If you're working by yourself, it mostly doesn't matter if you make stuff up as you go along, because the only person you're accountable to is YOU.
However, if you're working in a team (anywhere from 2 up), proper planning is essential for maximum effeciency and minimum trouble.
Example: Let's say you're a brilliant game designer, and you've come up with a plot that involves twelve heroes on a quest. You describe these heroes in painstaking detail to your buddy, a 3-D artist, who goes off and renders eight directional animation loops for walking, running, and fighting for each character- 1152 frames in all.
Just as the last frame is rendering on the last character, you realize it would make the story better if all your characters had wings, so they could battle in the air as well as on the ground. You ring your friend to tell him about your great idea, and ask when the new graphics can be ready... In the background, you hear muffled cursing, the sound of a monitor crashing to the floor, and finally, the >click< of a phone hanging up...end of project.
Seriously, though- the biggest morale killer for any team is having to do work over, or having wasted work because someone up the chain can't make up their mind before the work starts. That's why, at the company I work at (a large media conglomerate), nothing starts until everyone agrees in writing what the end result is going to be. You may not be a multi billion dollar media conglomerate, but the same principle applies to every group of creatives working to a common goal.
Returning to my first point- if you're on your own, then you can work as you please. However, then you run the risk of internal inconsistencies and plot holes in your own story. Nothing ties up a story like a little clue at the beginning "paying off" to a big finish-- likewise, nothing ruins a story more than a writer who pulls stuff out of their ass to resolve loose ends.
That's why I recommend you write, at the very least, an outline of where your story starts, where it travels, and where it ends. When it makes sense, build around that outline, and you'll always have a cohesive tale.
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marc siry
century city, usa