Karanvir Singh, TYBBI, A

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UNIVERSITY OF MUMBAI

A PROJECT REPORT ON
FINANCIAL PLANNING AND FORECASTING

A PROJECT SUBMITTED TO
UNIVERSITY OF MUMBAI FOR PARTIAL COMPLETION OF THE
DEGREE OF

MASTER IN COMMERCE

UNDER THE FACULTY OF COMMERCE


By

KARANVIR SINGH KALOHIYA


ROLL NO- 41

UNDER THE GUIDANCE OF


Prof. Mrs PRAJAKTA KHAMKAR

VIDYA PRASARAK MANDAL’S K.G JOSHI COLLEGE


OF ARTS & K.G BEDEKAR COLLEGE OF COMMERCE
CHENDANI BUNDER ROAD.
THANE (W)-400601
ACADEMIC YEAR 2020-2021
2020/2021
Vidya Prasarak Mandal, Thane

K.G. JOSHI COLLEGE OF ARTS &

N.G. BEDEKAR COLLEGE OF COMMERCE

CERTIFICATE

OF
PROJECT WORK

This is to certify that

Mr.Ms KARANVIR SINGHKALOHIYA

of B. .com bbiA) Semester-vI Roll No. 41 has undertaken &

Completed the project work title- FINANCIALPLANNINGANDFORECASTING


during the academic year 2020-2021 under the guidance of

Mr./ Ms. PROF. MRS. PRAJAKTA KHAMKAR

Submitted on to this college in fulfilment of the

curriculum of B.COM (BANKING AND INSURANCE)

UNIVERSITY OF MUMBAI

This is bonafied project work & the information presented is True & original to the best of our
knowledge and belief.

PROJECT COURSE EXTERNAL PRINCIPAL


GUIDE CO-ORDINATOR EXAMINER
DECLARATION
I the undersigned Mr . K A R A N V I R S I N G H K A L O H I Y A here by, declare that
the work embodied in this project work titled ―F I N A N C I A L P L A N N I N G A N D
F O R E C A S T I N G ‖ forms my own
contribution to the research work carried out under the guidance of my professor
Ms. PRAJAKTA KHAMKAR is a result of my own research work and has not been
previously submitted to any other University for any other Degree/Diploma to this or any
other University.

Wherever reference has been made to previous works of others, it has been clearly indicated as
such and included in the bibliography.

I, here by further declare that all information of this document has been obtained and presented
in accordance with academic rules and ethical conduct

KARANVIR SINGH KALOHIYA

ROLL NO-41

Certified By

Prof Mrs. PRAJAKTA KHAMKAR


ACKNOWLEDGMENT
To list who all those who have helped me is difficult because they are so numerous and the
depth is so enormous.

I would like to acknowledge the following as being idealistic channel and freshdimensions the
completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do this
project.

I would like to thank my Principal Dr. Suchitra Naik for providing the necessary
facilities required for completion of this project.

I take this opportunity to thank our Coordinator Mrs. Dr. Mrunmayee Thatte , for her moral
support and guidance.

I would also like to express my sincere gratitude towards my project guide


Mrs.Prajakta Khamkar whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference
books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me in the
completion of the project especially my Parents and Peers who supported me throughout my
project.
Index
CHAPTER TOPIC PAGE
NO NO
Chapter 1 Introduction 1

1.2 Definition of forecasting 6

1.3 Definition of planning 6


1.4 7 Important Factors in Financial Forecasting for Business 7

1.5 Top financial forecasting methods explained 10

1.6 What is Forecasting? 14

1.7 Budgeting vs. Forecasting 15

1.8 Forecasting Methods 15

1.9 Features of Forecasting 16

1.10 The Process of Forecasting 17

1.11 Sources of Data for Forecasting 18

1.12 Characteristics of a Quality Financial Forecast 19

1.13 supports the strategic plan 22

1.14 Factors influencing the quality of budgeting, forecasting 27


and financial planning process
1.15 Corporate culture towards planning 30

1.16 Plausibility of assumptions 31

1.17 The value adding Budgeting, forecasting and financial 38


planning process.
1.18 Importance of the strategic plan 45

1.19 Performance measurement 43


Chapter 2 Research methodology 45

Chapter 3 Review of literature 48

Chapter 4 Data analysis in presentation 61

Chapter 5 Finding conclusion and recommendation 73


5.1 Finding 74

5.2 Conclusion 76

5.3 Recommendation 77

Chapter 6 Bibliography and 78


Reference
Chapter 1 Introduction

1
1.1 INTRODUCTION

One of the key challenges facing companies today is the ability to plan for the future
and to predict operating performance. An effective, timeous and accurate budgeting,
forecasting and financial planning process offers organizations an opportunity to
prepare for and be in a position to succeed in a rapidly changing business environment.
Companies that can update plans and forecasts quickly are in a better position to take
advantage of opportunities and respond to threats (Stretch, 2009: 90).

Budgeting, forecasting and variance analysis are management accounting tools that
can help organizations gain a more in depth understanding of the industry in which
they operate. Over time, the understanding is refined and these tools can ultimately
add value to the organizations’ strategic decision- making process.

Achieving true value through the financial planning process is dependent on a number
of factors, namely:

• understanding of the industry-specific challenges and opportunities


• corporate culture of the organization regarding planning and budgeting
• the organizations’ ability to quickly change the scope of its assumptions as the
business environment changes
• time and costs involved in the process
• integration of all the functional areas of the organization in the planning process

Organizations need to carefully consider the economic environment as well as take


cognizance of the various internal and external factors which may have an impact on
its operations. According to Botten (2008: 42) organizations should maintain a
weather-eye on its environment, watching

2
out for emerging opportunities and threats. Each industry has its own set of challenges
and opportunities that organizations have to take into account in their strategic
planning. Therefore, budgeting and forecasting have to consider these general and
industry-specific opportunities and threats.

An organizations attitude toward planning is important, buy-in from the whole


organization must be obtained in order for the process to add value and to be effective.
Stretch (2009: 89) argues that many managers are burdened with planning systems
developed years ago in a relatively static, easy to understand, industrial age. This kind
of organizational scenario at a managerial level could lead to negativity and a lack of
buy-in to the planning process. Other reasons for criticism and lack of buy-in are
highlighted by Collier & Agyei-Ampomah (2007: 39 - 40) as follows, budgets;

• are time-consuming and expensive


• provide poor value to users
• are too rigid and prevent fast response
• can lead to unethical behavior

In an environment where timely and accurate information is invaluable to making


strategic decisions, an organizations ability to change or update the original plan
quickly is crucial. The use of flexible budgets or rolling forecasts has given
organizations this opportunity. A flexible budget or forecast is a much better basis for
investigating variances, especially when key drivers such as planned volumes differ
from the original plan (Collier & Agyei- Ampomah, 2007: 41).

Shortened budgeting and planning cycles are also integral to the success of the
financial planning process. According to PricewaterhouseCoopers (2011: 9), the
consequence of lengthy planning and budgeting cycles often mean that the final budget
falls out of step with quickly evolving business conditions. Shortened planning cycles
also mean there are less costs involved in the process.

The role of the finance department is to provide a financial evaluation of agreed-upon


sales volumes, macro-economic and internal assumptions.

