A Strategic Framework for Profit Planning: Concepts, Systems, and Structure

Abstract

A framework for providing a long-term strategic perspective for profit planning exercises is suggested. The recommended corporate policy guidelines spell out strategic planning parameters, e.g., a) future external environment, regulatory policies, end-user operations, past performance, etc., which are likely to have a substantial bearing on the organization's planned operations and b) the desired level of performance, by way of tentative financial and nonfinancial targets. These guidelines (translated in regional or product-group terms) provide the basis for formulating draft budgets which are then analysed and settled on the basis of the original guidelines. Recommendations are made relating to the nature and content of such guidelines, the iterative process of budget formulation and settlement, and development of contingency plans. A structural back-up is provided by way of quarterly Policy Review Committee meetings to review the initial planning assumptions. An external environment scanning and information system is suggested for providing the required data and information for updating the assumptions and identifying the policy and tactical shifts necessary for achieving the original financial and non-financial targets.