12

Business Finance
(Quarter 1-Module 3/Week 3)

FINANCIAL PLANNING PROCESS

Department of Education
SDO- City of San Fernando (LU)
Region 1
 12
Business Finance
(Quarter 1-Module 3/Week 3)

FINANCIAL PLANNING PROCESS

MOST ESSENTIAL LEARNING COMPETENCY

 Identify the steps in the financial planning process (ABM_BF12-IIIc-

d-10)

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Guide to Parents:
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Guide to Learners:
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3. Work on the activity sheets independently and BE HONEST at all times for you to maximize
learning.
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the designated area/teacher for checking.

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3. Use alcohol or hand sanitizer when needed.
4. Practice social distancing to stop the spread of COVID-19 virus.

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 Business Finance Self-Learning Module has been developed for you to be
equipped with the knowledge of business and finance. It prepares you to work in
corporate and government financial management, banking, and financial planning.
And because finance revolves around planning and analysis, studying finance and
becoming more financially literate enables you to make better personal financial
decisions in the future.

Business Finance Self-Learning Module attains all the competencies outlined in

the K to 12 curriculum guide. Each lesson is packed with varied strategies and
activities and applies different instructional approaches to ensure that lifelong
learning is achieved. Furthermore, this module includes the following components:

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 Introduction
This module has been developed for you to be equipped with the knowledge of
business and finance. It prepares you to work in corporate and government
financial management, banking, and financial planning. And because finance
revolves around planning and analysis, studying finance and becoming more
financially literate enables you to make better personal financial decisions.

Besides improving a person's chances, Finance can also help you hone your
critical-thinking and problem-solving skills, which you can then use to make
sound financial decisions.

Therefore, this module will help you to add value to your learning phase by
proper understanding of time value of money; taking better financing decision;
being aware of the valuation of financial resources; understanding the requirement
of evaluation of investment opportunities; able to analyze each and every
opportunity cost; putting efforts for maximization of wealth; acquiring maximum
return of your investment; increasing your analytical skills; managing their
personal and professional life in a better way; deep analysis of sources of funds;
understand the investors life cycle to choose right investment time; understand
key success factors of financing and know how to get their cost capital and analyze
it.

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 What I Need To Know
Learning Competency:
 Identify the steps in the financial planning process (ABM_BF12-IIIc-d-10)
Learning Objectives:
1. Explain the importance of planning;
2. Differentiate between strategic planning and tactical planning;
3. Enumerate and apply the steps in Planning;

What I Know

Instructions: Read the following questions carefully and encircle the letter that
best describes the answer.

1. It is an important aspect of the firm’s operations because it provides road

maps for guiding, coordinating, and controlling the firm’s actions to
achieve its objectives.
a.) Managing
b.) Planning
c.) Manipulating
2. To graduate from a university is an example of
a.) Long term goal
b.) Short-term goal
c.) Combination of short and long term goal
3. Refers to the variable and fixed costs needed to run the operations of the
company but are not directly attributable to the generation of sales.
a.) Management budget
b.) Operations budget
c.) Absolute budget
4. Responsible for the allocation of the given budget to purchase the
necessary materials to continue business operation.
a.) Production team
b.) Budgeting team
c.) Marketing team
5. Responsible for the production of campaign paraphernalias like posters
and brochures to catch the attention of the target customers.
a.) Creative team
b.) Production team
c.) Budgeting team

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6. Responsible for the presentation that would persuade target customers.
a.) Marketing team
b.) Budgeting team
c.) Creative team
7. A person employed to manage the personal finances of clients.
a.) Production planner
b.) Marketing planner
c.) Financial planner
8. These are a set of goals that lay out the overall direction of the company.
a.) Long-term financial plans
b.) Short-term financial plans
c.) Primary financial plans
9. Part of ___________________ include setting the sales forecast and other
forms of operating and financial data
a.) Long-term financial plans
b.) Short-term financial plans
c.) Primary financial plans
10.It is an organization's process of defining its strategy, or direction, and
making decisions on allocating its resources to pursue this strategy. 
a.) Creative planning
b.) Tactical planning
c.) Strategic planning
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LESSON PROPER

What’s In

Planning-is an important aspect of the firm’s operations because it provides

road
maps for guiding, coordinating, and controlling the firm’s actions to
achieve its objectives

Importance of Planning
1. Planning increases the efficiency of an organization;
2. It reduces the risks involved in modern business activities;
3. It facilitates proper coordination within an organization;
4. It aids in organizing all available resources;
5. It gives a right direction to the organization;
6. It is important to maintain good control;
7. It helps to achieve the objectives of the organization;
8. It motivates the personnel of an organization;
9. It encourages manager’s creativity and innovation;
10.It helps in decision-making.