3
Although finance drives the budgeting process, it has to originate at a strategic level
through the company’s mission statement, key corporate objectives and goals.
Financial planning must be an integrated process involving all the functional areas of
the organization.

PricewaterhouseCoopers (2011: 3) states the importance of linking sales and


operational planning activities with the financial planning process. Ogilvie (2008: 28-
35) argues that financial analysis requires an understanding of the products, services
and operating characteristics of the entity. This reiterates the need for finance to be
closely involved with the various functional areas of the organization throughout the
planning process. Improving the finance department’s understanding of the business
will ultimately improve the quality and accuracy of the financial evaluation.

For many years, organization have viewed budgeting and forecasting as mandatory
and time consuming. The traditional budgeting and forecasting processes are still the
cornerstones of the corporate financial planning process. In South Africa today,
companies still budget once a year, and use this budget as the benchmark for judging
monthly performance (Stretch, 2009: 90).

Each year, the various operational areas within the company provide input to finance
in order to compile a budget. These inputs are used together with certain assumptions
and the financial impact thereof presented as the finance department’s evaluation.
Once all parties agree, a formal budget is approved and filed away. However, as key
drivers such as the macro- economic and socio-political environment, pricing, inflation
and volumes change, the approved budget becomes useless as a measurement tool for
evaluating the organization performance. Stretch (2009: 89) argues that today’s
rapidly changing economy has rendered these old, time-consuming, costly, slow and
unresponsive processes obsolete. Organization may still have the traditional
budgeting process but should also do monthly rolling

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forecasts to modify the original plan as circumstances change; this modified plan
would be a much better basis for performance management.

Even if the organisation moves toward the flexible or rolling forecast approach, there
are still a number of factors that hinder the quality of the budgeting and forecasting
processes. As a result, planned data is not being used to its full potential. This
information should add value to an organization strategic decision-making process.

Considering the limitations of the traditional budgeting and forecasting processes and
also the various factors that influence the quality of these processes, organization need
to have a strong focus on budget and forecast accuracy. Forecasts are not always
accurate – they are essentially about predicting the future with incomplete information
(Department of Treasury, 2008: 2). According to Ernst & Young (2011: 2) budget and
forecast results may not focus on accurate or timely information, thus offering little
predictive value which limits the organization’ ability to respond confidently to
changing market conditions and increases the possibility of poor strategic decision-
making.

Accurate financial planning data provides the following:

• gives finance a good base with which to compare actual accounting data
• actual versus budget/forecast analysis provides finance and top management
with necessary information for improving strategic decision-making

PricewaterhouseCoopers (2011: 3) argues that forecasting accuracy is at the top of the


improvement agenda; companies that formally measure and report on forecast
accuracy have achieved a higher level of precision. In a discussion regarding the
importance of forecast accuracy, Morlidge (2012: 1) mentions that if organization do
not measure the quality of their forecast and budgeting process and, most importantly,
act upon it, they have no guarantee that the budget or forecast can be relied upon.
Forecasting.

5
1.2 Definition of forecasting

Forecasting is essentially a re-casting of the budget, in summarized form, to reflect


changing market conditions, strategic plan alterations, error corrections and revised
assumptions in the original approved budget. Companies typically re-forecast monthly
or on an ad hoc or event basis in this unpredictable economy, with the process executed
by a handful of finance personnel

1.3 Definition of planning

IBM (2009: 3) states that planning is a strategic prediction of business performance


at a summary level. Usually, planning is the province of a few savvy senior managers
charged with making sure the company responds to changing market conditions and
opportunities, balancing assets with opportunities. Accordingly, the process can be
fairly frequent and must be completed quickly. According to Jackson, Sawyers and
Jenkins (2009: 326) planning is the cornerstone of good management and requires the
development of objectives and goals for the organization as well as the actual
preparation of budgets.

The key aspects of planning, budgeting and forecasting are summarized in Table 2.1.

Key aspects of planning, budgeting and forecasting

Centralized or
Level of
Decentralized Frequency Speed
detail
Planning Centralized Summary Often Quick
Highly
Budgeting Decentralized Annual Slow
detailed
Mostly light Monthly or
Forecasting Centralized Quick
detail ad hoc

6
1.4 7 Important Factors in Financial Forecasting for Business

Financial forecasting of revenue and experiences at any stage of business development


is more creativity than blueprint.

Financial forecasting for the future of a business is not easy but there are advantages
to doing so early and consistently.

Before we look at the important factors of financial forecasting, we must understand


what the term means. A layman’s definition of financial forecasting is to plan or define
a financial budget for a business. The purpose of such financial planning is to estimate
two things: revenue and expenses. Here is a basic overview of how the process of
financial forecasting plays a vital role in business:

1 New Business Promotion

When financial forecasting is done the right way, businesses can utilize that funding
to promote new business ventures and initiatives. Further, business leaders can attempt
to determine the success or failure of the business they are promoting.

2 Estimating Financial Requirements

The importance of financial forecasting in estimating financial requirements cannot be


ignored. A simple estimation like determining the capital for a specific project is done
through effective forecasting that allows management to make sound decisions.

7
Financial forecasting can be done to determine sales and derive costs of customer
acquisition.

3 Seamless Functioning

Having accurate and effective forecasting of business finances including current


revenue, revenue potential, and expenses helps to ensure the organization runs
smoothly. Organization can anticipate future roadblocks and prepare for them to make
sure problems don’t stop the core functioning of business operations.

4 Informed and Correct Management Decision

To ensure that management makes the right decisions for growth of the organization,
the managers must have the correct information. Having accurate financial information
helps management to do a better job of forecasting and planning for the future of the
business. Any business, big or small, can always expect unforeseen circumstances.
Therefore, with proper financial planning, management can be prepared and make the
best decisions possible.

5 Achieve Overall Success

Having an accurate financial forecast becomes a strong foundation for budgeting of


departments across the organization. For example, if the sales forecast is done
effectively, production can be managed accurately. Based on that, the company can
forecast turnover rates, which will lead to the overall success of the organization.

6 Control Cash Flow

An important element for the success of any business is cash flow control.
Organization that have a good amount of cash in hand are financially more organized,
and can take better control of their operations. Such organization know how much
cash they have, how much they need, and how much potentially they will have and at
what time.

8
7 Measure Your Plan

Whether you are the captain of the sea or a business owner, you can’t just set off on a
course and not keep a track of where you are going and how much time and resources
it will take to get there. Just like a sea captain needs to constantly check the resources
he needs to sustain his journey; a business owner needs to continuously check on the
financial health of the business.

Remember, if you want to effectively manage business finances, always keep an eye
on three important financial statements:

• Profit & Loss Statement

• Balance Sheet

• Cash Flow Statement

Financial forecasting is a critical part of business planning. Even though many such
events are unpredictable, it is very possible to put plans in place that will prevent such
events, or, at the very least, ensure that outcomes from such events are kept to a
minimum.

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1.5 Top financial forecasting methods explained

When it comes to choosing a financial forecasting model that offers accurate, reliable data to
inform strategic decision-making, businesses face a spectrum of options. You can choose
between simple forecasting options and complex methods requiring business software to
account for all of the different variables being considered

Each approach offers its own strengths and weaknesses, so businesses have to choose the
forecasting method that best suits their needs and their goals in projecting future finances.

