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Key elements of financial planning

What are the key elements of financial planning? This article covers everything you need to know to determine your vision and objectives.

What is financial planning?

Financial planning is the task or steps followed to achieve the organisation’s strategic goals. Organisations often develop their plan after determining their vision and objectives. The plan outlines the activities, resources, equipment, material, and timeframe that are needed to achieve the objectives.

The financial plan validates the business plan by confirming that the objectives and goals are financially achievable. It also supports the CEO in setting financial targets for the organisation and in some cases, might be used to reward staff, for meeting objectives, within the budget provided.

Elements that contribute to the success of the financial planning process

Determine resource requirements

Organisations need physical, human, financial, and informational resources to achieve their strategic and financial objectives.

An organisation must therefore understand and determine the availability of its resources, when and how they will be used, and the expected outcomes of doing so.

This involves evaluating the physical, human, financial, and informational resources that are available to complete the required activities and associated tasks. What are the monetary costs of resources?

Will they be available when needed? The long-term strategy should include a clear framework for planning and allocating resources to ensure that the right resource is available to support the strategic plan at the right time.

Resource allocation

For the plan to succeed, the organisation must also understand how resource allocation affects outcomes because this gives you an idea of the need to provide the resources and the goals they are linked to. Set clear boundaries when allocating scarce resources to support short-term and medium-term plans.

For instance, the budgeting process plays a key role in allocating resources. Once the objectives are prioritised, the organisation assesses and quantifies both financial and non-financial resources. Resources are assigned to acquire and manage the inputs to achieve stated objectives.

Thus, the first part of the planning process requires executives to understand which resources they require, compare this with what they have available, and then make operational decisions on what they need to do to achieve their business goals.

Assess and validate costs

The next step is to assess and validate costs. How is this done?

Budget planning enables organisations to assess and validate costs. Consider historic cost records, cost formulas, changes in operating conditions, and future business and market conditions.

Two methods for assessing and validating costs are the following:

  1. cost estimating
  2. cost budgeting

Cost estimating is a predictive process. It helps organisations to quantify, cost, and price the resources according to the scope of an investment option, project, or activity.

Cost budgeting allocates estimated costs into cost accounts, against which cost performance is measured over time. Cost budgeting forms the baseline for cost control.

Finally, cost control helps organisations to measure variances against the baseline and to take effective corrective action to minimise costs.

There are potential risks (associated with the budget) that need to be identified and managed.

Identify and manage risks associated with the budget

Risks associated with budgeting include:

  • inaccuracy, rigid decision-making
  • gaming the system
  • over-reliance on financial outcomes.

Challenges and risks associated with the PBF

Now that we have looked at the process, make sure there is room in the PBF process to highlight and mitigate risk. Like most business processes, PBFcomes with challenges and risks – the most common of which are described below.

Integrating planning, budgeting and forecasting

Most organisations fail to integrate the PBF process effectively with the corporate strategy. This leads to risks such as misguided decision-making, and lack of focus and alignment.

Clarifying the decision-making hierarchy

The PBF process fails when there is a lack of clarity about where the decision-making responsibility sits in the organisation’s hierarchy. A clear decision-making hierarchy fosters inclusive processes, supported by executive engagement.

Applying PBF process discipline

Most organisations lack a proper mechanism to monitor and manage forecast quality. Too often, organisations change the PBF process in an ad hoc manner. Lack of proper forecasting skills, with poor processes, leads to a faulty PBF system.

Capitalising on technology

Many businesses still rely heavily on spreadsheets to collect, aggregate, and analyse data. Low, or slow, adoption of technology has led to slow and erroneous forecasting.

If you’d like to learn more about financial planning, check out the full online course, from FutureLearn, below.


  1. Is the budgeting process still fit for purpose? [PDF]. Palladium; 2015 Aug. Available from:
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Financial Analysis for Business Performance: Planning, Budgeting, and Forecasting

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