FINANCIAL FORECASTING AND BUDGET

Co-relation between Financial Forecasting and Budget:

Financial Forecasting and Budgeting process are inter-related and this was originally recognized by the Government Finance Officer’s Association. The GFOA suggests that, since government at every level need to forecast the key expenditures and revenues, forecasting have to be included in all main government budget procedures. The major purpose of financial forecasting is to predict the key expense and revenue items, thereby allowing the government to ascertain the influence in the current as well as the proposed situation. Financial forecast have to clearly specify the assumptions and the methods that need to be adapted, for the budgeting team to draft the final budgeting manuscript.

Importance of Financial Forecasting:

The government requires the financial forecasters to evaluate the long term implications of the existing and proposed programs and policies. Appropriate assumptions have to be drafted for achieving the set target and goals. Vital variables in forecasting the income and expenditure helps in the following ways:

1. Assesses the financial risks.
2. Gives a perspective with respect to funds that are available.
3. Evaluates the probability of services that can be continued.
4. Describes the potential commitments and resources that are required to fulfill them.
5. Determines the major elements which impact the revenue.

Financial forecasting gives an estimate, with regards to potential expenditure and the funds that are essential to meet the demands. If exceeding demand is foreseen then, the concerned official needs to generate more income or rationalize the existing services. Forecaster’s assumptions are generally dependent on the past experience. It needs to be crafted on long-term basis extending beyond the period of budget. At the same time, it has to be evaluated consistently and monitored in order to update some corrections.

Miscellaneous:

Financial forecast while preparing budget need to include the prediction of incomes and expenditures. Forecast of non-fictional items and service level have to be exercised, for accurate preparation of the budgeting document. Forecast monitoring and communication are mandatory after preparing the final draft. Financial forecasting is essential in every aspect, be it for a company or for the preparation of government budget. Budget depends on financial forecast completely and hence, proper care has to be adopted for predicting the accurate information.