It’s important to keep in mind that no financial forecast is fool proof. Because your organisation
is attempting to make future predictions based on information and insights rooted in the past,
there is always a margin for error, no matter how robust of a forecasting method you choose.
Instead, businesses are seeking a forecasting method that offers general reliability in helping
frame and inform financial decisions such as budgeting and hiring.

Forecasting methods typically fall into one of two categories: qualitative and quantitative
forecasting. Here’s a look at each school of thought, along with some of the leading forecasting
methods used by businesses today.

Quantitative forecasting methods

Quantitative financial forecasting takes a straightforward approach to generating forecasts based


on hard data. Typically, quantitative forecasting is more effective when dealing with data points
such as future sales growth and tax topics, rather than subject matter that has less concrete data
to guide these forecasts.

Although quantitative forecasting takes the guesswork out of the process, it can also be limited
by a lack of human expertise, resulting in a deficit of important context that could alter forecasts
significantly. Still, it’s a useful tool in a number of business scenarios, especially in cases where
your historical business data is a reliable resource for projecting future results.

Here are some of the top quantitative models used by businesses.

Straight line

A straight-line forecasting method is one of the easiest to implement, requiring only basic math
and providing reasonable estimates for what businesses can anticipate in future financial
scenarios. Straight-line forecasting is commonly used when a business is assuming revenue

10
growth in the future.

Your business may use its past revenue growth rate as a standard for growth in the future. If
revenues have grown by an average of seven percent over the past three years, for example, you
could assume a similar growth rate for the next three to five years with the straight-line method.

Of course, many variables will affect not only your revenue growth, but also your net profits
over that period of time. But this method can still be effective when you’re setting financial
goals and budgets, and creating plans for the future based on where you expect your company
to be.

Moving average

A moving average is the average performance of a specific metric over a specific period of time.
Typically, a moving average is used to evaluate on monthly time frames, rather than yearly time
frames. It’s often used to evaluate revenues, profits, sales growth, stock prices, and other
common financial metrics.

A moving average is great for smoothing out performance over time to get a better
understanding of your company’s financial trends. If you’re in an industry where sales and
revenue can fluctuate over time, a three- or five-month moving average can help you make sense
of the peaks and valleys that take place from one month to the next.

Time series

Time series is an umbrella term representing a few different approaches to financial forecasting.
The strategy behind this forecasting method is to identify patterns in historical data that will
repeat in the future, enabling data-driven forecasting across a range of financial metrics.

You can use this in cases where performance is expected to be fairly steady. For example, time
series forecasting can use sales and revenue growth from prior months to estimate performance
in the upcoming month. Or, if a straight translation of these trends isn’t accurate to your business
results, you could embrace a smoothing approach to time series forecasting, using averages of
these numbers to eliminate extremes and forecast a time-bound pattern for performance into the
future.

In cases where seasonal or other trends can affect forecasts, time series forecasting also allows
for historical data to be adjusted based on these trends. If you’re a retailer experiencing peak
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sales and revenue in the fourth quarter of every year, for example, this can be accounted for in
time series forecasting.

Linear regression

Linear regression is a graphical representation of the relationship between two or more data
points. It uses the relationship between x and y variables to chart a trend line illustrating the
relationship between the two.

Sales and profits serve as an easy example. If sales increase, profits are likely to increase,
creating a linear regression that shows a positive correlation between the two. But if sales
increase and profits decrease, it can indicate other problems, such as rising expenses that are
cutting into profits—including, potentially, an increased cost per conversion that is reducing the
value of your company’s sales efforts.

The trend line produced by this linear regression can be used to forecast future results,
supporting better budgeting and helping business leaders make strategic decisions thatimprove
business performance.

Qualitative forecasting methods

Qualitative forecasting is an inexact science. It uses soft data, such as estimates from experts
that can’t be corroborated by historical data. An example of qualitative data is when an
executive predicts the costs a company will incur due to a new regulatory law. The expert could
be correct in their prediction, given their vast experience and insight, but there is limited data
available to support any prediction when such circumstances have never been faced before.

In general, qualitative forecasting becomes less reliable the further into the future it attempts to
predict. But qualitative forecasting remains popular, and effective, when applied in short-term
situations.

Here’s a look at the two leading models for qualitative forecasting:

Market research

Market research is widely used in the business world to evaluate potential scenarios a company
hasn’t faced before. One well-known example of this is when a business is choosing where to
open a new location, or when it’s testing the marketing and packaging for an upcoming product.

12
Market research does generate data to inform financial forecasts, but there are many variables
and unreliable circumstances that make it hard to rely too heavily on the accuracy of this data.
In general, the more data gathered through market research, the more trustworthy that data will
be. But gathering market research is time-consuming and costly, and even the deepest
investment in this process won’t guarantee that small research biases, inconsistencies in data
collection, or other uncontrolled variables won’t mess with your results.

Delphi method

Similar to market research, the Delphi method of financial forecasting sources its data from
experts who can speak knowledgeably on the subjects being evaluated. Your company will seek
outside sources, as well as in-house expert insight, to compile data through questionnaires that
can be used to identify consensus opinions about various financial matters.

This can be a great tool for performing qualitative long-term forecasting, such as discussing the
growth of a certain industry or market, or attempting to project the value of real estate
investments as the market changes over the next few years.

Financial forecasting plays an important role in planning, budgeting, and many other financial
activities in your company. Whether you’re managing cash reserves, setting marketing budgets
for the next year, managing employee payrolls, or looking for opportunities to expand your
business, the forecasting methods you choose will have a direct impact on the decisions you
make in each of those processes. Want to accelerate your financial planning by improving the
data used in these forecasts? Download the Longview Continuous Planning e-book today.

13
1.6 What is Forecasting?

Forecasting refers to the practice of predicting what will happen in the future by taking into
consideration events in the past and present. Basically, it is a decision-making tool that helps
businesses cope with the impact of the future’s uncertainty by examining historical data and
trends. It is a planning tool that enables businesses to chart their next moves and create budgets
that will hopefully cover whatever uncertainties may occur.

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1.7 Budgeting vs. Forecasting

One thing that is definitely true is that budgeting and forecasting are both tools that help
businesses plan for their future. However, the two are distinctly different in many ways. Let’s
consider the following points:

• Budgeting involves creating a statement that consists of numerous financial activities of


a company for a specific period, such as projected revenue, expenses, cash flow, and
investments. It is usually not conducted solely by one department, say, the finance
department, because it requires input from other departments in order to come up with
a holistic and detailed report. Therefore, the budgeting process takes time to complete.
The company uses the budget to guide it in its financial activities.

• While budgets are usually made for an entire year, forecasts are usually updated monthly
or quarterly. Through forecasting, a company is able to adjust its budget and allocate
more funds to a department, as needed, depending on what is foreseen. In summary,
budgets depend on the forecast.

1.8 Forecasting Methods

Businesses choose between two basic methods when they want to predict what can possibly
happen in the future, namely, qualitative and quantitative methods.

1. Qualitative method

Otherwise known as the judgmental method, qualitative forecasting offers subjective results, as
it is comprised of personal judgments by experts or forecasters. Forecasts are often biased
because they are based on the expert’s knowledge, intuition, and experience, and rarely on data,
making the process non-mathematical.

One example is when a person forecasts the outcome of a finals game in the NBA, which, of
course, is based more on personal motivation and interest. The weakness of such a method is
that it can be inaccurate.

