budgeting, planning and forecasting (BP&F)

What is budgeting, planning and forecasting (BP&F)?

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 usually managed by an organization's finance department under the chief financial officer's guidance.

Here are the three steps involved in BP&F:

  1. Planning outlines the company's financial direction and creates a model of expectations for the next three to five years. Planning is often the first step in setting up a company.
  2. Budgeting documents how the overall plan will be executed month to month. It typically includes estimates of revenue and expenses, as well as expected cash flow and debt reduction. Companies often set up their budgets at the beginning of a calendar or fiscal year and leave room for adjustment as revenues grow or decline. Budgets are compared with actual financial statements to calculate the variances or errors between the two.
  3. Forecasting uses accumulated historical data and market conditions to predict financial outcomes for future months or years. Aimed at helping management teams anticipate results based on past information, forecasts can be adjusted as new information is available. In contrast to budgeting, financial forecasting does not analyze the variance between forecasts and actual performance.

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

BP&F best practices

Since effective BP&F processes bring organizations a variety of benefits, best practices such as the following should be implemented:

  • Make the BP&F process holistic, taking into account any correlation across all financial information, such as financial statements, balance sheets and key performance indicators.
  • Reduce manual labor needed by using tools that automate BP&F processes. Manual processes are not optimal for growth or dynamic market conditions.
  • Make BP&F a top management priority, as company growth depends on a dependable financial model.
  • Maintain clear accountability and ownership over BP&F components.
  • Agree on cohesive, clear decisions surrounding strategy, expectations, objectives and company vision.
  • Create a forecast that is rolling and flexible to mimic real business cycles. This includes performing 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 system -- consolidates and centralizes a company's financial information and automates budgeting processes. In addition, BP&F software documents how the overall plan will be followed month to month, specifies expenditures, and provides consistency across reports.

BP&F software helps make it easier for finance managers to produce more accurate budgets and perform what-if scenario analysis. What-if predictions are one of the more essential analyses that IT, operations, logistics and business managers can perform, as company success relies on being able to accurately guess what will happen tomorrow.

This was last updated in May 2023

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