Difference Between Budget Version & Forecast Version.

muizzsk9890
Occasional Contributor

Difference Between Budget Version & Forecast Version.

Hi Community,

         I needed to know the basic difference between the Budget Version & Forecast Version. Why is the Budgeted Version used in some organizations even if we have the Actual & Forecast Version. Can anyone please answer my question? It would be great if someone answers.

Muizz S.
1 ACCEPTED SOLUTION

Accepted Solutions
AntonMineev
Certified Master Anaplanner

Re: Difference Between Budget Version & Forecast Version.

Hi @muizzsk9890!

 

This is not an issue of the system, but of business process and management accounting. To oversimplify, a budget is usually an annual (1-2 times a year) and quite a detailed planning process. These are spending limits, revenue plans, and it must be linked to the strategy. Most often it is prepared for the next year.

 

Forecast, it is already an assessment of how the company "goes" in the current market/situation. The actual figures are taken and the plan is adjusted based on them and the immediate plans. This plan is compared to the budget.

 

Example:
We budgeted $100 in sales for August.
But in July we found out that our main client had left for a competitor. Therefore, the sales forecast for August will be $20.
After that will be a fact of $30.
Analysts will comment on why sales were less than budgeted (couldn't sell? Plan moved to another month? External factors?).

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3 REPLIES 3
AntonMineev
Certified Master Anaplanner

Re: Difference Between Budget Version & Forecast Version.

Hi @muizzsk9890!

 

This is not an issue of the system, but of business process and management accounting. To oversimplify, a budget is usually an annual (1-2 times a year) and quite a detailed planning process. These are spending limits, revenue plans, and it must be linked to the strategy. Most often it is prepared for the next year.

 

Forecast, it is already an assessment of how the company "goes" in the current market/situation. The actual figures are taken and the plan is adjusted based on them and the immediate plans. This plan is compared to the budget.

 

Example:
We budgeted $100 in sales for August.
But in July we found out that our main client had left for a competitor. Therefore, the sales forecast for August will be $20.
After that will be a fact of $30.
Analysts will comment on why sales were less than budgeted (couldn't sell? Plan moved to another month? External factors?).

muizzsk9890
Occasional Contributor

Re: Difference Between Budget Version & Forecast Version.

Hi @AntonMineev Sir, 

    Thanks for the answer. It means that budget is a fixed estimation whereas forecast keeps on varying as time passes.

 

Regards,

Muizz

Muizz S.
AntonMineev
Certified Master Anaplanner

Re: Difference Between Budget Version & Forecast Version.

@muizzsk9890 Simplified, yes, that's right.


In practice, companies can make re-budget, especially in the case of major changes (e.g., a coronovirus epidemic). But then this new budget (Re-Budget) will be compared with fresh forecasts (and with the old budget too, to estimate the estimated impact of that phenomenon). All of this helps you plan better in the future.

 

In addition, budgets often have motivational value and are used to set KPIs.