Difference Between Strategic and Financial Planning

Strategic vs Financial Planning

Difference between strategic and financial planning is that financial planning is about planning for the finances or use of cash flows over a period of time while strategic planning is about planning the road-map of the organization. Financial planning is done in order to achieve the set financial objectives. Then, strategic planning is setting the plans for the future considering the vision and mission of the company. A company’s success depends on the effectiveness of this planning.

What is Financial Planning?

Financial planning refers to the process of managing funds. A financial plan indicates the cash inflows and cash outflows within a specific period. A financial plan is created in order to achieve the financial objectives of the organization.

In most of the organizations, there is a separate finance department in order to plan for the financial activities. The finance department is responsible for preparing financial statements such as the income statement, balance sheet and cash flow statement at the end of a specific period. Budgets are prepared by referring to these statements .

Budgeting is an integral part of financial planning. A budget can be referred as a predefined estimate for a future period. Eg: Cash budget, sales budget, production budget, etc. Normally budgets are prepared with compared to the previous years’ company performances. Budgeting is required in planning for the future projects.

What is Strategic Planning?

In the modern competitive business environment, it is very much essential to create a strategic plan for the survival of the business organization. The main purpose of strategic planning is to establish the direction or vision for the organization and then the resources need to be aligned with the goals of the company.

Strategy provides,

• a road map for the company to achieve competitive advantage.

• a game plan for pleasing the customers.

• a prescription for doing business.

• a formula for attaining long-term stand out market place performance.

Strategic planning can be considered as a step by step process as stated in the below diagram.

Difference Between Strategic and Financial Planning

The first step is to develop the strategic vision which defines the ultimate goal of the organization. According to the vision strategic objectives and financial objectives are set. Then, the next step is to crafting a strategy in order to achieve the stated objectives and vision and then implement the strategy. After that monitoring is required in order to evaluate the performance and make the necessary adjustments. Finally, according to the different conditions the stages of the process can be revised.

Strategic planning can be identified as an organizational management activity that is used to set priorities, focus on energy and resources, ensure that employees and other stakeholders are working towards common goals, strengthen the operations, get the expected results. It is kind of a collaborative effort of all the employees within the organization and therefore success depends on their contribution towards achieving the goals of the organization.

What is the difference between Strategic and Financial Planning?

• The strategic plan provides the direction towards achieving the strategic objectives (vision of the company) while the financial plan shows the direction towards achieving financial objectives.

• A financial plan is required to manage the cash flows within the company while strategic plan is required to align the resources according to the ultimate objectives of the company.

• A strategic plan is a step by step process which involves five steps as creating a strategic vision, setting the objectives, crafting a strategy, implementing and executing the strategy, monitoring the success of the strategy and revising the steps according to the changes in the business environment.