15
2. Quantitative method

The quantitative method of forecasting is a mathematical process, making it consistent and


objective. It steers away from basing the results on opinion and intuition, instead utilizing large
amounts of data and figures that are interpreted.

1.9 Features of Forecasting

Here are some of the features of making a forecast:

1. Involves future events

Forecasts are created to predict the future, making them important for planning.

2. Based on past and present events

Forecasts are based on opinions, intuition, guesses, as well as on facts, figures, and other
relevant data. All of the factors that go into creating a forecast reflect to some extent what
happened with the business in the past and what is considered likely to occur in the future.

3. Uses forecasting techniques

Most businesses use the quantitative method, particularly in planning and budgeting.

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1.10 The Process of Forecasting

Forecasters need to follow a careful process in order to yield accurate results. Here are some
steps in the process:

1. Develop the basis of forecasting

The first step in the process is developing the basis of the investigation of the company’s
condition and identifying where the business is currently positioned in the market.

2. Estimate the future operations of the business

Based on the investigation conducted during the first step, the second part of forecasting
involves estimating the future conditions of the industry where the business operates and
projecting and analyzing how the company will fare.

3. Regulate the forecast

This involves looking at different forecasts in the past and comparing them with the actual things
that happened with the business. The differences in previous results and current forecasts are
analysed, and the reasons for the deviations are considered.

4. Review the process

Every step is checked, and refinements and modifications are made.

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1.11 Sources of Data for Forecasting

1. Primary sources

Information from primary sources takes time to gather because it is first-hand information, also
considered the most reliable and trustworthy sort of information. The forecaster himself does
the collection, and may do so through things such as interviews, questionnaires, and focus
groups.

2. Secondary sources

Secondary sources supply information that has been collected and published by other entities.
An example of this type of information might be industry reports. As this information has
already been compiled and analysed, it makes the process quicker.

Additional Resources

Thank you for reading CFI’s guide to forecasting. CFI offers the Financial Modeling &
Valuation Analyst (FMVA)™ certification program for those looking to take their careers to
the next level. To keep learning and advancing your career, the following CFI resources will be
helpful:

• DCF Modelling Guide

• Projecting Balance Sheet Line Items

• Projecting Income Statement Line Items

• Regression Analysis

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1.12 Characteristics of a Quality Financial Forecast

A financial forecast is a reflection of the financial in future. Executive who use the information to
make a major decision that involves committing substantial resources and feels comfortable about
having done so has been working with a quality forecast. Does the financial forecast contain all of the
available information that is pertinent to the decision being evaluated? Here are some of the
characteristics of a forecast that may provide comfort to both the analyst and the decision maker.

1) Incrementality
All benefits, expenses, and investments that will change as a result of the decision should be included
in the financial forecast. That is the concept of “incrementality “. This includes indirect expenses and
the cost of additional support staff. An engineer who must be added to the team to support the product
is incremental.
So is marketing research necessary to make some marketplace decisions. Any spending is incremental
as long as it results from implementing the decision and will not be incurred if the decision is to not
implement the project.
The financial forecast should not include allocations of existing corporate overhead. The purpose of

19
the forecast is to identify the financial impact that the project will have on the company.

2) Financial Forecast Time Frame


With a few exceptions, most financial forecasts should provide a maximum of five years of cash
inflows. Because of changes in technology and global economic turmoil, predicting the future is more
difficult than ever. Even though we hope that the new business will last forever, we know that that
will not happen. If five years of cash inflows do not justify the investment and permit the company to
achieve its ROI targets, the risk factors increase substantially.
Adding years to the forecast can be a form of analytical manipulation, whether intentional or not.
More years of cash inflows will increase the ROI. Therefore, using a set number of years for all
forecasts assures comparability and objectivity.
Exceptions will include calculating the ROI on such things as pharmaceutical research or the
construction of major oil pipelines. These may very well have time horizons of 10 years or even
longer.

3) Accounting Rules
The financial forecast should respect the accounting rules and practices that will govern the company’s
reporting over the period for which the forecast is made. This is particularly important as it relates to
tax reporting, which will have significant cash flow effects. However, adhering to accounting format
requirements is not critical except insofar as cash flow will be affected. After all, the analysis is
forecasting the future, not reporting the past.

4) External Financing
Cash flow forecasts should assume that the investments will be all cash, and the investments should
be included in the forecast at the point when the commitments to acquire assets are made. This is true
even if the company expects to get financing for the project from a bank or even from the equipment
vendors. The project and the underlying risk begin when the commitments are made, which may be
long before the cash is disbursed. While the use of external financing sources may be favorable and
in fact may be necessary, external financing increases risk. Debt service payments are a fixed cost that
increases the company’s breakeven point.
If external financing is decided upon, the first analysis should reflect the now hypothetical up-front
cash investment. This is called the base case. The ROI calculated on this basis should exceed the
company’s ROI hurdle rate. Analyses of financing alternatives can then be compared to this base case.
Thus, discounted cash flow analysis becomes a tool for evaluating proposals from banks and other
lenders. When the external financing is included in the analysis, the ROI will increase significantly.

20
Financing is in fact postponing cash outflows. The cost of that financing will be included in the revised
forecast. The before-tax cost of borrowing should be substantially below the after-tax ROI, thus
improving that ROI on the project in its entirety.

5) Working Capital Investment


As we have said, an investment is an exposure of cash that has the objective of producing cash flow
benefits in the future. If a project involves business expansion, additional inventory will be needed in
order to produce the additional products, and additional accounts receivable will be needed in order
to finance the sales that will be made. Inventory and accounts receivable are investments just like the
purchase of fixed assets. They should be an integral part of the project analysis.

6) Economics and Pricing


Financial forecasts should reflect current product prices and operating costs. The company should
never rely on higher future selling prices to justify current investments.
[1]. Technology is causing prices to be lower rather than higher as a business expands. Competition
on a global scale makes every business vulnerable to increased pricing pressures.
[2]. If the project implementation is successful, potential competitors will be attracted and will soon
be actual competitors. As a result, prices will not be higher. Computers, computer software and
operating systems, and pharmaceuticals are prime examples of this. It is very dangerous to invest in a
business on the premise that selling prices in the future will be higher.

You should look at the annual economic forecasts published in the major business publications. These
are surveys of the country’s top fifty economists. The divergence of their expert analyses is eye-
opening. The range between the most optimistic and the most pessimistic forecasts of GNP, inflation,
and unemployment is extreme. Most of these forecasts will be wrong. Incredibly, these economists
are forecasting only one year in the future. If these economists cannot forecast one year accurately,
how can we novices impose our economic forecasts on an ROI analysis and expect to be reasonably
accurate? The most effective method of dealing with this uncertainty is to assume that the current
economic situation continues, perhaps adjusting it for known events extending into the next year.

