Differences Between Forecasting & Budgeting

By Alibaster Smith, eHow Contributor

I want to do this!

Budgeting and forecasting are two very different--but necessary--aspects of money

management. To understand the differences between the two, you must understand the
purpose of money management and how each component works.

What Is Budgeting?
1. Budgeting is the process of organizing your existing income and expenses for the
purpose of projecting your [financial-based] values out into the future. The process
of budgeting itself, though, is primarily an organizational process.

What is Forecasting?
2. Forecasting is the actual projection of your values out into the future with an
expected (but not guaranteed) result.

Budgeting Specifics
3. Budgeting organizes cash flow, develops a payment process for your regular
bills, and allows you to track savings and investments. It tells you things like what
your mortgage payment is, and how much income you make(Note the present
tense).

Forecasting Specifics
4. Forecasting projects your budget into the future and sets an expected result
within a specific time frame. For example, budgeting will tell you how much your
mortgage payment is. Forecasting will tell you how soon the mortgage should be
paid off or whether you could accelerate payments based on your projected future
income, and so on. Forecasting allows you to set goals.

Why Both Forecasting & Budgeting Are Inseperable

5. You must have both forecasting and budgeting for successful money management ;
you cannot separate one from the other.
Financial forecasting considers variables like how your dollar and spending power will be
effected by interest rates, the price of goods and services, etc in the future.

Budgeting is more "real-time' dealing with the practical world... your capital and your financial
goals.

You are very bright to realize that they go hand in hand.

For example you are budgeting to buy a house but know that the financial forecast for real estate
is trending down now, so that tells you may not need to completely impoverish yoursefl by
saving your money living like a monk (as in rice and beans every night, lol) in order to save for a
down payment or if you save for a little longer you're going to get more house (because of the
falling house price trend over time)

Or budgeting for that HUGE LCD TV, means that you won't need to save as much as HD TV
prices are falling, etc, etc.

Of course the opposite is true if you are saving for college as the tuition price trend is going
higher and higher.

Source(s):
http://www.forecasts.org/

Budget vs. Forecast

Both budgeting and forecasting are important management tools that we use to anticipate
needs and avoid crisises.

The key differences between budget and forecast are that

o a budget is generally more detailed than a forecast, and

o expenditures are more specifically matched to sources of income in a budget.

Budget
 A detailed plan of expenses, revenues, transfers, and beginning balances.

Forecast

The forecast is a high-level projection of what income and expenditures will be in the
future. It does not necessarily match revenues to their expenses, as a budget does. It can
be:

o short-term, e.g. next month or the remainder of the fiscal year

o medium-term, e.g. the next fiscal year, or
o long-term, e.g. 3-year or 5-year plans

Difference between Budget and Forecast

Once the financial objectives have been set, it is possible to prepare and agree a budget. A
budget should relate the overall plan in figures. It is different from a forecast in the sense that the
plan, and therefore the budget, sets minimum requirements, whereas a forecast is usually an
expectation of what is likely to happen.

Example

You might choose to budget for sales of £180,000 and use this figure in calculating your likely
expenditure, profit and so on. Based on your market research, however, you predict sales of
£200,000, and set a target of £220,000, in order to stretch your sales force. If all your costs are
covered by the budgeted figure, then you will make a greater profit if you achieve the forecast
and a still greater one if you achieve the target. (Whilst this is an important distinction, in
practice for most businesses the forecast and budget will be the same.)

Budget

A Budget is a plan that outlines an organization's financial and operational goals. So a budget
may be thought of as an action plan; planning a budget helps a business allocate resources,
evaluate performance, and formulate plans.

Forecast: Due to some operational reasons or managment decision plan maynot be followed as
it was done in the begining of the year. So this is changed accordingly to comply with the
organisations objects. This change in plan is called forecast.

A Budget is a plan that outlines an organization's financial and operational goals. So a budget
may be thought of as an action plan; planning a budget helps a business allocate resources
evaluate performance and formulate plans.

Forecast: Due to some operational reasons or managment decision plan maynot be followed as
it was done in the begining of the year. So this is changed accordingly to comply with the
organisations objects. This change in plan is called forecast.

