Corporate entities incorporate both strategic planning and financial planning in order to survive in a dynamic and competitive business environment. The integration between the two types of planning,allows corporate managers to prioritize projects base on their viability and anticipated growth (Moyer & Moyer, 2012). Strategic planning therefore,involve determining the overall direction an organization will take and the goals that the organization want to achieve as well as how the predetermined goals may be achieved. On the contrary, financial planning,involves managing finances overtime in such a manner that financial needs can be met without experiencing difficulties (Moles, Parrino, & Kidwell, 2011).
Relationship between strategic planning and financial planning
Ideally, both financial planning and strategic planning encompasses defining objectives, collecting and analyzing data, implementing of plans as well as monitoring the outcomes. For example, if you have set a budgetof £50,000 in your financial plan and you have three projects to invest, costing £80,000, £45,000 and £49,500 respectively, because you can not afford the first project costing £80,000.You may choose from either of the remaining two projects based on your strategies. The main purpose of your strategic planning is to give you a road map for your business progression by eradicating areas of inefficiency. Strategic planning intertwined with financial planning in the sense that, if you make any change in your budget, you must revolutionize your current strategy (Kennedy, Nash, Saks &PricewaterhouseCoopers, 2007). But prior to the amendment of your strategies, one must verify whether the available finances can be able to implement the available project(s). Through capital budgeting, one can be able to apply both discounted and non discounted cash flow techniques to asses the viability of the available projects with respect to your company strategic plans (In Lee, 1985). In both financial and strategic planning, monitoring the progress and changes is involved. Additionally, a significant correlation between financial planning and strategic planning exist because, both plans act as a tool for growth and success of the company. In above connection, 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 affectedby thesales. Whereby, sales cycles may fluctuatesignificantly. 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). Additionally the best practice in management of such unprecedented changes, suggests that, corporates should diversify their strategies instead of relying in only one strategy (Hope & Fraser, 2003).
Corporate managers integrate both Financial and strategic planning in the management of the overall organization. The two types of planning act asvital tools in the management of a company because they complement each other. From the above discussion, it can be observe that, for strategic plans to besuccessful, financial plans must be in place. Any change in strategic plans must be in liaising with financial planning. This is because a project can not be successfully implemented, if there are no adequate financial resources for project implementation. Therefore, strategic and financial planning providesa way through which a company can be effectively and efficiently being managed.
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.
Moyer, R. C., & Moyer, R. C. (2012). Contemporary financial management. Mason, OH: South-Western, Cengage Learning.
Moles, P., Parrino, R., & Kidwell, D. S. (2011). Fundamentals of corporate finance. Hoboken, NJ: Wiley.
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