Practical Financial Policy and Business Planning in an Organisational Context — Part II

The second part of this article continues the analysis of business planning by dealing with the pressures on a business to make use of planning down that may result from the implementation of financial policy (described in Part I). Planning down implies centralised policy direction and control, requiring operational activities to achieve levels of performance set for them. This is then contrasted with planning up, in which divisional and operational activities are able to exercise greater influence in the formulation of their own policies and objectives. Under this approach the corporate centre has to balance the forecasted financial consequences in the annual capital budget, aggregating and reconciling the various proposals it receives, using guidelines or criteria for resource allocation, rate of return and cash flow. The article concludes by comparing the two approaches and their relative advantages and disadvantages.