Answer #1

Forecasting and budgeting are two different but vital factors of great money management strategies. To effectively determine which of the two is better for you, you should understand how each one works.

1. Definition

A budget refers to a plan that is made in advance to provide guidelines as to how the expenditure will be carried out. It generally serves like the benchmark for analyzing how a business is performing. Forecasting, conversely, refers to extrapolating earlier performances to a time in the future while still considering other extraneous factors.

2. Function

Budgeting enables the user to have control of their cash flow. In a company, budgeting allows managers to have a better control of their payment procedure. It generally contains all intended revenues and expenses. Budgeting can be considered like a plan articulated in terms of numbers and money. It sets financial targets that the organization has to meet. Conversely, forecasting is simply an accurate forecast of what may happen after considering what occurred sometime ago. Hence, a budget sets concrete targets, while a forecast does not.

3. Use

A budget generally comprises of a statement concerning how a department proposes to spend the money that will be availed to it. It has emergency plans that portray substitute sources of money in case the anticipated income falls short. However, a forecast comprises of an accurate prediction of expected future expenditure and income based on past performance. With budgeting, managers plan for their company’s future whereas forecasting helps them predict future performance. For instance, when a company wants to purchase for producing products to sell, it would probably be reckless to carry on without first forecasting and budgeting.

In general, there are varying factors at play during budgeting and also forecasting, therefore it is unfeasible to generalize and apply for all situations. Both processes should be performed prior to incorporating a fresh idea or committing to a new venture.

Answered By: daniel [554 ]