The What and Why of Budgeting

Hello Friends,

Lot of people when they talk about Cognos Planning / Hyperion Planning / TM1, they just reply saying its a Planning / Budgeting tool. Ofcourse lot of you might have known this already but i felt theres always a glitch in minds and when u scratch it for exact meaning, they might get boggled.

To just make it a bit simple about it, the clear understanding of the terms what we use makes our approach towards the tool much reasonable.

Let me start with the below things,

Budgeting : In simple words, It is a plan for saving and spending. A budget is defined as the formal expression of plans, goals, and objectives of management that covers all aspects of operations for a designated time period. A budget is also a financial plan to control future operations and results.

And when it comes to types of Budget approaches, there are 2 major things,
1. Target Budget
2. Bottom up Budget

This process is normally done on a yearly basis on many companies.

Forecast: Forecasting is the estimation of the value of a variable (or set of variables) at some future point in time. A forecasting exercise is usually carried out in order to provide an aid to decision-making and in planning the future.

Forecasting is process is dependent on the companies process how frequently they should forecast at. Mostly its on a monthly or a Quarterly basis with different scenarios and versions.
Normally they make your budget / actuals as a source to forcast.