Budgeting Planning & Forecasting
Planning, budgeting, and forecasting can be considered an art and science at the same time. It takes a certain level of understanding specific business operations; industry triggers, market conditions and strategic objectives to nail down a well-defined strategic plan, annual budget, and related forecasting.
At a high level, planning or strategic planning typically extends beyond a year and has typically been a three-year or five-year strategic plan. Budgets created by many organizations and agencies are for the following fiscal year and forecasts are done for the current fiscal year. These larger planning processes must incorporate Management, Tactical, and Technology & Human Capital elements in a coordinated and seamless manner in order to deliver maximum benefit to the organization or agency.
- Communicated Roles & Responsibilities
- Standard Processes & Policies
- Business Ownership
- Integrated Processes
- Top-Down Target Setting
- Realistic Rolling Forecasts
- Risk & Uncertainty Management
- Focus on Materiality & Volatility
- Driver-based Modeling
- Implementation of Best in Class Technology
- Innovative, Supportive Organizational Culture
- Budget & Forecast Accuracy
Planning, also known as strategic/long-term planning or “strat-plans” is done with the intention of setting longer term, overall goals for an organization or agency. They also include strategy maps to ensure these goals are achieved. For example, if an organization goal is to reduce the reliance on outside consulting services by 20% over the next three years, the strategic plan will set a target and suggest methods for converting contractors and consultants to employees as well as possibly increasing recruiting efforts to bring on more full-time employees.
Sometimes budgeting is interchangeably referred to by finance and accounting personnel as planning. It is not incorrect to call the budget “a plan” once the organization understands this budgeting is a strictly an annual view of an organization’s financials goals whereas the strategic plan is a longer time horizon.
Typically, the budget starts with a baseline of the prior year’s actual revenues and expenses or sometimes a mixture of actuals and the latest forecast. It’s often a detailed, hard look at the numbers that take into consideration organizational goals handed down from the (strategic) planning process, operational targets for the current year, current and further economic, demographic or other external considerations. Typically, this exercise goes down to the account and department level.
For example, if revenue was $50 million last year, and you want a 15 percent increase and expect a 7 percent increase in direct cost of goods or services, a detailed financial budget process would outline how this will be achieved across revenue and cost accounts over the one-year time horizon. Budgeting professional may need to go down to a particular product, service, and sales channel level to flush out how to achieve this objective.
Forecasting is the Swiss-army knife element of the entire planning, budgeting, and forecasting exercise. The aim is to refine, fine-tune and adjust future budget amounts based on the most recent operational, economic and industry trends or happenings. Forecasting is usually performed at a monthly or quarterly interval. It is part of monitoring activity against goals and adjusting the forward outlook (revenues, expenses, and strategies) and guidance based on the most recent business circumstances. It is essential for organizations and agencies to be continually monitoring goals to take actionable steps to ensure it meets or exceeds budget and strategic objectives. These are vital functions in any organization to continue operational excellence and growth but requires people, process, and technology to get done.