FORECASTING VS BUDGETING
In QB, what is the difference between budgeting and forecasting? They appear to offer the same functionality.
70
12001
byUCCb5gar35qUacfA8pyY
10/30/10 1:02pm PDT
Viewed by asker 10/15/12 9:00am PDT
Viewed by asker 10/15/12 9:00am PDT
10 Replies
10/30/10 5:37pm PDT
Budgeting is typically the annual business planning cycle wherein you (to the best of your current knowledge), plot what you believe your enterprise will achieve during the coming fiscal year. Once set, the budget does not change.
Forecasting, on the other hand, is where you take the actual results as you get into the new fiscal period, and compare that which you have achieved against what has actually been achieved. You use that comparison to adjust what you believe you know will achieve for the balance of the year.
The budget does not change, and you analyze the budget against the forecast and the actual as a lessons learned exercise. That helps you hone the budgeting skills for future budgeting as well as providing a useful forum to explain why the budget was out. For example, the sudden bankruptcy of a large client - a thing that with any kind of due diligence can still take place and it is the type of thing you can't budget. The forecast however, is used to take into account the lack of sales to that customer for the remainder of the fiscal year.
Hope that helped.
Alan
11/21/10 1:19pm PST
Would you mind explaining this part of your answer? I think maybe there is a word added or missing or something as I just can't figure out what you meant.
"where you take the actual results as you get into the new fiscal period, and compare that which you have achieved against what has actually been achieved."
03/21/11 11:23am PDT
Hi FinanceVP, I have just gotten back around to this question and wanted to comment on your answer as it relates to my question about QB.
That is precisely my issue with the budgeting and forecasting in QB. The forecasting needs to take the actual into account and then extrapolate the figures for the balance of the year. So ideally in QB, a forecast report should take the actual year to date and then the forecasted amounts to come up with a new total for the year on the report.
For example, original budget shows $1000 per month for a particular line item, therefore $12,000 for the year. Half way through the year, the total expense is $8000 (not $6000). The report should show a total forecasted amount of $14,000. Any changes to the forecast would be made based on this new revised figure.
But in QB, the reports are based on the estimated figures, the only difference being which set of data is used.
Also, the forecast has a forecast vs. actual report which again is really a budget report duplicated with the forecast figures. I know I can do this through dumping data to excel but I would expect when 2 different terms are being used (budget and forecast) that the functionality be reflected in the program.
Susan
02/27/12 4:48pm PST
I guess no one has been on this particular post in a year, but I wanted to commend you for what a forecast really is.
02/27/12 5:18pm PST
Agreed - That is exactly the tool I need: somewhere to show year to date actuals by month and automatically plug in budgeted or forecasted numbers for the remainder of the year by month. I export to Excel currently with the Budget vs Actuals for Fiscal Year, then move the month name headings above the budget column, hide the future actual columns and change the totals column formulas. If I could use the forecast feature for that, I'd be way ahead.
03/09/12 10:39pm PST
A budget is a "restriction" on the amount that can be spent for the operation of the business. This is usually measured against the actual dollar for dollar amount expended, in the operation of the business. The difference between the two is either considered "favorable" or "unfavorable." A forecast, is a future "guesswork" or a prophecy that if certain factors would come true, the outcome or result would be as predicted. In other words, a forecast is a prediction.
Hope this clears up the difference.
03/10/12 6:34am PST
That's the way large corporations, governments, nonprofits and some households use budgets. This is what leads to baseline budgeting (this is what I spent last year, so I need at least this much and probably 8% more) and also leads to people misclassifying purchases to a G/L account that "still has money left in the budget." Baseline budgeting makes department heads spend more to meet budgeted expenses at the end of the budget period so they can still have that same budgeted amount next year. Misclassifying expenses makes your financial statements worthless.
For small businesses (Quickbooks' primary target market,) if you're using your budget properly, then your budget is a tool that forecasts (yes, I said forecasts) what you believe your results can be/will be - what is attainable, given the circumstances you know at the time you create your budget (normally annually.) A forecast is a more flexible, up to the minute reflection of those goals and assumptions, usually starting with current results within the budget period and forecasting through the remainder of the budget period and possibly further into the future.
10/15/12 9:00am PDT
Thanks, but as an accountant I understand the difference between budgeting and forecasting. My question is what is the functional difference in QB? They seem to offer the exact same functionality.
Susan
10/15/12 9:49am PDT
You have it right. There really is no difference. A while back someone posted this (if you look at the original post, you can see it). Basically you have to do it in Excel or another program like it. You can take the report and put it into Excel and then do the math to forecast. I think the forecast is just another way of doing multiple budgets so you can adjust the forecast as you go.
Not a great answer but I guess it isn't high on Intuit's list of things to do.
11/19/12 2:10pm PST
Latest post
Why, in Nov 2012, when I try to create a Forecast or Budget for 2013, does it use 2011 data as the basis, when data for the first 10 months of 2012 is available? My 2011 data is useless. The only other option I see is to enter data from scratch. This will take forever. Any hints?