Long-term goal- (over five years) may take several years to accomplish and, as a
result, require longer commitments and often more money. 
 These are a set of goals that lay out the overall direction of the company.
 A long-term financial 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

Short-term goal- is something you want to do in the near future. The near
future can mean today, this week, this month, or even this year. A short-term
goal is something you want to accomplish soon.

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  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.

What’s New
Strategic Planning -  is an organization's process of defining its strategy, or
direction, and making decisions on allocating its resources to pursue this
strategy. It is here that priorities are set. It may also extend to control
mechanisms for guiding the implementation of the strategy. 

The Five Stages of the Strategic Management Process

1. Clarify Your Vision-The purpose of goal-setting is to clarify the vision for
your business. This stage consists of identifying three key facets: First,
define both short- and long-term objectives. Second, identify the process of
how to accomplish your objective. Finally, customize the process for your
staff, give each person a task with which he can succeed. Keep in mind
during this process your goals to be detailed, realistic and match the
values of your vision. Typically, the final step in this stage is to write a
mission statement that succinctly communicates your goals to both your
shareholders and your staff.
2. Gather and Analyze Information-Analysis is a key stage because the
information gained in this stage will shape the next two stages. In this
stage, gather as much information and data relevant to accomplishing
your vision. The focus of the analysis should be on  understanding the
needs of the business as a sustainable entity, its strategic direction and
identifying initiatives that will help your business grow. Examine any
external or internal issues that can affect your goals and objectives. Make
sure to identify both the strengths and weaknesses of your organization as
well as any threats and opportunities that may arise along the path.
3. Formulate a Strategy-The first step in forming a strategy is to review the
information gleaned from completing the analysis. Determine what
resources the business currently has that can help reach the defined goals
and objectives. Identify any areas of which the business must seek
external resources. The issues facing the company should be prioritized by
their importance to your success. Once prioritized, begin formulating the
strategy. Because business and economic situations are fluid, it is critical
in this stage to develop alternative approaches that target each step of the
plan.
4. Implement Your Strategy-Successful strategy implementation is critical to
the success of the business venture. This is the action stage of the
strategic management process. If the overall strategy does not work with
the business' current structure, a new structure should be installed at the
beginning of this stage. Everyone within the organization must be made
clear of their responsibilities and duties, and how that fits in with the
overall goal. Additionally, any resources or funding for the venture must
be secured at this point. Once the funding is in place and the employees
are ready, execute the plan.
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5. Evaluate and Control- Strategy evaluation and control actions
include performance measurements, consistent review of internal and
external issues and making corrective actions when necessary. Any
successful evaluation of the strategy begins with defining the parameters
to be measured. These parameters should mirror the goals set in Stage 1.
Determine your progress by measuring the actual results versus the plan.

Tactical Planning - occurs after a business, team, or individual has created a

strategic plan that outlines general goals and objectives. A tactical
plan describes the steps and actions that must be taken to achieve the goals
from the strategic plan.

***Tactical plans support strategic plans by translating them into specific plans
relevant to a distinct area of the organization. Tactical plans are concerned
with the responsibility and functionality of lower-level departments to fulfill
their parts of the strategic plan. Tactical planning is developed by those who
deal with getting the work done, day by day. They draw up a tactical plan so
they know what to do, when they need to do it, and this will help them deal
with the “how” part of the plan.

Example:
Assume for a moment your company sells insurance products in a large
metropolitan area. The tactical marketing plan for your insurance company
must outline, step by step, each marketing component needed to meet the
goals and vision of your company’s strategic plan. For example, if you
decide one of the best ways to reach your target consumer is TV advertising,
then the tactical plan needs to carefully spell out the specifics of the TV
campaign. Steps in developing this plan include, but are not restricted to,
deciding on an appropriate message; arranging for the production of the
commercial; deciding what channels to air the commercial on and when;
and following up with potential customers who respond to the campaign.

