Forecast assessment of probable future

An estimate is predetermination of future event either on the basis of simple guess work or following scientific principles. Forecast is an assessment of probable future event. Budget is based on the implication of a forecast and related to plan events. Forecasting precedes preparation of a budget as it is an essential part of the budgeting process. It is said that the budgetary process is more a test of forecasting skill than anything else. To establish realistic budgets, it is necessary to forecast a wide range of factors like sales volume, sales prices, material availabilities and price, wages rate, the cost of overheads etc. It is not sufficient merely to add or deduct a percentage to or from last year’s budget; rather a proper forecasting should be prepared. A budget is a detailed statement of forecasting resulting from joint action of a number of planned operations conducted with normal efficiency.

Budget and forecasting both refer to the anticipated actions and events in a specified future period but still there are wide differences between the two as given:

• Budget: it is relates to planned events i.e., the policy and programme to be followed in a future period under planned conditions. It is usually planned separately for each accounting period. Budget comprises the whole business unit. Sectional budgets are coordinate into logical whole. Budget is a tool of control as it represents action which can be shaped according to will to suit conditions which may or may not happen. The process of budget starts where forecast ends and converts it into a budget. It is made in respect of those spheres which are related to business or industry

• Forecast: It is concerned with probable events likely to happen under anticipated conditions during a specified period of time. It may cover a long period or years. Forecasting may cover a limited function or activity of business as sales forecast. It does not connote any sense of control as forecast is merely a statement of future events. The function of forecast ends with the forecast of likely event. It is made in several other spheres which may not be connected with the budgeting process.