21
1.13 supports the strategic plan
Despite the above-mentioned reasons, the traditional budgeting and forecasting
processes have been under scrutiny in recent years. According to Collier and Agyei-
Ampomah (2007: 40) budgeting disempowers the front line, discourages information
sharing and slows an organization response to market conditions. Barrett and Hope
(2006: 28) argue that the annual budget takes too long and in many instances adds little
value. Traditional budgeting evolved at a time of stable trading environments,
however, today’s markets are increasingly unstable and the pace of change is rapid. In
contrast to the reasons cited above, IBM (2009: 2) mentions the following reasons why
the traditional budgeting process can add little or no value to the organisation:

a) we spend more time creating a budget than analysing it


b) after the budget is approved, no one looks at it again
c) budget holders dislike the tedious and lengthy process
d) budget holders attribute adverse variances to the finance department and favorable
variances to their own performance and managerial skill

According to KPMG (2010: 3) in traditional budgeting, companies set targets with


checkpoints throughout to aid alignment across the organization. They then forecast
performance every quarter, typically through the end of the fiscal year. Annual plans
are static, strongly determine where investments would go and often serve as
benchmarks for executive performance measurement and compensation. This static
approach does not hold in today’s uncertain times.

A few of the criticisms of the traditional budgeting process cited by CIMA (2004: 7)
are as follows:

a) budgets constrain responsiveness and flexibility are often a barrier to change


b) budgets add little value, especially given the time required to prepare them
c) budgets encourage gaming and perverse behaviors

22
d) budget are developed and updated too infrequently
e) budgets are based on unsupported assumptions and guesswork
f) budgets make people feel undervalued

Cost control versus value creation

One of the key limiting factors of the traditional budgeting and forecasting processes
is the purpose for which the budget was prepared in the first place. Jackson, Sawyers
and Jenkins (2009: 326) highlight two purposes for which budgets are typically
prepared:
• the use of budgets for cost control and performance evaluation
• the use of budgets in strategic planning and operating activities

Many organizations still prepare an annual budget for the first reason, to control costs
and evaluate performance. John and Ngoasong (2008: 8) argue that this kind of
planning encourages internal politics, gaming behavior and a short-term culture that
focuses on achieving the budget figure or target. According to CIMA (2004: 3)
budgeting in this manner can stifle the entrepreneurial, risk-taking culture that can be
responsible for value creation. When rewards and incentives are offered for achieving
targets, managers may become reluctant to present an unbiased picture. This unbiased
picture will therefore add little or no value as an informational tool in the strategic
decision-making process. Jackson, Sawyers and Jenkins (2009: 328) state that this
kind of behavior is unethical and is not beneficial to the company as a whole.
Organization can reduce incentives for this type of behavior by holding managers
accountable and punishing unethical behavior with strong sanctions.

Organization may continue to use the annual budget and monthly re- forecasts as a
tool for cost control and performance measurement. However, Barrett and Hope
(2006: 29) mention that this process must not be seen by senior managers as just a tool
for questioning and reassessing performance targets. Leading organization use
budgeting and forecasting to support strategy reviews rather than simply check where
they are against

23
the actual plan. According to CIMA (2004: 3), if implemented correctly, budgeting
and forecasting can inform strategy implementation, risk management, resource
allocation and are generally regarded as an integral part of running a business.

Lack of departmental collaboration


A lack of cross-functional collaboration and the mind-set that the budget ‘belongs’ to
finance is also one of the limiting factors of the traditional budgeting and forecasting
processes.

In most organization, the finance department ‘owns’ and administers the budgeting
process. Accountants are therefore first in the line of fire for its perceived
shortcomings and are charged with making the necessary changes (CIMA, 2004: 2).
Akintoye (2008: 11) argues that the finance department are often seen as traffic cops
rather than strategic partners. Budgetary planning then becomes a mere exercise;
consequently, the quality of information for budgetary planning and control is
seriously compromised. This kind of organizational paradigm regarding the budgeting
and forecasting process can have serious implications as to whether the process itself
adds value to strategic decision-making.

Departmental managers provide assumptions such as sales volumes, inflation and


other key drivers to finance to use in the budgeting and forecasting process. According
to Adaptive Planning (2005: 1) because finance does much of the work themselves,
line managers see little benefit and are dragged through the process. There is a lack of
buy-in from the various functional areas and the finance department’s plan loses
credibility.

The role of finance and importance of cross departmental collaboration is dealt with
in greater detail in chapter 3.

24
Lengthy, inflexible and laborious planning cycles
The traditional budgeting and forecasting process is time consuming, inflexible and
costly. According to Deloitte Consulting LLP (2010b: 9) the greatest threat to effective
financial stewardship is a long, resource- consuming planning cycle. Too many
decisions are made without meaningful perspective and direction.

PricewaterhouseCoopers (2011: 9) states that organization spend a great deal of time


and effort on consolidating, summarizing, communicating, explaining and reviewing
information for financial planning. This argument is supported by IBM (2009: 6) who
mention that weeks and months are spent struggling with the mechanics of the process,
chasing submissions, checking for incomplete or invalid data and trying to track and
control versions. Another concern raised by IBM (2009: 6) is that the finance
department, even with enterprise resource planning software, is still doing too much
manual work to fine-tune the budget thus adding to the inefficiency of the process.
According to Adaptive Planning (2005: 6) many organization have an inefficient and
inflexible budgeting and planning process. This time- consuming distribution and
consolidation processes guarantees that the budget data is irrelevant before it is even
shared.

John and Ngoasong (2008: 36) state that with less time spent on the mechanics of
budgeting, there is more time to devote to analyzing the implications of the plan.
Organization is able to do more ‘what-if’ thinking to look into alternative approaches
and consider responses to changes in the plan. Results of a research study conducted
by PricewaterhouseCoopers (2011: 11) suggest that most of the time is spent on
reviewing the budget and securing approvals.

In view of the above-mentioned arguments, it is clear that more time is spent preparing
the budget or forecast than analyzing it. Analyzing data from the budgeting and
forecasting process is only valuable to the organization if the data is relevant, timely
and accurate.

25
Behavioral implications of budgeting

When budgets are used for both planning and control purposes, conflicts invariably
arise. If managers are evaluated and compensated according to whether they ‘meet the
budget’, they may have incentives to pad the budget, thus making targets easier to
reach (Jackson, Sawyers & Jenkins, 2009: 328).

According to Collier and Agyei-Ampomah (2007: 49) the practice of reducing budgets
where they have not been spent has led to managers spending their budget allocations
at year end, whether the expenditure is needed or not to avoid budget cuts in the
following year. Collier and Agyei-Ampomah (2007:
50) go on to mention that the manipulation of data or its presentation to show
performance in the best possible light is one of the dysfunctional behaviors of
budgeting, these include:

• smoothing: shifting revenue or expenses from one accounting period to


another
• biasing: selection of a message that the recipient wants to hear
• focusing: emphasizing on certain positive aspects rather than on other negative
ones

Another example of dysfunctional behavior as a result of traditional budgeting is


‘gaming’. Jackson, Sawyers and Jenkins (2009: 328) makes the following example of
‘gaming’ behavior, if a manager knows that he or she will receive a bonus if sales in
the department exceed the budget, they may attempt to set the sales budget at an
unrealistically low level.

This dysfunctional behavior in traditional budgeting has a serious impact on the


financial information being used to drive decision-making.

26
1.14 FACTORS INLFUENCING THE QUALITY OF BUDGETING, FORECASTING
AND FINANCIAL PLANNING PROCESSES

Organization that has moved away from the traditional ‘annual’ budgeting process
and embraced a planning cycle that focuses on a budget with more frequent re-
forecasting still face the challenge of ensuring the quality of information generated
through the budgeting, forecasting and financial planning process. This information
is useful for analyzing trends, developing meaningful business insights and
ultimately adding value to strategic decision-making.

