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-à-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