Budget and Forecasts

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

Budgeting

• 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

Forecasting

• 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

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.

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).

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.

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