Rho Ltd.’s financial plan sets a separate figure for what each of its divisions should achieve in the coming year. At the year end, the board compares each division’s results with its figure and sees which divisions fell short. Which importance of financial planning does this show?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → It makes the evaluation of actual performance easier by spelling out objectives for business segments.
Option (1) It helps in forecasting what may happen in future under different business situations. — Incorrect. Forecasting means preparing plans for different possible situations, such as 10%, 20% or 30% sales growth. Rho Ltd. is judging results already achieved.
Option (2) It helps in co-ordinating business functions, such as sales and production, through clear policies. — Incorrect. Co-ordination means making functions like sales and production work together. The board is checking each division’s result instead.
Option (3) Its detailed plans of action reduce waste, duplication of efforts and gaps in planning. — Incorrect. This is about saving effort while the work is done. Nothing in the case shows waste or duplication being cut.
Option (4) It makes the evaluation of actual performance easier by spelling out objectives for business segments. — Correct. Each division is a business segment with its own figure. At the year end the board compares results with these figures, so evaluation of performance becomes easier.
NCERT (2026-27 Edition): “Importance … (i) It helps in forecasting what may happen in future under different business situations. By doing so, it helps the firms to face the eventual situation in a better way. In other words, it makes the firm better prepared to face the future. …” “Importance … (iii) If helps in co-ordinating various business functions, e.g., sales and production functions, by providing clear policies and procedures. |