When it comes to managing money, two key tools, budgets and forecasts, help businesses plan for the future. Let’s dive into the basics and differences between these financial planning tools in simple terms.
Budgeting and Forecasting are two important constituents of managerial decision making process and refer to the anticipated actions and events in a specified future period but still there are wide differences between both as given below:
Difference between Budget and Forecast
|Budget relates to planned events i.e. the policy and programming to be followed in a future period under planned conditions.
|Forecast is concerned with probable events likely to happen under anticipated conditions during a specified period of time.
|Budgeting is a process of monetizing the plan and giving the plan an understandable structure.
|Forecast on the other hand is the expected end results based on the latest experience and circumstances at hand.
|Budget is a tool of control as it represents actions which can be shaped according to will to suit conditions which may or may not happen.
|Forecast does not connote any sense of control as forecast is merely a statement of future events.
|Budget is usually planned separately for each accounting period.
|Forecast may cover a long period of years.
|Budget comprise the whole business unit. Sectional budgets are coordinated into a logical whole.
|Forecast may cover a limited function or activity of business as sales forecast.
|The process of budget starts where forecast ends and converts it into a budget.
|The function of forecast ends with the forecast of likely events.
|Budget is made in respect of those spheres which are related to business or industry.
|Forecast is made in several other spheres which may not be connected with the budgeting process.