Difference Between Budgeting And Forecasting

Difference Between Budgeting And Forecasting

The main dissimilarities or difference between budgeting and forecasting can be pointed out as follows:

1. Introduction

Budgeting: Expectation of future revenue, expenses and cash flow of the business

Forecasting: Estimation of future financial outcomes of the business

2. Provide

Budgeting: It provides direction

Forecasting: It provides agility

3. Update

Budgeting: It is updated annually

Forecasting: It is updated frequently as per the change in internal and external business environment

4. Helpful

Budgeting: Helpful in annual financial planning

Forecasting: Helpful in long term strategic decision

5. Variance Analysis

Budgeting: It uses variance analysis to compare the results

Forecasting: It does not use variance analysis

6. Target Set

Budgeting: Targets are set while preparing budget

Forecasting: No targets are set for forecasting

Budgeting Vs Forecasting (Comparison Chart)

Basis For Difference	Budgeting	Forecasting
Introduction	Projection of future revenue and expenses	Prediction of future financial outcomes
Provides	Direction	Agility
Updated	Annually	Frequently
Helpful For	Financial planning	Strategic decision
Variance Analysis	Required	Not required
Target Set	Yes	Not set

I hope this post is helpful to understand the difference between budgeting and forecasting and to make comparison between them.