Budgeting & Forecasting

Overview

Budgeting and forecasting are important to the development of effective business plans. Budgeting describes a process, typically done annually or quarterly, that begins with an analysis of historical trends for financial performance. These analyses can be used to develop budgets for the upcoming month, year, or quarter.

Companies can adjust their budgets to accurately assess future expectations. This process is called forecasting, re-forecasting, or rolling forecasting. Companies rely on budgets and forecasts to make financial decisions, to identify financial sources, and to develop a timeline to raise funds. Typically, a company's accounting officer or department will develop budgeting and forecasting models.

How It Works

Budgeting and forecasting begin with a two stage process. The first stage identifies the principles of activity-based budgeting. The second stage prepares assumptions for the forecast model. These two stages are followed by projections for employee headcounts, employee costs, company benefits, expectations for depreciation, and discretionary expenses. Collected data is then analyzed in order to create a forecasting model. Budget and forecasting analysts might also choose to conduct frequent studies.

Benefits

Budgeting and forecasting models are essential for company growth. Models help organizations establish and evaluate expectations for goals, sales margins, man power, and cost expectations.

There are vast benefits to companies which follow budgeting and forecasting process. This process is exclusively optimized for the mid-sized companies for the growth. Budgeting and forecasting allows you to identify the goals and objectives of the organization from sales, margins, labor, and cost levels. Companies will also be better equipped to plan their projects in accordance with a specific budget.

Budgeting and forecasting software is available to help analysts streamline their processes of evaluating, customizing, and budgeting. Software provides templates for personal planning, expenses, and sales. Software can help an organization increase the frequency of their analyses.

Costs

Companies might wish to conduct their budgeting and forecasting models internally, or they may want to work with a consultant. Typically, a consultant charges $4,000 for a five day session.

Software costs vary by functionality and by what a business needs. Prices can range from $24 to $300.

Timing

Budgeting and forecasting models can be prepared monthly, quarterly, or annually. Employee and business development returns require monthly preparation. A company may prepare quarterly reports for financial performance, contract performance, and sickness rates. Reports on business health, personnel, and sites may be prepared once or twice a year. Annual budget forecasts might review corporate plans for cost reduction, business development, research investment, capital investment, safety, and human resources.