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Budgeting/Forecasting
MAKE SURE YOUR PROJECTIONS ARE HIGH-LEVEL STRATEGY AND NOT JUST A REHASH OF THE OPERATING BUDGET.
The speed of change in today's economy has generated a trend toward adopting continuous forecasting as part of the planning process. While this type of "rolling forecast" offers many benefits, organizations often have trouble separating their forecast from and coordinating their forecast with the operational budget. Instead of truly forecasting-which ideally should be a higher-level projection-organizations end up preparing mid-year or even quarterly "re-budgets," with all of the associated effort. The result is a budget that takes too much time and
To gain the greatest benefit from their forecasts, most organizations should step back and alter their focus from the minutiae to a higher-level, top-down projection that is separate from but integrated with the operational budget.
WHY FORECASTING?
For publicly traded companies, an earnings forecast "miss" can have an immediate and devastating impact on share price. And for both public and private companies, effective allocation of resources mandates that the organization have the best possible understanding of what the short-term and long-term future brings.
Unfortunately, most "static" annual budget processes fail to provide a clear vision of the enterprise's impending direction. Forecasting allows organizations to close the gap between the overall strategic plan and the detailed operational budget.
An ideal planning cycle includes an ongoing forecasting component that flows directly from the overall strategic plan and integrates with the operating budget. The output from this higher-level planning system then directly impacts the outcome of the...