What is Budgeting, Planning and Forecasting (BP&F)?

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Budgeting, planning and forecasting (BP&F) is a three-step strategic planning process for determining and detailing an organization’s long and short-term financial goals. The process is typically managed by an organization’s finance department under the leadership of the chief financial officer (CFO).

The three steps involved in BP&F include:

  1. The plan outlines the financial direction of the business and creates a pattern of expectations for the next three to five years. Planning is often the first step in starting a business.
  2. Budgeting documents how the overall plan will be executed from month to month and typically includes estimates of income and expenses, as well as expected cash flow and debt reduction. Companies often set their budgets at the beginning of a calendar or fiscal year and leave room for adjustment as incomes rise or fall. Budgets are compared to actual financial statements to calculate any variances or errors between the two.
  3. Forecasts use accumulated historical data and market conditions to predict financial results for months or years to come. Intended to help management teams anticipate results based on past information, forecasts can be adjusted as new information becomes available. Unlike budgeting, financial forecasting does not analyze the gap between forecast and actual performance.

A proper BP&F strategy benefits organizations by producing competitive advantages such as more accurate financial reporting and analysis, higher overall revenue growth, and increased predictive value.

BP&F best practices

Since effective BP&F processes provide organizations with a variety of benefits, best practices should be implemented, including:

  • The BP&F process should be holistic, considering any correlation between all financial information, such as financial statements and balance sheets, and KPIs.
  • Reduce manual labor required by using tools that automate BP&F processes. Manual solutions are not optimal for growth or dynamic market conditions.
  • Make BP&F a top management priority because business growth depends on a sound financial model.
  • Maintain clear accountability and ownership over BP&F components.
  • Agree on consistent and clear decisions about the company’s strategy, expectations, goals and vision.
  • Create a scalable and flexible forecast to mimic reality business cycles. This includes conducting routine planning discussions and updates.

Software and tools

Budgeting, planning, and forecasting software—which can be purchased on its own or as part of an integrated corporate performance management (CPM) system—consolidates and centralizes companies’ financial information and automates management processes. budgeting. Additionally, the BP&F software documents how the overall plan will be tracked from month to month, clarifies expenses, and ensures consistency between reports.

BP&F software makes it easier for finance managers to produce more accurate budgets and perform what-if scenarios analyses. What-if predictions are one of the most critical analyzes that IT, operations, logistics, and business managers can perform, because business success hinges on the ability to accurately guess what will happen tomorrow.

This was last updated in February 2019


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