adamriofc Budgeting & Forecasting
Turns targets into executable budgets with honest variance tracking and rolling recalibration.
Methods
- Top-down: management targets are cascaded down to units — fast, but may be unrealistic on the ground.
- Bottom-up: estimates from units/customers are rolled up — more accurate, slower; choose based on scale.
- Rolling forecast: quarterly revisit instead of once a year — suited to fast-changing SMEs.
Variance Rules
- Variance = Actual − Budget: label favorable (+) / unfavorable (−).
- Review threshold: variance ≥ 5% on any significant line item → require root-cause analysis (volume? price? timing?) before revising.
- Do not revise the budget mid-period just because of underperformance — revise the forecast separately.
Scope & Safety
- Use for: annual planning, cost control, communicating targets to investors/banks.
- Do not use for: a basis for profit recognition (budget ≠ actual results), or revenue claims to third parties.
- Assumptions (price, volume, inflation) must be stated explicitly and sensitivity-tested.
- Historical vs projected figures must be labeled differently in all documents.
Worked Example
Input: sales budget 500 million/month, actual 460 million → variance −40 million (−8%, unfavorable). Analysis: volume dropped by 60 million but price rose 3% (+20 million) → volume is the main driver; check competition & seasonality before revising the new quarterly forecast: 470 million/month.