Budgeting and forecasting has been done for so many years that some organisations have forgotten why they even bother. Surely finance staff could better spend their time analysing their actual performance?
But therein lays the first benefit of planning. It provides a benchmark against which to measure actual performance. Is a revenue figure of $1m good or bad? Setting a clear standard before the fact enables meaningful analysis of how the company has performed after the fact.
A second benefit of planning is the process of setting and agreeing targets. Divisional managers are able to set their targets for revenue and spend and have them signed off by their managers. This encourages the divisional managers to plan the year ahead. It also makes the divisional managers accountable and their performance objectively measureable.
Planning in advance also helps managers control their costs. Training is a classic example – with a set budget managers are able to set training priorities to ensure the budget is met. This doesn’t just mean avoiding overspend, it also means avoiding underspend to ensure the company continues to invest in its employees.
The above benefits are briefly stated, but they are all powerful reasons to plan – they can enable staff to align their targets with the company’s strategy and provide a basis for objectively measuring performance.