What Is It

Steps in the Planning Process

1. Being Aware of Opportunities and Strengths
Business firms analyse both internal environment and external
environment. Analysis of the internal environment reveals organisation’s
strengths and weaknesses. Analysis of an external environment includes the
factors which are characterised as technological, economic, political,
international and natural.
Analysis of these factors reveals the opportunities offered by the external
environment and threats posed by the external environment. Thus the
business firms should be aware of the opportunities and strengths.
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For example, increase in middle income group is an opportunity for
consumer goods industry. Business firms can plan to match the organisation’s
strengths with the environmental opportunities, thus knowing the
opportunities and strengths is the first step of planning.

2. Establishing Objectives and Goals:

Business firms have to formulate objectives. Objectives are the ends
towards which activity is aimed. They also represent ends towards which
organising, staffing, directing and controlling are aimed at. The organisations
formulate objectives not only for the entire enterprise but also for each
department, unit and sub-unit. The departmental objectives are related to the
enterprise objectives and strategically contribute to achieve them.
Objectives provide direction to the organisational plans. Organisational
objectives control the departmental objectives and the sub units’ objectives.
Managers and subordinates formulate the objectives in collaboration by
exchanging their ideas and views.

3. Developing Premises:
The next step is getting acceptance from the employees regarding the
planning premises like forecast, policies etc. Managers also get the acceptance
of others regarding the assumption of the environment. All the managers
involved in planning should have a common understanding about the
planning premises. Forecast is an important planning premise.

Forecasting premises include:

1. What will be the population?
2. What new markets will emerge?
3. What will be the new products?
4. What will be the supply of the competitors?
5. What will be the new technologies?
6. What will be the future prices?
7. What will be the salary levels of employees?
8. What will be the new trends in financial markets?
9. What political factors will affect the business?

4.Determining Alternative Courses:

The managers have to develop alternative courses. There would be several
ways to achieve the predetermined objectives.
The objective of profit maximisation can be achieved through the following
alternative courses:
1.Through forward linkage of the business
2. Through backward linkage of the business
3. Through expansion of the capacity
4. Through diversification
5. Through joint ventures
6. Through mergers and acquisitions

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 What’s More

Evaluationg Alternative Courses

Managers have to evaluate the alternative course. Each alternative course
has to be analysed in terms of its strengths and weaknesses. In addition,
each
alternative should also be analysed in terms of the opportunities for
implementation of the course of action and the threats or challenges posed by
the environment in implementing the course of action. Thus, each alternative
course of action has to be evaluated in terms of strength, weakness,
opportunity and threat (SWOT) analysis.

Selecting a Course
After evaluating the alternative courses based on the SWOT analysis, a
manager has to rank them based on relative strengths and opportunities of
each alternative. The alternative with highest strengths and opportunities and
with the lowest threats and weaknesses would be ranked as number one while
the last rank would be assigned to the alternative course with relatively lowest
strengths and opportunities and highest threats and weaknesses. Then the
manager selects the alternative for which rank number one is assigned.

Formulating Derivative Plans

Managers have to prepare derivative plans after finalising the main and the
basic plan. These plans are essential to support and achieve the basic plan.

Budgeting
The final step is converting the plans and derivative plans into budgets.
The budgets provide clear direction in numerical terms. They also provide
clear programmes to be achieved. These budgets include capital budgets,
financial budgets, material budgets, production budgets, sales budgets,
human resource budgets etc.

Implementing the Plan

This involves putting the plan into action. In order to implement the
actions stated in the plan, managers have to make a series of decisions. A
manager can implement the plan of a firm through the use of authority,
persuasion of policy. Authority is a legitimate form of power that comes with
the position and is not associated with a person. It is often sufficient to
implement relatively simple plans that do not cause a significant change in the
status quo.

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 What I have learned

And to sum up what we have learned, we discussed about the importance of

planning, we differentiated strategic from tactical planning, and enumerated the
different steps in the planning process.
I hope class that what we have learned will give you ideas on your ambition
of putting up a business once you graduate.
Following this page is a Post -test to assess how far you have learned from
this lesson…Goodluck

Assessment

Test I. Multiple Choice

Instructions: Read the following questions carefully and encircle the letter that
best describes the answer.
1. It plays a very important role in achieving the goals of a firm.
a.) Saving
b.) Managing
c.) Planning
2. Planning-is an important aspect of the firm’s operations because it
provides road maps for guiding, coordinating, and ___________ the firm’s
actions to achieve its objectives.
a.) Conditioning
b.) Cooperating
c.) Controlling
3.  It is an organization's process of defining its strategy, or direction, and
making decisions on allocating its resources to pursue this strategy. It is
here that priorities are set. It may also extend to control mechanisms for
guiding the implementation of the strategy.
a.) Tactical planning
b.) Strategic planning
c.) Operational planning
4.Analysis is a key stage because the information gained in this stage will
shape the next two stages.
a.) Formulate a strategy
b.) Implement a strategy
c.) Gather and analyze information

