Value and Capital Management: A Handbook for the Finance and Risk Functions of Financial Institutions

Chapter 14Strategic Planning and Performance Management

Strategic planning and performance management together are defined as the process of setting goals, defining actions to achieve the goals, allocating and motivating resources to execute the actions and directing and monitoring performance to ensure successful execution. The strategic part describes which goals are set and how they are to be achieved, the performance management part ensures that resources are allocated and used effectively in reaching the goals.

CFOs run the strategic planning/performance management processes in most banks and insurers. In exercising these responsibilities, CFOs play an important role in value management by helping the company and the business units to define strategy, allocate capital, set targets and drive performance.

This raises a paradox. Given that all CFOs are “doing it,” why is strategic planning rarely “strategic” in practice? Very often, what passes for “strategic” planning is a cumbersome, internally focused, bottom-up process primarily focused on negotiating incentive compensation targets and not on the initiatives which will fundamentally improve shareholder value. Dye and Sibony (2007) paraphrase some of the common symptoms well: “For the better part of a year, (corporate planners) collect financial and operational data, make forecasts, and prepare lengthy presentations…about the future direction of the business. But at the end of this expensive and time-consuming process, ...