Understanding the Difference Between Forecasting & Budgeting

Thoughtware Article Published: Jul 26, 2016
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I thought forecasting was a synonym for budgeting when I first heard the term. It’s an easy mistake to make. Some organizations apply the terms incorrectly, but budgeting is distinctly different from forecasting. Here’s an example of a professional sports organization budget.

Budgets are predictions of how a business will perform for a designated time and are ordinarily updated once per period. Budgets specifically relate to the projected performance, cash flow and results of the business, causing them to vary in detail. If there are variances between the projected budget results and actuals, it will come up with the next year’s budget. Many companies use the budget to determine performance-based compensation for employees.

Budgets are a macro-level view of projections, while forecasting is a micro-level view estimate usually focused on revenue and expense line items. Budgets are updated once a period, while forecasts are typically updated at month-end or quarter-end. Forecasting isn’t used in performance-based pay for employees, as it’s meant to provide feedback on the company’s direction. Budgeting, on the other hand, is the road map for getting to a destination.

Microsoft hasn’t provided a solution for forecasting, but currently offers Forecaster with Management Reporter. Both products will continue to be supported—but not improved or enhanced. Many Microsoft customers are looking to third-party solutions for answers. BI360’s Budgeting and Forecasting module operates collaboratively, allowing your organization to access, review and share new insights into your budgeting activities and discuss and define strategic plans and related targets. In addition, during the budgeting process, the collaboration feature provides the workflow and discussion forum to drive participation and an understanding of corporate goals and objectives.

Contact Tim Sparks or your BKD advisor for more information about a budgeting and forecasting solution.

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