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 5. It occurs after a business, team, or individual has created a strategic plan
that outlines general goals and objectives
a.) Planning
b.) Strategic planning
c.) Tactical planning
6. It describes the steps and actions that must be taken to achieve the goals
from the strategic plan.
a.) Strategic plan
b.) Tactical plan
c.) Control plan
7. It needs to be built into tactical plans to allow for unexpected events.
a.) Developing tactical plans
b.) Flexibility
c.) Executing tactical plans
8. After evaluating the alternative courses based on the __________________,
a manager has to rank them based on relative strengths and
opportunities of each alternative
a.) Formulation of Derivative Plans
b.) SWOT Analysis
c.) Selection of Course
9. They are the ends towards which activity is aimed. They also represent
ends towards which organising, staffing, directing and controlling are
aimed at.
a.) Objectives
b.) Profit
c.) Sales
10. It is an important planning premise.
a.) Saving
b.) Budgeting
c.) Forecasting

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 ADDITIONAL ACTIVITIES

TRUE OR FALSE TEST:

Directions: Write T if the statement is True and write F if otherwise. Write
the letter of your answer on the blank provided at the right side of the test
paper. (10 pts.)

1. Financial planning has specific techniques that will be

effective for every individual and household.
2. Financial literacy is the ability to use skills and knowledge to
make informed money management decisions.
3. Household size is a major influence on personal financial
planning decisions.
4. Inflation reduces the buying power of money. 
5. Financial education is the same as financial literacy.
6. A SPENDING plan is another name for a budget
7. Short-term goals are usually achieved within a year. 
8. Analyzing your current financial position is a part of the first
stage of the financial planning process. 
9. Lenders benefit more than borrowers in times of high
inflation.
10.Opportunity costs refer to what a person gives up when
making a decision.

Essay Question:
1. In your own words, retell and explain briefly the steps in Planning.
2. What is the difference between long-term and short-term goals.
 Answer Key
Practice Exercise 1
True or False
1. F
2. T
3. T
4. T
5. F
6. T
7. T
8. T
9. T
10. T
Practice Exercise 2
Multiple Choice
1. C
2. A
3. A
4. A
5. C
6. B
7. B
8. C
9. A
10. A
Answer Key Pre-Test and Post-Test
Pre-Test: Multiple Choice
1. b
2. a
3. b
4. b
5. a
6. a
7. c
8. a
9. b
10.c
Post-Test: Multiple Choice
2. c
3. c
4. b
5. c
6. c
7. a
8. b
9. b
10. a
11. c

References

Image Sources:
1. https://www.flaticon.com/free-icon/megaphone_314441
2. https://www.flaticon.com/free-icon/objective_1632633
3. https://www.iconfinder.com/icons/1297845/
message_note_noted_notes_report_statement_write_icon
4. https://en.m.wikipedia.org/wiki/File:VisualEditor_-_Icon_-_Open-book-
2.svg
5. https://icon-library.com/tags/writing.html
6. https://freeiconshop.com/icon/edit-document-icon-flat/
7. https://commons.wikimedia.org/wiki/
File:Checklist_Noun_project_5166_yellow.svg
8. https://www.clipartmax.com/middle/
m2H7H7m2d3K9K9N4_illustration-of-a-hand-writing-on-paper-
representing-things-to-do-icon/

Bibliography

Bernstein, Leopold. Financial Statement Analysis, 4th Ed. Illinois: Irwin, 2014.
Brealey, Richard A., Myers, Stewart.C. and Marcus, Alan .J. Fundamentals of
Corporate Finance, 3rd Edition. New York: Mc-Graw Hill Co., 2014.
Cabrera, Elenita B. Management Advisory Services. Manila: Conanan, 2015.

Development Team of the Module

Writer: Jusie C. Apilado, Teacher II

EPS In-charge: Dr. Lorena C. Salvador
Management Team: Dr. Rowena C. Banzon, CESO V, SDS
Dr. Agnes B. Cacap, Chief- CID
Dr. Jose Mari P. Almeida, Chief- SGOD
Genevieve B. Ugay, EPS- LRMS
Hazel JaneB. Libatique, Librarian II
Aurelio C. Dayag, Jr. , PDO II