CMA Exam: Planning & Budgeting Question 1

“Don’t judge each day by the harvest you reap but by the seeds that you plant.” Robert Louis Stevenson

The Question

All of the following are characteristics of the strategic planning process except the:

A) Analysis of external economic factors.
B) Analysis and review of departmental budgets.
C) Emphasis on the long run.
D) Review of the attributes and behavior of the company’s competition.

The Analysis

The question is asking  about the characteristics of the strategic planning process. Before we can answer this question, we need to understand what strategic planning is and why it’s important.

The first phase in business planning is done on a long-term basis, called Strategic Planning. By long-term, we refer to 5 years or longer. By nature, strategic plans are broad and general based on the objectives of the organization. This type of planning is performed by senior and top management.

In contrast, Tactical Planning, the second phase in business planning, looks at a 1 to 5 year horizon. This type of planning is designed to implement parts of the overall strategic plan, and is carried by top and middle management.

Lastly, Operational Planning, the third phase in business planning, is concerned with short-term plans, usually 1 year or less. Operational plans are developed from the tactical plans and carry financial figures with them in form of budgets. Middle and lower management are in charge of developing operational plans that will drive the day-to-day activities of an organization.

In summary, the short-term operational plan drive the day-to-day activities to meet the objectives of the tactical plan set out by top management. By achieving the objectives of the mid-term tactical plan, the organization will meet its long-term strategic plan formulated by senior management.

This is why it’s critical for organizations to begin their planning process with the long-term strategic plan, as this plan is the basis of all other levels of planning throughout the organization.

The Answer

A) Analysis of external economic factors.

External economic factors are analyzed at the strategic planning level as it involves looking at opportunities and threats an organization will face in the long-term. This is not the correct answer.

B) Analysis and review of departmental budgets.

As I have stated above, the type of planning that includes budgets is the short-term operational plan. Because this is not a characteristic of strategic planning, this is the correct answer. 

C) Emphasis on the long run.

From the three levels of planning, strategic planning sole focus is on 5 years or longer. This is not the correct answer.

D) Review of the attributes and behavior of the company’s competition.

Competition is one of the external factors that senior management analyzes during the strategic planning process because it is part of the environment in which an organization will operate in the long-term. This is not the correct answer.

 

If you have any questions about this post, feel free to post them using the comments section below. I will reply as soon as possible.

Thank you,
Nathan

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