Direct Benefits of Financial Planning
Financial planning and forecasting have direct benefits—that is, the primary reasons they were
undertaken—and often some indirect and synergistic benefits, which can also be significant.
Starting with the direct benefits, there are five clear benefits to be secured from disciplined
financial planning and forecasting, which are described below.
1. Financial planning provides a clear measurement of management’s performance because
the firm’s actual financial performance can, and will, be compared against the firm’s
planned performance. At the end of the plan, it must be remembered that: • Wall Street evaluates publicly traded firms on their performance to plan/forecast
• CEOs evaluate their managers on their performance to plan/forecast
2. Financial planning generates detailed financial projections of cash flow to determine
future financing requirements and timing.
3. Financial planning provides management a better insight into its business operations and
the expected effect of operational matters on financial performance. Properly used, this
insight can identify potential future operational opportunities and risks.
4. The more uncertain the future, the greater the need for forecasting/planning. The weaker
the firm’s financial or competitive position, the greater the need for forecasting/planning.
5. Financial planning provides a solid benchmark to
• quantitatively explain actual versus plan variances
• quantify the expected effect of economic or operational factors
• identify bad financial planning assumptions or estimates
• continuously refine the financial planning process
