5 TYPES OF FINANCIAL PROJECTIONS

1. Budget:?Budgeting is done by most organizations. Some do detailed budgets while some continue to signi?cantly reduce?the detailed budget process by developing rolling forecasts.Budget creates a baseline to compare actual results and determine how the results vary from the expected performance. The Master Budget includes 3 components the Operating Budget, Cash Budget and the Capital Budget.

2. Annual Operating Plan (AOP):?Annual operating plan is broader than the budget and provides a practical outline of company’s targets and key activities. While the Budget is a major part of A.O.P which ensures that we have the necessary resources to carry out planned activities. Annual Operating Plan?is a game plan or a framework developed to operate business in the coming year. The ?nancial projection for the coming year is an important element of the operating plan and is a primary way to measure actual results.

3. Forecast or Business Outlook (BO):?Forecasts are the very latest estimates of company's future financial outcomes by examining historical data. It illustrates whether the company is reaching its budget (target) or not in the near future.?They are also commonly known is Business Outlooks (B.O's) or Latest Estimates (L.E's). Due to the rate of change experienced in the twenty ?rst century, there is a need for frequent updates to the budget or operating plan. Initially organizations started replicating the annual budgeting process more frequently or alternatively preparing high-level estimates of ?nancial performance. Neither was a very good solution. However, in recent years the Rolling forecast (or on-demand business outlook) has become an important part of the overall management process. It is an e?ective way to develop projections by focusing on important drivers and assumptions.

4. Long Range Projection:??Long-range projections are required to evaluate investment and business decisions like acquisitions of businesses and the evaluation of strategic plans and alternatives. Depending on the objective, these projections will have a horizon of two to seven or more years. Occasionally, for projects with long investment and life cycles, the horizon may be as long as 20 years or more.

5. Capital Investment Decisions?(CID’s) or Special Purpose Projections:?These are required to evaluate the economic case of investing in equipment, product development, new business and business acquisitions or for making decisions such as lease versus buy, produce in-house versus outsource and many others are based on expectations of future revenues, costs, and capital requirements.These capital investment decisions form the basis for determining if the project will create value for shareholders or not.

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