Budgeting Basics and Beyond

Chapter 14. Forecasting and Planning: Reducing Risk in Decision Making

Management in both private and public organizations typically operates under conditions of uncertainty or risk. Probably the most important function of business is forecasting, which is a starting point for planning and budgeting. The objective of forecasting is to reduce risk in decision making.

In business, forecasts form the basis for planning capacity, production and inventory, manpower, sales and market share, finances and budgeting, research and development, and top management's strategy.

Sales forecasts are especially crucial aspects of many financial management activities, including budgets, profit planning, capital expenditure analysis, and acquisition and merger analysis.

Exhibit 14.1 illustrates how sales forecasts relate to various managerial functions of business.