This article focuses on the importance of forecasting.
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Besides budgeting, forecasting also fits into the planning picture with a business plan. I know that people get budgeting and forecasting confused, so adding a business plan into the mix might confuse things even more. A business plan is a written statement of your strategy for the future of the company. Included in a business plan are market share changes and assumptions about the economy, the competition, costs, new and retired products, investments and more. A forecast is a rolling capture of the company’s performance, so this planning exercise is updated frequently. A budget is traditionally created once a year also bringing in intel from actuals versus projected and assumptions for the following year. If it’s not already clear, let’s discuss how these three tasks work together.
A business plan helps recognize where your organization currently is and where the leadership team wants it to be. It should push you in the decision-making process. Therefore, this article should reflect a strategy that accounts for those changes. A business plan is a foundation of sorts for your company.
A forecast should be created at the same time as the business plan. If your business plan is for 4 years, your forecast should be the same length. Forecasts can be rolling or current month through the end of the year and reflecting any changes in the business plan. The record-keeping of a forecast also affects the business plan, so they are impactful on each other. At this point in the evolution of business culture, in terms of how much companies rely on all data types – and to be able to track on a monthly basis where the organization is heading and how they’re getting to their goals, it seems like forecasting is logically the most important when it comes to planning.
A budget is a procedure that is driven by taking a micro analysis approach. A budget usually breaks down the year plan from the company to the customer, product, and employee level. While budgets capture actuals as well, they have their own column next to the projected numbers. Your budget should be in sync with the year as it is shown in the business plan and the forecast, but is confined to the coming year. In other words, all three of these processes are linked and changes should be consistently made across the board. Once you understand the difference between the three in theory and in practice, you’ll be able to establish a plan that fits best for your company.
To learn more about the importance of forecasting,
By Solver, www.solverglobal.com