Budgets, Forecasts and Business cases – what’s the difference between them and why do you use them

November 24, 2021 | INSIGHT


Budgets have traditionally been constructed once a year and become your yardstick to measure progress against. 


Pros – They keep you honest because you have fixed goalposts to measure against.   

Cons – For most businesses, and particularly coming out of a particularly turbulent two years, are they just an outdated concept?  Forbes wrote a great article recently on why they believe exactly that and worse, if not managed properly can encourage flawed decision making within a business e.g. departments using their budget up, regardless of whether they need it, so that they keep their allocation for the following year.  Plus in a traditional budget cycle information is outdated almost as soon as it is pulled together 


What’s the solution?

For long range forecasts set high level targets eg. revenue, gross margin and profit, underpinned by specific business assumptions so that you have a clear goal that you are aiming for and can measure progress against.  



Is this Budgets 2.0?  Forecasts are updated on a rolling basis as business drivers and outlooks change.  This allows businesses to have a more realistic view, particularly in the short term of 6-12 months 


Pros – your planning process remains live with a current view of where your business is taking you.

Cons – if your systems aren’t set up properly you can spend more time planning than executing.  Forecasts are best to review short term scenarios so it’s hard to see the impact on the long term financial outlook particularly if you are trying to make investment decisions which have a longer timeframe for payback or are being implemented for strategic reasons that will only bear fruit outside of the forecast window.


What’s the solution?

Use automated tools that easily sit on top of your financial systems in order to pull through actuals and update drivers    


Business cases 

These sit outside of the “whole business” forecasts and are used to stress test scenarios prior to making investment decisions.


Business cases should be reviewed with two lenses 1) the incremental cost and revenue involved and 2) a fully costed version which loads in an allocation of fixed costs.  The reason for reviewing this in both ways allows you to assess the short and long term impact.  In the first instance using just incremental financial impacts lets you see the immediate impact and the cost of testing the new initiative.  Subsequently the fully costed version will give a more realistic view on what the longer term financial impact is on the business.  For example there may be additional incremental headcount with no requirement for additional office space immediately.  However over time those additional heads will incur associated costs so looking at a fully costed scenario will give a better indication of its long term profitability.


What’s the solution?

Use the incremental view to assess the short term investment required and impact on the business. Then layer the fully costs version over the existing BAU (business as usual) forecast to see the financial impact on the whole business over time.


How do your business processes stack up against this lens?  If you need a hand feel free to reach out for a free 20 minute consultation https://calendly.com/michelle-cfo/20-minute-initial-consultation or email me at michelle@lanternpartners.com.au