Forecast , Budget and Strategic Planning (SP)

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Business Forecasting, Budgeting and Strategic Planning (SP) are all joint Business exercise (often get confused with accounting exercise) where every Business operation get involved to look into future. The exercise is very vital for sustainable Business growth along with Business improvisation, which is required to counter evolving environment. The scope and ambit for Forecasting, Budgeting, Strategic planning all comes into operation in one go, when the economy is going through the crisis especially in current situation when Pandemic has halted the growth trajectory. But each of these operations has its own characteristics and scope. That is well laid down. However, the confusion or overlapping shadow line amongst these three operations are the topic of discussion today.???

Looking into future is something like, in rough sea looking for coast line and fairy weather ahead. One need to be cautiously optimistic. However, looking future is always risky and that risk element make the swing flow. Too much conservatism will spoil the exercise completely. Depending on intensity of observation the option between Forecasting, Budgeting or SP options are exercised. SP is very situational. It is used for negotiating a sudden challenges coming out of Business ecosystem. These are generally short lived situation. Here the future temporarily blurred due to some challenges. SP is the process which gives scenario planning and accordingly actions are orchestrated. ?Forecasting is much regular way looking into future but it covers generally one to three months rolling scenarios. Budgeting is a formal exercise and that covers one-year operation.

In this back drop Business employs several mechanisms whereby next three to five years’ operations are foretold and that is taken for evaluation for credit worthiness analysis by Bank, valuation, rating agency etc. for very important analysis. The question arises, in this so fast changing Business and social environment is it possible to carry out three to five years long projection exercise? ?We are now talking for post pandemic neo reality, hybrid system. In that can we keep old orthodox Budgeting exercise? We park this point for time being and continue discussion on shadow line of these three mechanisms of future projecting exercise. ????

The Budgeting exercise generally start at the year end of the given the calendar of twelve months. Generally, it takes two to three months for a company to complete this process. While this exercise is underway, good three months’ operation is left out in the given period. Invariably these three months will be having higher forecasted operation. If the earlier nine months’ operation is fairly in line with Budget, operation tries to underplay and push the performance to next year. In contrary situation, push and dummy sales comes into play to catch up the shortfall of forecast and meet the Budget. This excess sale obviously goes for reversal of sales and that gives next Budget a beating. This cycle is always on and in the process many extra unhealthy improvisation takes place.

In case over hyper control freak setup the forecasting operating is replaced by Strategic planning or scenario analysis operation. Thus in the system lot of hypothesis float around but real action in the market place and reaching out to customer take a beating. Over dependence of future analysis is like over dependency on a palmist, thus actual action in hand get neglected.

In yester age company within accounts there used to be a Budgeting department and eventually they become Caesar’s wife in the set up in a closed door environment. On the Budgeting and Forecasting line company gets divided into pragmatic and orthodox block. For operation it is highly required to have a guideline but if that Guideline itself becomes a holy cow then real operation takes back seat. This brings us to the initial point of relevance of orthodox budgeting. ??????

?Essentially Budgeting and/or forecasting are done on the premise that market place and customer is known. But more we are moving towards next millennium the future is getting blurred. The direction is important but means to go to the direction (market) is now ever changing. It has to be evolved continuously and question should be asked about the return always. The old easy way of seeding and harvesting are going awaya fast. It is now much more like continuous circus where games are at least known but player changes fast so no one has luxury of looking towards future with ease and prepare for a grand plan. Rather it is strategic planning on daily basis but it has to be impromptu and Business system and people around it should be prepared to take these impromptu step with proper empowerment. ??

In mid eighty, early ninety we started discussing about zero based Budgeting but actually that never gathered any momentum. In fact, the company who has very strong product and technology base, they could afford to have zero based budgeting but in general market place where everyone fight for their small foothold they could not afford to have this. At least one good part of Budgeting exercise is a well-informed across the company discussion about the direction (market). On every practical purpose zero base Budgeting becomes no Budgeting. That is not desirable.

In current situation as all are going hybrid, in my view we should opt for hybrid Budgeting exercise. Through this exercise in a loner term (maximum 15 month) we should decide:

1.????Target Customer/ Zone/ segment

2.????Offerings/Products

3.????Mode of offering where consciously effort should be directed towards E-based marketing.

4.????Eliminating at least 3 limiting factor. Mere discussion on limiting factor would not help. It has to be crossed. Time should be spent on that.

5.????Additional platform building and that should start contributing. ?It could be new office / or web site or portal or new product.

6.????Lastly but not least one or two new direction (Market). Even if it fails still it got to be tried. Money should be allocated for failure, just like CSR expenses.

Here like conventional way we should not talk about Revenue, Costs, Manpower etc. The regular system (may be daily strategic planning) should take care of that. SP work should be considered within small group activities. That should not be made an SOS measure. The forecasting exercise should be every day affair. That should be used to keep the direction correct. The micro details will be anyways captured through regular operation. So all three exercises should be deployed to counter uncertainty rather than waiting for an annual ritual exercise of socalled Budget operation. ?????????????????