focus of the
company. The whole process might wind up becoming political if the top
management is not mindful of the reality and does not endeavor to lead the firm
on the proper path.
This is where strategic financial management is distinct. It
clearly suggests that the company should restrict the number of strategic
objectives. The focus is on picking a restricted set of objectives and
rejecting anything else. The idea is that if the massive resources of the
organization are focused on a restricted set of objectives, then the firm will
attain total mastery in such areas. On the other side, unclear and confusing
strategic statements might be damaging to the strategic financial management
purpose.
Management’s Vision Aligned with the Company’s Vision
In an ideal situation, the strategic vision of the
management has to be linked with the strategic vision of the board of
directors. However, that does not happen in reality in numerous companies. This
is the case especially when a corporation experiences a shift in the top
leadership. The new management typically seeks to put in adjustments. However,
it is the job of the board of directors to guarantee that the vision of the
management maintains aligned with the broader goal. The truth of the situation
is that management may change over some time. However, the firm will
continue for a longer length of time. The management should adapt to the
company’s strategic goal and not vice versa. Even if the new management wishes
to bring in changes, they should be discussed and brought in via the correct
route.
The bottom line is that there are a few phrases in the
strategic financial planning process that need to be followed meticulously. In
the near term, they can appear to be unneeded. However, in the long term, they
bring significant clarity and as a consequence, the organization can
manage its resources to produce the best potential outcomes.
More:
- 1. The Strategic Financial Planning Process
- 2. Principles of Strategic Financial Management
- 3. Strategic Financial Management - Meaning and Its Functions
