Is Budgeting and Forecasting Part of FP&A?

The Milestone Team May 27, 2024
The team analyzes the business expenses of the annual budget.

Budgeting and forecasting are essential components of the financial planning and analysis (FP&A) process. Budgeting and forecasting services give your team the tools you need to leverage your financial resources to their highest capability.

What Is Forecasting in FP&A?

In financial planning and analysis (FP&A), forecasting plays an essential role in choosing a future direction. In a broad sense, forecasting involves gathering and analyzing information to predict how financial trends will continue into the future. What is financial forecasting? Like a weather forecast, financial forecasting prepares your business for what’s most likely to happen, given the available data.

More specifically, businesses can leverage the following forecasting models to inform decisions regarding financial health:

  • Extrapolation: Projecting past trends into the future to base predictions on the status quo.
  • Regression Analysis: Investigating the relationship between data points to find patterns and connections.
  • Hybrid: A combination of the advantages of extrapolation and regression analysis.

Effective decision-making requires trustworthy data, and forecasting arms your decision-makers with quality information. If your business’s forecasting process needs an overhaul, trust the experts. Get in touch to learn more.

Is Budgeting Part of Financial Planning?

Budgeting is a key component of financial planning, and it’s the step during FP&A when departments finalize the number of resources they’ll have access to for a designated period of time. While forecasting is flexible and changes as new information becomes available, budgets are more rigid and should be changed as little as possible once set. This is because projects that go over budget will have to pause until the next budgeting cycle or take resources from another initiative.

On an ongoing basis, expenses should constantly be compared to departmental budgets to see where adjustments can be made for future budgets to allocate resources more efficiently.

Who Is Responsible for Budgeting and Forecasting?

Typically, the responsibilities of budgeting and forecasting fall on FP&A teams led by the Chief Financial Officer (CFO). Members of the FP&A team are responsible for gathering information during forecasting, finding insights within that data, and working with departmental stakeholders to set budgetary expectations. The CFO works closely with organizational leadership to align resource allocation with the business’s overarching priorities. The CFO is also responsible for ensuring that the FP&A team is equipped with the best technology for preparing a budget and forecast, including:

  • Sales Forecasting Software
  • Demand Forecasting Software
  • Financial Forecasting Software
  • Cash Flow Forecasting Software
  • Revenue Forecasting Software
  • Budget Forecasting Software

For organizations that want to make the most of their financial situation but don’t have access to a full-time CFO, fractional CFO services offer an agile alternative. Contact us to learn more about how a fractional CFO can transform your FP&A process.

What Are the Parts of FP&A?

The essential parts of financial planning and analysis (FP&A) are forecasting and budgeting. Each of these components plays an essential role in cultivating a healthy strategic plan for your organization’s finances:

  • Forecasting: This step focuses on gathering information to inform strategic decisions. By using historical internal and external data, your team can predict future trends and act accordingly.
  • Budgeting: This step focuses on solidifying your organization’s financial plan. Budgeting takes the insights gained during forecasting and applies them to resource allocation for specific initiatives.

Transform Your Budgeting and Forecasting Processes with Milestone

At Milestone, our goal is to equip your organization with the resources you need to make clear and impactful financial decisions. Explore our financial services to see how your business can benefit:

Give us a call today to learn how to make your financial situation work for you—not against you.  

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