Financial Planning & Analysis and Performance Management

12BUSINESS PROJECTIONS AND PLANSIntroduction and Best Practices

CHAPTER INTRODUCTION

The most challenging aspect of financial planning and analysis (FP&A) centers on the need to develop and evaluate projections of future financial performance. Almost every important managerial decision requires some estimation of future financial results. Owing to the dynamic nature of the world in which we now operate, the task of predicting future performance has become very challenging. Many finance teams have stepped up to this challenge and made significant changes to planning, budgeting, and forecasting processes over the past 25 years. In this chapter, we will provide an overview of financial projections. Succeeding chapters will cover planning and budgeting, forecasts and outlooks, and long‐term financial projections. Planning and estimating specific areas, such as revenues and gross margins, operating expenses, and working capital are covered in Part Four, Planning and Analysis for Critical Business and Value Drivers.

OVERVIEW OF BUSINESS PLANNING AND PROJECTIONS

Historical Perspective

Budgets, in some form, were originally used by the British Empire and other governments hundreds of years ago. They were in common use by commercial enterprises in the late nineteenth century. Budgeting became very popular in the twentieth century and was adopted as a key part of managing the business by most companies and organizations. Incremental improvements were made to the process, and ...