Describe four contributions that the finance function can make to the strategic planning process.

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The process begins with an assessment of the organization's resources. Principal among these are its finances. This includes cash reserves, free cash flow, unused debt capacity, stock price (if it is a publicly traded for-profit business), and credit rating. There also should be some commentary about the strengths (or not) of the organization balance sheet.

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When the process moves on to the assessment of the external environment, the finance department may have something to say about the financial strengths and weaknesses of the organization's competitors. It also can offer some general comments about trends in the markets for debt and equity, as well as their implications for the organization's cost of capital.

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Wherever possible, the finance department assists in assigning monetary values to all the activities related to the strategy.

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In many cases, good financial management will perform "scenario analyses" of a strategy and its related financial flows, taking into account different possible success rates for the strategy, different environmental circumstances (economic trends, legal mandates), and different competitor strategies.

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As it comes to understand the short and long-term financial effects of the proposed strategy, the finance department must determine whether the organization can afford an investment in it. Does it have, or can it arrange to have, the funds needed to cover both the working capital and investment capital called for by the strategy?

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The responsibilities of the finance department continue as the strategies are being implemented. The financial performance of each strategic project is monitored to ascertain whether it continues to justify the capital invested in it. Are the original projections being met? Is it on course to return a profit that will cover the cost of capital? Have there been changes in the availability and cost of the capital on which the organization is relying? More or less capital may be available, at a higher or lower cost. This may prompt the organization to reduce or eliminate certain strategies, to invest more in other strategies, or to add entirely new strategies.

Describe Four Contributions That the Finance Function Can Make to the Strategic