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Top Pitfalls of Financial Planning

Here are some financial planning pitfalls to avoid.

While there are a wide variety of resources available to companies to help with the financial planning process, there are still several pitfalls that can trip up even the most experienced CFO or financial analyst. Here are some of the most common.

Finance runs it all: This pitfall is most common among organizations that do not have a strong strategic planning process outside of the finance department. Without a solid strategic planning process outside of finance, other stakeholders might think their voices will not be heard during the planning process. Organizations can actively solicit input from other areas and hold strategy sharing sessions to improve objectivity and transparency.

Information overload: It is not always productive to request a lot of information during the planning process. Decision makers can be overwhelmed by data and implement plans based on the wrong information. Financial planners should not let themselves get bogged down by numbers, and keep the information they request to the basics.

Manual manipulation of information: Manually managing information is not only resource intensive, it also exposes the financial planning process to human error. When there's a manual planning process, planning models are typically based on business as usual, and projected scenarios can easily fall apart. Having a central computerized repository for information can put an organization in a better position to plan for the future.

Using the wrong tools: Using a program or software package that is not designed to aid with financial planning can have more negative results than manipulating the data manually. These tools can limit planning to resources available only within the company, or omit other factors that can lead to better planning. Planners should create appropriate constructs to support effective decision making and distinguish relevant risk factors and provide guidance.

Budget and planning conflation: Organizations are sometimes prone to conflating the planning and budgeting process, which provides a missed opportunity to gain strategic insight about affordability. This can lead to a gap between strategic planning and execution. Keeping these processes separate allows organizations to optimize their strategic planning by providing a wider range of guidance.

Inappropriate analysis: Once information has been collected, some organizations do not properly analyze the data, whether by unequally weighting certain figures, distorting single-point forecasts or using the same criteria to evaluate all the information. If this occurs, financial planning decisions will be made based on incomplete information, which can have significant adverse impacts on a company.

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