Budgeting Basics and Beyond

14.1. Who Uses Forecasts?

Forecasts are needed for marketing, production, purchasing, manpower, and financial planning. Further, top management needs forecasts for planning and implementing long-term strategic objectives and planning for capital expenditures. More specifically, marketing managers use sales forecasts to determine optimal sales force allocations, set sales goals, and plan promotions and advertising. Market share, prices, and trends in new product development are also required.

Production planners need forecasts in order to:

• Schedule production activities

• Order materials

• Establish inventory levels

• Plan shipments

Other areas that need forecasts include material requirements (purchasing and procurement), labor scheduling, equipment purchases, maintenance requirements, and plant capacity planning.

As shown in Exhibit 14.1, as soon as the company makes sure that it has enough capacity, the production plan is developed. If the company does not have enough capacity, it will require planning and budgeting decisions for capital spending for capacity expansion.

On this basis, the manager must estimate the future cash inflow and outflow. He or she must plan cash and borrowing needs for the company's future operations. Forecasts of cash flows and the rates of expenses and revenues are needed to maintain corporate liquidity and operating efficiency. In planning for capital investments, ...