FREE online courses on Introduction to Strategic Management - Path to Strategic Management - Phase I  Basic Financial Planning

 

Origins of a formal planning system can be traced to the annual budgeting process where everything is reduced to a financial problem.  Procedures develop to forecast revenue, costs, and capital needs and to identify limits for expense budgets on an annual basis.  Information systems report on functional performance as compared with budgetary targets.

 

Companies in Phase I often have sound business strategies, but they rarely exist in a formalised manner. The only concrete indication that a business strategy exists may be a projected sales/ earnings growth rate, occasionally qualified by certain debt/equity target or other explicit financial objectives.

 

The whole onus of planning in this phase falls on the CEO and his top team.  Do they really know their company's products and markets and have a good sense of what major competitors are doing and are expected to do.  Based on their knowledge of their own cost structure, can they estimate what the impact of a product or marketing change will be on their plants, their distribution system, or their sales force.  With this much knowledge in hand, and if they are not planning for the business to grow beyond traditional limits, they may not need to set up an expensive planning system.