Question

In: Finance

In 400 words, discuss the importance of strategic planning and the central role that financial forecasting...

In 400 words, discuss the importance of strategic planning and the central role that financial forecasting plays in the overall planning process.

Solutions

Expert Solution

There is a saying " If you don't know where you are going then you might end up at a different place "

Many organizations understand the importance of this and try to frame a strategy for their way forward and hence spend a huge chunk of money and time on it. There are several benefits associated with the strategic planning to a company and a successful strategy is the one that is planned and implemented properly to achieve the objective.

The importance or the benefits are listed below:

  1. Planning a strategy means planning your future and to get prepared accordingly so that an organization would be proactive rather than reactive as company can anticipate some unfavourable situations in advance. In accordance to that, some precautionary measures and strong strategic plans can be developed to handle it.
  2. The plan gives a direction to a company by setting goals and objectives to be achieved in future. It also offers a foundation for growth, success, efficient decision making.
  3. Financial forecasting means to predict the financial requirements by the organization. It is basically planning the requirements and sources of funds for the future prospects or projects that the company has in its hand. So, it helps to avoid a situation like cash crunch or cash shortage for any project or day to day operation.
  4. Financial forecasting also helps in efficient usage of money by improving the cash cycle which also improves the operational efficiency by budgeting, profitability and proper allocation of funds.
  5. An accurate and optimal financial budget that is targeted and well-strategized can turn into boosting of sales and the marketing efforts into the best possible outcomes like increase in profitability and market share of the company in the market.
  6. Business is a turbulent job as it can be on the peak this year and debt driven in next year. So, in a constantly changing macro environment and market conditions organizations that lack a strong foundation, focus and financial foresight will struggle in this state. So adopting a robust and successful strategic plan which includes financial planning and management if implemented it properly will help an organization to move forward.

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