According to KPMG (2010: 3) the key to reliable planning and forecasting is the ability
to draw together culture, process and internal and external data into balanced and
cohesive framework enabled by technology. Reliable planning and forecasting can
have an incredible long-term impact on the business, helping to improve the ability to
identify new opportunities and manage potential risks.

Deloitte Consulting LLP (2010b: 4) states that a value-adding budgeting, forecasting


and financial planning process provides the organization with the following:

1. aligns everyone to the same goals


2. provides both short-term and long-term targets
3. sets a framework with which to evaluate investment opportunities
4. guides the definition of key performance indicators (KPI’s)

As illustrated in figure 2.1, when it’s done right, the planning, budgeting and
forecasting process begins with the enterprise strategy (3-5 years) which drives
decision-making about investments, capital allocation and resource deployments.
Executives and business stakeholders are fully engaged in the process and drive
initiatives to obtain funding. These initiatives drive high- level financial plans (18-24
months) which set targets for operating plans (12- 18 months). Lessons learned from
variance analysis drives re-forecasting which in turn feeds back to the strategic plan.
Figure 2.1 also indicates that

27
the organization strategic plan should guide the key performance indicators used to
measure performance.

Figure1.1 Planning, budgeting and forecasting as a value-adding process

Leading organization are changing their mind-set about the budgeting, forecasting
and financial planning process. KPMG (2010: 4) cites the term ‘results-based
budgeting’ and argue that it can help integrate the strategic planning and financial
planning processes by linking the achievement of performance or specific measurable
outcomes to the allocation of resources and shifting the mind-set of the organization.
Figure 2.2 illustrates how results-based budgeting can add value to strategic decision-
making. The

28
strategic plan should drive the annual budget, once the framework has been provided
through the annual budget the organization should re-forecast the budget. Actual
results and comparing these results to budget and forecast will influence the strategic
plan.

Figure 1.2 Results-based budgeting

According to Jackson, Sawyers and Jenkins (2009: 328), a budgeting process that is
clearly guided by a strategic plan makes managers more focused on important aspects
of the budget and less worried about irrelevant details.

As illustrated in both figures 1.1 and 1.2, the starting point for the budgeting,
forecasting and financial planning process is careful consideration of the organization
strategic plan.

29
1.15 Corporate culture towards planning

According to CIMA (2004: 4) organizational culture is by far the biggest influence


on how formal systems and processes operate in practice. Fostering the right culture,
whatever that may be in the context of individual companies, was recognized as one
of the most important factors in the success of the budgeting and forecasting process.

It is critical that a company’s culture embraces and rewards planning. Excellent


business management requires excellent financial management, which in turn requires
a company-wide commitment to excellence in budgeting, forecasting and reporting

Many organizations regard the budgeting, forecasting and financial planning processes
with a mixture of suspicion and frustration. Planning is viewed as a time-consuming
waste of resources and the organization is practically dragged through the process each
year. Adaptive Planning (2005: 2) argues that senior managers are engaged in strategic
planning, with finance running the budgeting show and departmental managers
viewing the annual process as an unwelcomed chore. Another issue raised by IBM
(2009: 5) is that senior managers are concerned that the budget bears little relation to
their carefully prepared strategic plans.

A study of related literature indicates two key ways to improve organizational culture
toward planning:

30
1.16 Plausibility of assumptions

The use of assumptions is a vital element of budgeting, forecasting and financial


planning and has a direct impact on the quality of information generated as a result of
these processes.

According to Steven-Jennings (2009: 13) the key assumptions used in the plan must
be tested thoroughly by researching the industry, speaking to colleagues and
competitors and getting objective opinions. In a related publication, KPMG (2010: 1)
mention that the key to an effective budgeting and forecasting process is to validate all
possible assumptions and factors so that executive management can weigh the validity
of each and determine which to include and which to omit. Evaluating actual outcomes
to what was planned is a very effective means of testing the assumptions used in the
plan. Barrett and Hope (2006: 30) argue that management should carry our ‘post-
mortems’ on their budgets and forecasts. The purpose is not to attribute blame but learn
if forecast accuracy is improving and how they can improve it even further. These
‘post-mortems’ can also help significantly improve or change the scope of
assumptions.

Papenfuss (2012b: 1) mentions that the development, testing and discussion of forecast
assumptions are now a critical part of the planning process.

31
Figure 1.3 illustrates where the development, testing and discussion of assumptions
would fit into the financial planning process.

Figure 1.3 The development, testing and discussion of assumptions

A longer-range outlook in the budget or forecast process offers organization the


opportunity to test the plausibility of their assumptions. Organization, operating in an
international environment, which are affected by factors such as currency differences
have to make significant assumptions in terms of the strength or weakness of their
trading currency. Inflation and a deteriorating trading currency are often recovered
through product pricing and marketing. Jackson, Sawyers and Jenkins (2009: 348)
state that predicting inflation rates and prices in countries with unstable economies
adds a great deal of complexity and uncertainty to the budgeting process.

A longer-range outlook, beyond the end of the budget fiscal year, could indicate to
organization the various flaws in their assumptions. There is no rule of thumb with
regard to the range of this extended outlook, according

32
Barrett and Hope (2006: 30) it should certainly be longer than the end of the budgeted
financial year. To some extent it depends on how long it takes to make key decisions
about operations, capacity and capital spending.

A focus on improving forecast accuracy

The quality of financial information from the budgeting and forecasting process is
largely dependent on the organization attitude toward budget and forecast accuracy.
The need for improved value and accuracy from budgeting, forecasting and financial
planning led to a thorough research study conducted by PricewaterhouseCoopers in
2011. This study focused not only on the current challenges but also on the practices
organization are deploying to improve the financial budgeting and forecasting
processes

According to PricewaterhouseCoopers (2011: 3) a key finding of this study is that


increasing forecasting accuracy is at the top of the improvement agenda. Companies
continue to struggle with the shared ownership between business and finance of the
financial plan and the overall financial conservatism built into the planning process.
Companies that formally measure and report on forecast accuracy have achieved a
higher level of precision. KPMG (2010: 7) states that a forecast is comprised not only
of financial measures, but also key drivers of the business that affect current and future
financial performance. The deeper the understanding of the relative impacts of each
driver, the more accurate the forecast and the ability to make informed decisions.

In contrast to the views held above, Papenfuss (2010:1) cites the following reasons
why forecast accuracy is not worth measuring:

1 forecast accuracy cannot be influenced. The markets follow a random path and it can
therefore not be expected to achieve accurate forecasts

33
2 forecast accuracy is a dangerous thing to measure and manage. People can start influencing
the accuracy by managing their numbers according to expectations
3 the quality of forecast accuracy is hard to define. If you beat your own forecast by
performing really well. Is that good or bad?
4 Barrett and Hope (2006: 29) argued for less of a focus on accuracy. Budgeting and forecasting is
only necessary because organization cannot react instantly to changing events. That’s why fast
reaction is more important than accurate prediction.
5 According to PricewaterhouseCoopers (2011: 22), three of the leading causes of variances
between forecast and actual performance are:

6 uncertainty in the external business environment


7 difficulty in accessing and incorporating external information (namely., macro-economic
indicators, industry reports, competitive intelligence) when forecasting
8 confusion between forecasts and targets / pressure to match forecast to targets

Of the three points mentioned, points two and three are internal influences and can be
addressed by changing an organization’s culture toward planning. The first point could
be the most difficult to manage when trying to improve forecast accuracy.
PricewaterhouseCoopers (2011: 24) engaged with leading finance executives in the
above-mentioned research study and observed that external sources of data including
macro-economic indicators, industry reports and competitive benchmarks can provide
a useful perspective on internal performance projections. These external sources of
data often contradict internal thinking and create questions which can be value adding.

