Blog · Territory, capacity and quota planning
A budget is the plan approved before the year starts; a forecast is the latest estimate of where the year will land. This page sets out the difference in one table, works a quarterly budget and a Q2 reforecast, explains why the budget stays fixed, how forecasts and rolling forecasts are updated, and how to report actuals against both.
A budget is the plan approved before the year starts, and it stays fixed as the target. A forecast is the latest estimate of where the year will land: actuals to date plus a fresh estimate of the remaining months, updated as each month or quarter closes. A company that budgeted revenue of $22,000,000 and now forecasts $21,000,000 is reporting two true numbers, the target it set and the outcome it expects, and the budget and forecast are read together.
| Budget | Forecast | |
|---|---|---|
| Purpose | The target: what the company commits to achieve | The expectation: where the year will actually land |
| When it is set | Once, before the fiscal year starts | Every month or quarter during the year |
| Horizon | The fiscal year | The rest of the fiscal year, or a fixed 12 to 18 months if rolling |
| Who owns it | Approved by the board or executive team | Prepared by FP&A with budget holders |
| How often it changes | Not during the year | Every update |
| Compared with | Actuals, to measure performance | Actuals, to measure forecast accuracy; budget, to show the expected gap |
| Drives | Targets, bonuses, accountability | Cash, hiring, purchasing and supplier commitments |
The OpenStax managerial accounting text describes the budget the same way: a static budget is created before the fiscal year begins and remains at one amount whatever happens. A budget built from zero rather than from last year, as in zero-based budgeting, is still a budget: it is set once and becomes the target.
Revenue budget set in November, in thousands of dollars. Q1 then closes at 4,700, and in early April the company reforecasts Q2 to Q4.
| Quarter (USD k) | Budget | Actual or forecast | Type | Variance to budget |
|---|---|---|---|---|
| Q1 | 5,000 | 4,700 | Actual | -300 |
| Q2 | 5,400 | 5,100 | Forecast | -300 |
| Q3 | 5,600 | 5,300 | Forecast | -300 |
| Q4 | 6,000 | 5,900 | Forecast | -100 |
| Full year | 22,000 | 21,000 | -1,000 |
Full-year forecast = Actuals year to date + Forecast for the remaining periods
4,700 + 5,100 + 5,300 + 5,900 = 21,000
The full-year forecast is 1,000 below budget, or 4.5% (1,000 / 22,000). In the UK this full-year figure is often called the outturn, or the outturn forecast.
In Excel, with the Q1 actual in C2 and the Q2 to Q4 forecasts in C3:C5:
=SUM(C2:C2)+SUM(C3:C5)
As each quarter closes, the actual replaces the forecast in that row and the first range grows by one cell.
The budget stays at 22,000 for the rest of the year. Targets, bonuses and the board's view of performance were set against it, and the people it measures cannot move it. If the budget were reset to 21,000 in April, the Q1 miss and the expected shortfall would disappear from every report, and every later variance would look small.
The forecast of 21,000 is what the company now plans on. Cash, hiring and supplier orders follow the forecast, because committing spending against revenue that will not arrive is how a revenue miss becomes a cash problem. The cash flow forecast takes its receipts from this revenue forecast, not from the budget.
Each update is actuals to date plus a fresh estimate of each remaining period, built from drivers: the order book and pipeline, price changes, volumes by product, hiring dates. It is not the budget minus the year-to-date miss. In the example, a mechanical forecast would carry the Q1 miss forward and land at 22,000 - 300 = 21,700. The driver-based reforecast says the shortfall continues through Q3 and lands at 21,000, a 700 difference that changes the cash plan.
Forecast costs as well as revenue. A revenue forecast of 21,000 with costs left at budget gives a full-year profit forecast that is wrong by the margin on the missing 1,000 plus any cost the company will save or add.
Keep every version. The November budget, the April reforecast and each later one are separate snapshots, and accuracy can only be measured against the version that was current when the period started.
A fiscal-year forecast shrinks as the year passes: in April it covers nine months, in October three. A rolling forecast keeps a fixed horizon, usually 12 to 18 months, and adds a period each time one closes. OpenStax describes a rolling budget the same way: adjusted monthly, with a new month added as each month passes.
Most companies run a rolling forecast beside the annual budget: the budget for targets, the rolling forecast for decisions that cross the year end. Some go further and drop the fixed annual target; the Beyond Budgeting Round Table promotes management principles that reduce annual target setting. That is a change in how performance is judged, not only in how the numbers are produced.
When Q2 closes, suppose actual revenue is 5,160. The report carries three columns and two variances:
| Q2 (USD k) | Budget | Forecast (April) | Actual | Variance to budget | Variance to forecast |
|---|---|---|---|---|---|
| Revenue | 5,400 | 5,100 | 5,160 | -240 | +60 |
Variance to budget = Actual - Budget
Variance to forecast = Actual - Forecast made at the start of the period
Forecast accuracy = 1 - ABS(Actual - Forecast) / Actual
The budget variance, -240, measures performance: the quarter missed plan. The forecast variance, +60, measures expectation: the April forecast was close, with an accuracy of 1 - 60 / 5,160 = 98.8%. Both are true, and they answer different questions. Explaining the -240 is variance analysis; judging whether 98.8% is good is covered in what is a good forecast accuracy.
Comparing actuals with the budget and each forecast version needs every version kept. Covirage's tools store the versions you upload, compute the variance to each and measure forecast accuracy; the external AI model explains the gap and never does the arithmetic. See FP&A reporting for reporting against budget and the latest forecast from one set of definitions. For templates, see budget vs actual and the business budget template; for the team that owns both, what is FP&A.
A budget is the plan and target for the year, set once before it starts. A forecast is the current best estimate of the outcome, revised during the year as results come in. The budget says where the company intends to be; the forecast says where it now expects to be.
Most companies reforecast monthly or quarterly. Quarterly is common for the full P&L; revenue and cash are often reforecast monthly. The update should be quick enough that it reflects the latest actuals before decisions are taken on it.
A rolling forecast always looks the same distance ahead, for example 12 or 18 months, and adds a new period each time one ends. Unlike a fiscal-year forecast, it does not shrink as the year goes on. Some companies use it instead of an annual budget.
Usually on the budget, because it was set in advance and cannot be moved by the people it measures. Basing bonuses on forecasts gives an incentive to forecast low. Some companies add a forecast-accuracy measure to discourage sandbagging.