Strategic planning is the process of determining long-term plans and programs and allocating resources for future years. It involves analyzing proposed new programs and ongoing programs to ensure effective and efficient implementation of strategies. Strategic planning is more systematic compared to strategic formulation, which focuses on determining new strategies and goals without a systematic approach.
Benefits & limitations Strategic Planning
Strategic planning offers several benefits, including providing a framework for budget development, facilitating management development, forcing management to think long-term, and aligning management with the company's strategy [[2]]. However, there are also limitations to strategic planning, such as the risk of it becoming a mere formality, the danger of delegating the task to lower-level staff, and the significant time and cost involved.
Characteristics Strategic Planning
Strategic planning is most important for top management, and it is crucial for organizations that are large, complex, and facing uncertainty in the future. It requires flexibility to adapt to changing conditions, and typically covers a period of 5 years, although it can also be done for a shorter period, such as 3 years.
Analyzing Proposed New Programs
When analyzing proposed new programs, companies should be proactive or reactive to business developments, considering trends, competition, and more. Ideas can come from various sources, including lower-level staff and the CEO. Testing the viability of an idea can be done using techniques such as Net Present Value (NPV) and Internal Rate of Return (IRR). However, there are cases where NPV and IRR may not be applicable, such as when the proposal is clear, the estimates are uncertain, or there are no feasible alternatives.
Analyzing Ongoing Programs
There are two methods that can be considered when analyzing ongoing programs: value chain analysis and activity-based costing. Value chain analysis focuses on building linkages between value-creating activities, from raw materials to the final product and delivery to customers. It aims to increase efficiency by reducing costs or increasing revenue. Activity-based costing (ABC) is an alternative costing method that calculates costs based on cost drivers and activities, resulting in more accurate cost calculations and better pricing.
Strategic Planning Process
The strategic planning process typically begins in the spring and ends in the fall. It involves reviewing and updating the previous year's strategic plan, making decisions on assumptions and guidelines, initiating the new strategic plan, conducting analysis, implementing new steps for the plan, and concluding with a final review and approval.