Budget and Forecasts

  • Created by: EvemChas
  • Created on: 30-01-23 12:17

Budget and Forecasts: Part 1

Budgeting and Forecasting

  • Budgeting + forecasting viewed part planning process , looks future beyond immediate timeframe.
  • Planning attempt shape organisation's future, forecasting + budgeting aims predict value created + resources used specific period.

Budgeting and Forecasting Techniques


  • Zero-Based Budgeting: Budget scratch, bottom up
  • Incremental Budgteing: Budget based previous year
  • Activity Based Budgeting: Using Activity based costing
  • Flexed Budgeting: Budget adjusted actual volumes
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Budget and Forecasts: Part 2


  • Judgemental: Scenario planning
  • Rolling forecasts: Actuals + Budgets combined
  • Times series: Moving averages
  • Causal/Econometric: Regression Analysis

Budgeting: Benefits to the business

  • Promote forward thinking + identification short-term problems
  • Motivate managers better performance
  • Provide basis system control
  • Provide system authorisation 
  • Help coordinate various sections business
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Budget and Forecasts: Part 3

Zero Based Budgeting 

  • Similar start up business, process zero-based budgeting starts scratch, every function within organisation analysed its needs + costs.
  • Budgets then built around what needed upcoming period, regardless whether budget higher/lower than previous one.
  • Method budgeting requires costs specifically justified by benefits expected.
  • All expenses must justified each new period.

Incremental Budgeting

  • Incremental budgets based previous period's budget/actual results + contains uplift inflation/other changes.
  • Conventional budgeting inappropriate activities where consumption resources not vary proportionately with volume final output products/services.
  • Support activities conventional incremental budgets merely serve authorisation levels certain levels spending.
  • Incremental budgeting results cost non-unit level activities becoming fixed.
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Budget and Forecasts: Part 4

Activity Based Budgeting

  • Activity Based Budgeting (ABB) method budgeting based activity framework, using cost driver data budget setting + variance feedback processes.
  • Most basic form ABB uses cost drivers (identified through activity based costing, ABC), help derive budgets. As name suggests, ABB focuses activities rather functions. 

In simple terms, ABB follows 3 stages:

1. Identify activities + cost drivers.

2. Forecast number units cost driver for required activity level.

3. Calculate cost driver rate (cost per unit activity).

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Budget and Forecasts: Part 5

Approaches to Budgeting: Traditonal v Modern 

Targets and Rewards

  • Traditional Budgeting Management Model: Incremental targets + fixed incentives.
  • Beyond Budgeting Management Model: Stretch goals, Relative targets + rewards.

Planning and Controls

  • TBMM: Fixed annual plans + Variance controls.
  • BBMM: Continuous planning + KPI's + Rolling forecasts.

Resource and Coordination 

  • TBMM: Pre-allocated resources + central coordination.
  • BBMM: Resources demand + dynamic coordination.

Organisational Culture 

  • TBMM: Central control + focus managing numbers.
  • BBMM: Local control goals/plans + focus value creation.
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Budget and Forecasts: Part 6

Rolling Plans/Budgets

  • Rolling Plans/Budgets continuously updated adding further accounting period when earliest accounting period expired.
  • Rolling forecast continually updated, whereby each time actual results reported, further forecast period added + intermediate period forecasts updated.
  • Adopting rolling approach helps inform more realistic + timely planning process.

Overview of Scenario Planning

  • Scenario planning foresight methodology
  • Helps make sense uncertain future 
  • Focus making better decisions
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