The Art of Budgeting: Freeze the Plan, But Maintain Flexibility.

Introduction

A budget is a company's official plan and vision for the future, based on certain assumptions. It creates a clear framework to follow, and when creating a budget, it is advisable to use a conservative approach to avoid unexpected financial risks.

At the same time, a forecast serves a different but equally important role. A forecast is a dynamic tool that can be adjusted on an ongoing basis according to changing conditions. This flexibility allows the company to respond quickly and accurately to changes in the real situation.

When planning for the future, three main scenarios can be used: optimistic, realistic, and pessimistic. It is recommended to 'freeze' the approved budget to maintain a stable reference point. At the same time, regularly updating forecasts is useful for gaining a fresh view of the company's current state and near-term future.

Comparing actual results with the budget and forecasts helps analyze whether the company's planning was accurate or where improvements can be made. This feedback is an important foundation for creating more accurate budgets and defining more reliable future scenarios.

The combination of a budget and forecast creates a strong foundation for strategic decisions, but to increase effectiveness, it is also worth considering which budgeting methodology to use.