business the term financial plan is often used to describe the expected

Business the term financial plan is often used to

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business, the term "financial plan" is often used to describe the expected financial performance of anorganization for future periods. The term "budget" is used for a financial plan for the upcoming year. A "forecast" is typically a combination of actual performance year-to-date plus expected performancefor the remainder of the year, so is generally compared against plan or budget and prior performance. The financial plans accompanying a strategic plan may include 3–5 years of projected performance.McKinsey & Companydeveloped a capability maturity modelin the 1970s to describe the sophistication of planning processes, with strategic management ranked the highest. The four stages include:1.Financial planning, which is primarily about annual budgets and a functional focus, with limited regard for the environment;2.Forecast-based planning, which includes multi-year financial plans and more robust capital allocation across business units;3.Externally oriented planning, where a thorough situation analysis and competitive assessment is performed;4.Strategic management, where widespread strategic thinkingoccurs and a well-defined strategic framework is used.
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Categories 3 and 4 are strategic planning, while the first two categories are non-strategic or essentially financial planning. Each stage builds on the previous stages; that is, a stage 4 organization completes activities in all four categories.[7]For Michael C. Sekora, Project Socratesfounder in the Reagan White House, during the cold warthe economically challenged Soviet Unionwas able to keep on western military capabilities by using technology-based planning while the U.S. was slowed by finance-based planning, until the Reagan administration launched the Socrates Project, which should be revived to keep up with China as an emerging superpower.[8]Criticism[edit]Strategic planning vs. strategic thinking[edit]Strategic planning has been criticized for attempting to systematize strategic thinkingand strategy formation, which Henry Mintzbergargues are inherently creative activities involving synthesis or "connecting the dots" which cannot be systematized. Mintzberg argues that strategic planning can help coordinate planning efforts and measure progress on strategic goals, but that it occurs "around"the strategy formation process rather than within it. Further, strategic planning functions remote from the "front lines" or contact with the competitive environment (i.e., in business, facing the
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