Budgeting and forecasting are vital processes for almost all organizations. It is essential to determine what the company should be achieving in long term and how it is progressing on a regular basis to reach targets and yield profit improvements. Understanding past performance and translating that insight into futuristic targets to line up business results with the overall strategy is a key dynamic.

Budgets are a detailed projection of cash inflow/outflow for a fixed period in time and are created and approved before the start of the period. They are based on varied assumptions depending on internal and external circumstances. Once created, they are set in stone and any changes would change the forecasts while creating positive and negative variances.