Business Finance

Module 4
Planning is very much related to another management function, controlling. These
two management functions reinforce each other, and both are very important for the
success of the organization.

Management planning is about setting the goals of the organization and identifying
ways on how to achieve them (Borja & Cayanan, 2017).

This may be broken down into long-term plans and short-term plans.

• Long-term financial plans - These are a set of goals that lay out the overall
direction of the company.
- A long-term plan is an integrated strategy that takes into account various
departments such as sales, production, marketing, and operations for the purpose of
guiding these departments towards strategic goals.

- Those long-term plans consider proposed outlays for fixed assets, research and
development activities, marketing and product development actions, capital structure,
and major sources of financing. - Also included would be termination of existing
projects, product lines, or lines of business; repayment or retirement of outstanding
debts; and any planned acquisitions (Gitman & Zutter, 2012).

• Short-term financial plans - Specify short-term financial actions and the

anticipated impact of those actions. Part of short term financial plans include setting
the sales forecast and other forms of operating and financial data. This would then
translate into operating budgets, the cash budget, and pro forma financial statements
(Gitman & Zutter, 2012)
Long-Term Planning Short Term Planning

Persons More participation Top management is still involved but there is

Involved from top more participation from lower level managers
management. (production, marketing, personnel, finance
and plant facilities) because their inputs are
crucial at this stage since they are the ones
who implement these plans.

Time 2 to 10 years 1 year or less

Period

Level of Less More

Details

Focus Direction of the Every day functioning of the company

company

Table 1: Comparison of Short-Term and Long-Term Planning (Gitman & Zutter,

2012)

1
STEPS IN PLANNING

A. Set goals or objectives.

For corporations, long term and short term objectives are usually identified. These can
be seen in the company’s vision and mission statements. The vision statement states
where the company wants to be while the mission statement states the plans on how to
achieve the vision.

B. Identify Resources.
Resources include production capacity, human resources, who will man the operations
and financial resources. The materials needed, manpower, machine, etc.
C. Identify goal-related tasks.
Preparation in the accomplishment of the task. In this step, management must figure
out how to achieve an objective. For example, if the target for this year is to increase
sales by 15% tasks should be considered to achieve this goal.

D. Establish responsibility centers for accountability and timeline.

Assign or distribute tasks/role to the members. The management must establish a
mechanism which will allow plans to be monitored. This can be done through
quantified plans such as budgets and projected financial statements.

E. Establish the evaluation system for monitoring and controlling.

For corporations, the management must establish a mechanism which will allow plans
to be monitored. This can be done through quantified plans such as budgets and
projected financial statements. The management will then compare the actual results
to the planned budgets and projected financial statements. Any deviations from the
budgets should be investigated.

F. Determine contingency plans.

In planning, contingencies must be considered as well.
• Budgets and projected financial statements are anchored on assumptions. If these
assumptions do not become realities, management must have alternative plans to
minimize the adverse effects on the company.

Deepen

At this point, we will further discuss The Characteristics of an Effective Plan for us to
be guided in making an Effective Planning.

• In planning, the goal of maximizing shareholders’ wealth must always be

put in mind.

• The following criteria may be used for effective planning:

-Specific – target a specific area for improvement.

-Measurable – quantify or at least suggest an indicator of progress.
-Assignable – specify who will do it.
-Realistic – state what results can realistically be achieved, given available
resources.
-Time-related – specify when the result(s) can be achieved.

2
 Gauge

Directions: Identify the following statement or sentences. Choose your answer inside
the rectangle below. Answer only. Use separate sheet of paper for your answer.

1. The characteristic of an effective plan which quantify the progress of the

implemented plan.
2. The steps in planning where it assigns or distribute tasks/role
to the members.
3. In the Long-term planning, what is the level of details?
4. The steps in planning which determines the manpower, materials, machines,
etc. needed in the operations.
5. It is the characteristics of an effective plan where it specifies who will do the
task.
6. The characteristic of an effective plan where it specifies when the results can be
achieved.
7. It set the goals that lay out the overall direction of the company.
8. The steps in planning where it is very essential which requires an alternative or
option in case the initial plan does not materialized.
9. It is about setting the goals of the organization and identifying ways on how to
achieve them
10.It is the characteristics of an effective plan where it targets a particular area of
improvement.

• Management planning  Assignable

• Identify goal-related tasks  More
• Determine contingency plan  Less
• Identify resources Planning  Planning
• Set Objectives
 Short-term plan
• Long-term plan
 Time-related
• Measurable
 Specific

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