Budget
Budget is a quantified statement. It designed for representing overall aims of the organisations.
It is a memorandum record & is widely used for planning purpose. Normally, it is prepared on
standard basis

Forecast

Forecasting is technique which include estimates based on judgement and experience. It is

used for estimate the risk & benefit under uncertainty situation.

Notes : Forecasting technique is part of budgeting

Here is the example: the sales revenue including both of volume and price should be included in
the budget. To do this we need to make a forecast about it. The technique that are availabe are
linear regression and high low method and any other methods. So we say that the forecast is
part of the budget and help to make it but you can not see it. It just produce the figures.
Hope this will help.

Financial forecasting considers variables like how your dollar and spending power will be
effected by interest rates, the price of goods and services, etc in the future.

Budgeting is more "real-time' dealing with the practical world... your capital and your financial
goals.

You are very bright to realize that they go hand in hand.

For example you are budgeting to buy a house but know that the financial forecast for real estate
is trending down now, so that tells you may not need to completely impoverish yoursefl by
saving your money living like a monk (as in rice and beans every night, lol) in order to save for a
down payment or if you save for a little longer you're going to get more house (because of the
falling house price trend over time)

Or budgeting for that HUGE LCD TV, means that you won't need to save as much as HD TV
prices are falling, etc, etc.
Of course the opposite is true if you are saving for college as the tuition price trend is going
higher and higher.

Source(s):
http://www.forecasts.org/

Both are estimates or plans for the future.

Forecasting is a bit more general, while budgeting a bit more specific to financial terms.
In practice, budgets tend to be more set for a specific time, while forecasts more flexible,
changing more often.

Financial forecasting is a prediction of the economy in the future based on current trends and
other statistics such as national wealth and global market status.

*********************

A budget is a management document that sets down what different parts of an organization are
required to take in and allowed to spend during the budget period. In other words it is a means of
controlling the business.

Forecasting, on the other hand, predicts matters that are not under the control of the business,
e.g., the external market.

Forecasting is an essential part of budgeting.

Forecasting is basically projections usually over multiple years. It is used to perform "what if"
scenarios.
Budgets are for control purposes to make sure your spending is in line with revenue.

Financial forecasting considers variables like how your dollar and spending power will be
effected by interest rates, the price of goods and services, etc in the future.

Budgeting is more "real-time' dealing with the practical world... your capital and your financial
goals.

You are very bright to realize that they go hand in hand.

For example you are budgeting to buy a house but know that the financial forecast for real estate
is trending down now, so that tells you may not need to completely impoverish yoursefl by
saving your money living like a monk (as in rice and beans every night, lol) in order to save for a
down payment or if you save for a little longer you're going to get more house (because of the
falling house price trend over time)

Or budgeting for that HUGE LCD TV, means that you won't need to save as much as HD TV
prices are falling, etc, etc.

Of course the opposite is true if you are saving for college as the tuition price trend is going
higher and higher.

A budget is (usually) an exercise to create the initial, static, expected financial results for the
time period, usually the 12 month fiscal year.

A financial forcast is performed post budget and takes into account the actal results, changes that
have taken place in the static budget and any new items not budgeted. The forecast can be for the
balance of the fiscal year, or go out beyond the budget perod (i.e. rolling 12 month forecast)
What is the difference between forecasting and budgeting?

Forecasting and budgeting are two of Quicken's tools for planning your spending:

 Budgeting allows you to create budget amounts, and then track how well you are
staying within those amounts (from the Quicken Planning menu, choose
Budgeting).
 Forecasting allows you to project cash flow for the future, based on scheduled
transactions and estimated amounts (from the Quicken Planning menu, choose
Cash Flow Forecast).

Forecast

I would describe forecast as a prediction of what will happen in the future. When applying this to
business, I will say that a company is actual making a prediction of its future performance.
Usually the prediction is done after taking into consideration of its historical performance and
future business plans.

Budget

I would describe budget as the company business plans expressed in financial terms.  Usually, a
company prepares business plan to achieve something in the future.  This something is also
termed as company targets.

Since budget is a company business plan expressed in financial terms, you can also say that
budget is also a financial target a company aims to achieve.

To summarize all, a forecast is a prediction of what is expected to happen and a budget is a target
that a company aim to achieve.