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Perceiving the Value of Business Planning

Author

Listed:
  • Anne Chwolka

    () (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Matthias Raith

    () (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

Abstract

The value of business planning has been subject to much controversy over the past years. In-deed, there appears to be an escalation in empirical research, with opposing implications and diverging approaches to teaching entrepreneurship. Most empirical studies have taken an ex-post, comparative view of the relationship between planning and performance. In this paper, we introduce an ex-ante perspective by formally characterizing the decision of the nascent entrepreneur whether or not to start a business and whether or not to plan beforehand. We focus on the evaluative function of business planning, define the information value of busi-ness planning, identify its influencing factors, and show how costs of business planning de-termine the quality of planning. We find as the crucial aspect of good evaluative business planning that it helps to identify and to sort out poor business ideas before they reach the mar-ket. We contrast our results with conclusions drawn from empirical studies that have been critical of planning. In a setting in which, by construction, planning has a positive value, we question several popular negative implications by showing how they result from an incom-plete sample of entrepreneurs.

Suggested Citation

  • Anne Chwolka & Matthias Raith, 2009. "Perceiving the Value of Business Planning," FEMM Working Papers 09017, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  • Handle: RePEc:mag:wpaper:09017
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    File URL: http://www.ww.uni-magdeburg.de/fwwdeka/femm/a2009_Dateien/2009_17.pdf
    File Function: First version, 2009
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    More about this item

    Keywords

    Business plan; Start-ups; Entrepreneurship; Decision Making; Uncertainty;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy

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