Achieving forecast accuracy improves the quality of financial information and


increases the credibility of the finance department’s financial evaluation.
Organization must however shift the focus from control and accuracy to how
effectively they use this information as a tool for strategic decision-making.

34
Frequency and level of detail

Organization faces the challenge of choosing the ideal frequency and level of detail
for their budgeting, forecasting and financial planning. According to KPMG (2010: 7)
rolling forecasts, revised monthly, quarterly, or at least annually are key to
understanding the company’s current financial situation and also its future. The
market, competitors and economy change constantly and at ever-increasing rates.
Organization are reacting by forecasting more frequently and reducing the amount of
detail in each forecast. Barrett and Hope (2006: 30) state that the frequency of updating
forecasts would depend on the industry. However, if an organization has got
forecasting down to a slick process that takes up little time and involves little cost,
more frequent re-forecasting will give better early warnings of emerging trends and
enable organization to be more responsive.

A focus on material content in budgeting will free managers from unnecessary detail,
enabling them to produce better plans. While supporting detail can provide audit trail
and insight to manager’s thinking, more detail does not necessarily make for a better
plan. Managing material content means that a company pays attention to whatever has
a real and significant impact on expenses, revenues, capital or cash flows (Adaptive
Planning, 2005: 6). Barrett and Hope (2006: 30) argue that is makes more sense to
focus on the key drivers of revenue and costs and build a dynamic budgeting model
that incorporates these non-financial drivers.

According to PricewaterhouseCoopers (2011: 15-16) obtaining the right level of detail


for an organization means that that a company has to understand and focus on the
real drivers of the business that significantly impact their financial statements and
spend less time managing the detail that has little impact on decision-making.
Developing the balanced level of detail in a company’s planning environment
translates into the following benefits:

• avoids giving the perception of false accuracy


• allows financial planners and managers to focus on the most important
accounts and their drivers

35
• enables finance teams to perform scenario analysis and turn around ‘what-if’
challenges in a timelier manner

In light of the views held above, it is clear that the frequency and level of detail in
budgeting, forecasting and financial planning has a major impact on the quality of
information used in the strategic decision-making process.

Technology
The technology used by organization in the budgeting, forecasting and financial
planning processes is a very important factor in whether these processes add value to
strategic decision-making.

CIMA (2004: 4) state that new technology has helped organization move away from
a culture characterized by functional divisions and ‘silo’ mentality. Departments and
managers using off-line spreadsheets can end up disconnected from other parts of the
organization that would impact on their planning.

Research conducted by PricewaterhouseCoopers (2011: 9) indicates that 27% of the


organization surveyed still rely on spreadsheets and manual processes for their
budgeting, forecasting and financial planning. Whilst spreadsheets are flexible and
relatively quick to update, IBM (2009: 14) cite the following reasons why they are
inadequate in managing a budgeting process of any significant size or sophistication.
Spreadsheets are:

1 two-dimensional
2 hard to maintain
3 don’t integrate well with other systems
4 difficult to share
5 often hard to understand

For the reasons cited above, and many others, organization are moving away from
manual processes and spreadsheets in their financial planning. Jackson, Sawyers and
Jenkins (2009: 327) indicate that more and more

36
companies are using enterprise resource planning systems as a key budgeting and
planning tool. These systems link data from across all areas of the business and ensure
that the same assumptions are used throughout the organization; this also speeds up
the budgeting process significantly. CIMA (2004: 4) argue that speed and accuracy
mean that the organization has more time to focus on activities which really add value
rather than on collecting data and ensuring its integrity.

The use of enterprise resource planning systems, as opposed to manual spreadsheets,


for financial planning has added significant value to strategic decision-making. IBM
(2009: 6) indicates that by re-evaluating the use of spreadsheets and investing in a
planning application that best fits their needs, organization have the following
benefits:

1 consolidates budgets in real time, automatically


2 enables powerful driver-based modelling and scenario analysis
3 creates a single version of all financial plans, forecasts and reports
4 scales and expands to the needs of the business

37
1.17 THE VALUE-ADDING BUDGETING, FORECASTING AND FINANCIAL
PLANNING PROCESS

In this chapter, the researcher will look at the value-adding budgeting, forecasting and
financial planning process in greater detail. In light of the limitations of the traditional
budgeting process, a value-adding budgeting, forecasting and financial planning
process is essential for an organization strategic success.

The researcher will explore the important role of the finance department in a value-
adding budgeting, forecasting and financial planning process as well as exploring the
following elements:

• the administrative aspect of the process


• cross departmental discussion forums and meetings
• financial analysis
• process improvement

Lastly, this chapter will investigate the link between financial planning information
and strategic decision-making.

According to PricewaterhouseCoopers (2007: 3) it is no longer sufficient to just


measure past performance. Budgeting and forecasting have become a core competency
for organization to effectively plan, manage and execute strategy. KPMG (2010: 2)
argue that budgeting and forecasting is an essential component of their effort to create
and sustain value in the business.

38
The need for a value-adding budgeting, forecasting and financial planning process is
becoming more and more evident in today’s complex and rapidly changing business
environment. The accuracy and timeliness of the information generated through these
processes have serious implications for strategic decision-making.

Figure 1.4 illustrates the four typical phases of the planning, budgeting and forecasting
process. The starting point for the financial planning process is the strategic plan and
the budget or forecast must be prepared with strategic goals in mind. Once a formal
budget is approved it must be able to accommodate change through re-forecasting.
Lastly, performance measurement is vital to understanding why budgets or forecasts
have not been met and also to gain insight into future budgeting and forecasting.

Figure 1.4 Four phases of the planning, budgeting and forecasting process

39
1.18 Importance of the strategic plan

According to Ilesanmi (2011: 134) a strategic plan refers to the formulation of a


unified, comprehensive and integrated plan aimed at relating the strategic advantages
of the firm to the challenges of the environment. Its overall purpose is to assess the
future implications of current decisions, to develop a framework for adjusting
operations to changes in the wider business environment and to link and control the
various elements of complex organization.

A value-adding budgeting, forecasting and financial planning process should be driven


by the organization strategic plan. According to Deloitte Consulting LLC (2010a: 4)
when organization do not have a clear business strategy, it is difficult to make
budgeting and forecasting decisions.
An effective strategic plan translates the business strategy into a simple story about
the organization future. This story is clear when people in the organisation understand
what leadership has chosen to do, and not to do. This clarity is the foundation for a
planning, budgeting and forecasting process that works.

