What is the financial planning process? 

Planning is the process of organizing information for making decisions about the future.  Planning is generally taught as a systematic process that addresses the following questions. 

This general process can be adapted and used to address virtually any substantive problem such as drainage, stormwater management, flooding, water quality, watershed planning, or public finance.  For example, George Raftelis, a well-known utility financial consultant, describes a six-step capital and financial planning process that is an adaptation of this general process (Raftelis, 1989).

  1. Evaluate economic factors affecting capital and financial planning;
  2. Develop a comprehensive facility master plan;
  3. Determine and schedule capital requirements and evaluate alternative financing methods;
  4. Determine annual operating and capital revenue requirements;
  5. Calculate fees and charges; and
  6. Evaluate impact on customers.

The steps of establishing goals and objectives and collecting data are implicit in Raftelis' version of the planning process.  His sixth step, evaluate impact on customers, is a specific version of the general steps of evaluating and monitoring alternatives and determining whether original goals and objectives are pragmatic.

Figure 1:  Capital and Financial Planning Process (adapted from Raftelis, 1989)

Figure 1 presents a more detailed version of Raftelis' capital and financial planning process.  Although the historical roots of this system are in water supply and wastewater planning, the steps are directly applicable for stormwater management, regardless of whether the emphases of the plan are drainage, flood control, stormwater management, water quality management, or watershed management.  The point is to assess systematically how different alternatives achieve goals and objectives and to identify the best alternatives relative to a set of criteria.  In other words, the challenge is to answer a set of deceptively simple questions in a rational, systematic way.  The adverb deceptively is appropriate here, for each of the questions addressed at each step in the process is in actuality very complex.  For example, the factors that affect capital requirements (Step 1) include customer (i.e. public) demand, economic development, environmental regulations, declining federal assistance, deteriorating infrastructure, improved service quality, and utility and community philosophy.  Choices about goals, objectives, and alternatives require consideration of all these factors, many of which, when considered independently, point to different answers.  Financial planning is, therefore, by definition a multi-faceted activity that requires tradeoffs among competing goals and objectives.

Financial planning processes are above all pragmatic exercises that involve "satisficing" solutions to real dilemmas.  It is often the case, in fact, that revenues required to meet capital "needs" simply are not available or would require charges, fees, or taxes that are politically unacceptable.  As such, there typically are no single best solutions.  There are instead solutions that work given the priorities and concerns of the people involved in and affected by the planning processes.