Planning budgeting and forecasting
Post date: Apr 19, 2013 6:08:15 AM
Planning, budgeting and forecasting if considered together is a finance function but when planning alone is considered it may be for many areas and functions, often planning is considered to be management function. First let us look at planning alone:
Based on level and time span
Focus of planning may be at different level and it can cover different time span. Each with different level of detail and objective.
To set direction of the organization and path to achieve its objectives as per its vision, organizations make strategic plans. It is based on analysis of where we are right now?, where we want to go/what we want to be? and How to achieve it? There are may approaches to strategic planning: Objective based or vision based, Issue based etc.
Strategic planning process
Collect information from environment
Evaluate success of plan
Make corrections using feedback
Long term plan
Long term plan can provide target and actions for 3 to 7 years, even the target span of time may be closer but idea is to look in to near future to achieve strategic goals as mentioned in strategy plan. Long term financial plan sets financial targets for 3 to 7 years.
Yearly plan is definition of financial targets for next one year and activities to achieve specific milestones derived from long term plan.
Areas of application
Enterprise Architecture planning
and many more
Analysis of facts
Identification of Objectives
Identify various options
Select best options
How to achieve objectives & chosen options
Define evaluation criteria
Define execution steps (plan)
Execute the plan
Evaluate the plan
Benefits of planning
Sets the direction
Helps managing risks
Helps controlling the process and activities
Helps in decision process
Budgeting provides base of yearly plan to make sure it should be achieved. It defines what should be the outcome of the plan.
Following are main areas of focus:
Sales & Gross Margin Budgets
Capital Expenditure Budgets
Operating Expense Budgets
Forecasting provides projected performance based on current information on perofrmance. Forecasting in financial planning, look at revenue and income.
Analysis of current demand and operations based on which projection of revenue in future is defined (next one year or so)
Based on current line items details as per revenue budget.
Top-down focus combined with a bottoms-up allocation.