Develop an annual budget based on the strategic plan

CIMA (2008b: 5) states that the main purposes of budgeting as it relates to planning
and control and supporting the achievement of strategic plans are as follows:

1 translating the long-term plan into an annual work program


2 coordinating the various departments of the organization to ensure they work in
harmony. A budget requires managers to consider the relationship between their
operations and those of other departments. Otherwise, managers might make decisions in
their own interests, rather than the organization’s best interests

40
communicating plans to those who will be held accountable. Each department or
individual should understand what role they play in helping the organization achieve
its plans

One of the limitations of the traditional budgeting process is that financial plans are
disconnected from the organization overall strategic plans. According to IBM (2009:
5) senior managers are concerned that the annual budget bears little relation to their
carefully prepared strategic plans.

further states that an organization budget should closely reflect its strategic plan. The
budget acts as a ‘sanity check’ for the strategic plan and as a means of building
management commitment to high-level, long-term goals. Deloitte Consulting LLP
argues that the prerequisite for value in the planning, budgeting and forecasting
process is the strategic plan. There is little chance of achieving ambitious objectives if
the corresponding financial results are not incorporated into the financial and operating
plans across the business units.

Management needs to ensure that financial planning targets are closely linked with
organizational strategy and value drivers. Without strong linkage, the budget and
reporting process becomes a financial exercise and is not used as an effective
management tool to drive decision-making (PricewaterhouseCoopers, 2007: 40).

The strategic plan is the basis for value-adding budgeting, forecasting and financial
planning and the results of these processes help examine and validate the strategic
plan.

Re-forecasting the annual budget

Preparing the annual budget is simply not enough in today’s volatile and rapidly
changing business environment. Barrett and Hope (2006: 28) maintain that for this
reason many organizations have adapted their budgeting process and are looking at
other performance management

41
methodologies such as re-forecasting. There are two basic approaches to re-forecasting
the budget:

the first approach is geared at fiscal year-end and often referred to as “3+9”, the
second number representing the number of forecast months left until financial year-
end. This approach was briefly mentioned in chapter two

secondly, rolling forecasts are being used to manage businesses more effectively
making planning a continual process. The following example is made by Barrett and
Hope (2006: 29), if the organization was just approaching the end of the quarter one
of the fiscal year. The management team gets the actuals for that quarter and starts to
review the next four quarters ahead. Three of these quarters are already part of the
original plan or budget but a further quarter needs to be added (quarter one of the
following fiscal year). By definition, the fiscal year-end is always on a 12-18 month
rolling forecast

According to KPMG (2010: 3) more companies are realizing the limitations of the
static annual plan and the shortcomings of limited horizon forecasting geared at fiscal
year-end. To correct this, they are implementing rolling forecasts that consider a range
of potential scenarios.

PricewaterhouseCoopers (2007: 27) mention that employing rolling forecasts enables


the organization to react quickly to market conditions and alter long range plans
accordingly without worrying about artificial end points, like the end of a fiscal period.

With re-forecasting and rolling forecasts, organization have the opportunity to change
certain key assumptions in line with current and emerging market trends. A value-
adding budgeting, forecasting and financial planning process is therefore dependent
on the annual budget being able to accommodate change.

42
1.19 Performance measurement

According to Deloitte Consulting LLP (2010b: 4) too many companies put tremendous
effort in the planning, budgeting and forecasting process, only to have much of that
work wasted by not having the right information available to make sure they stay on
track. The most fundamental planning, budgeting and forecasting value adding
capability is the measurement of actuals against plan.

Grigore, Bagu and Radu (2009: 278) argue that the performance measurement process
collects, processes, and distributes data to allow an effective execution of the other
sub-processes. This information is presented in the form of key performance indicators
(KPI’s) and these KPI’s must be guided by the strategic plan. Reviewing actual
performance against planned targets ensures that timely preventative and corrective
action is taken to keep the organization on track.

• check position. Allows management to understand how well the business is performing
at present
• communicate position. This ensures that stakeholders are aware of how the business is
performing
• confirm priorities. Setting targets for particular aspects of the business so that
management can focus on these targets
• compel progress. If the goals of the business are not being reached, performance
measurement would highlight where action is needed forcing management to act

The quality of budget and forecast information and timing of these reviews against the
plan are crucial. Shortcomings of organizational performance measurement are cited
by Grigore et al (2009: 279) as poor quality of budgets and targets and bad timing of
performance reviews.

43
Deloitte & Touche LLP (2009: 6) mention the following symptoms of
ineffective performance measurement systems:

• reporting and analysis efforts fail to highlight potential issues in a timely manner
• inability of existing technology to effectively manage and analyses
performance management data

This aspect of the budgeting and forecasting process is where the most value can
be added to strategic decision-making. Reviewing actual performance against plan
is very important, not to point out the inefficiencies in the plan and allocate blame
but rather to learn from the variances and ultimately have them influence the
organization strategic direction. According to Barrett and Hope (2006: 29) these
reviews should focus on strategy and improving initiatives rather than the numbers.
They should help answer questions such as have we got the right products? Are we
focused on the right markets? Have we got the right value proposition?

44
Chapter 2
Research
Methodology

45
RESEARCH METHODOLOGY & OBJECTIVE OF STUDY

As the nature of the study relates to finance performance the main part used was secondary data.
It includes profit and loss account, balance sheet etc. Thus, the study is based on the published
accounts and annual reports of JCT Ltd. The period cover from 2009-10. The present study is
based upon primary and secondary data. The sources of primary data are the official records and
discussion with the officers in the finance dept. of the organization. The secondary sources of the
data include various publications of the organization and annual reports and audited financial
statements. The data, which are presented in this report, have been taken from secondary sources.
The data of JCT LTD. for the year 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10
used in these reports have been taken from financial statements i.e., the Profit & Loss Account,
Balance Sheet for the relevant years.

RESEARCH DESIGN
Research design stands for the framework of research. The research design utilized in this
study is descriptive.

DATA COLLECTION
Data refers to information or facts. It is not only referring numerical figures but also includes
descriptive facts. While deciding about the method of data collection to be used for the study,
The researcher should keep in mind about two types of data, such as primary data and secondary
data.

PRIMARY DATA: -
I have collected the primary data through some face-to-face formal interviews with staff.

SECONDARY DATA: -
Secondary data means data that are already available in the organization. The researcher has to
look into sources for the data from where he can obtain data. The secondary data may either

46
Published data will be available in
• Magazines
• Journals, books
• Reports by management, scholars, economist etc...
The secondary data for conducting the study has been taken from Financial Statement that is
Income Statement, Balance Sheet Statement, Annual Reports of Company and some other
financial records. The major source in this category has been the publications of different books.
The information from these publications has been searched assembled & interpreted in the best
possible manner. The report is based on the assumption that project success is more dependent
upon preventing or working with barriers as opposed to reinforce existing positive factors.

RESEARCH TOOL:

The instrument, which was used in the research, was questionnaire and it was like the
questionnaire was started with open ended question so that respondents get a feel of the whole
questionnaire and then question slowly move on to the close ended questions

47
Chapter 3
REVIEW OF LITERATURE

48
REVIEW OF
LITERATURE

Alice C Lee, 2009


News Professor Cheng-Few Lee ranks# 1 based on his publications in the 26 core finance journals,
and# 163 based on publications in the 7 leading finance journals (Source: Most Prolific Authors in the
Finance Literature: 1959-2008 by Jean L Heck and Philip L Cooley (Saint Joseph's University and
Trinity University). Based on the authors' extensive teaching, research and business experiences, this
book reviews, discusses and integrates both theoretical and practical aspects of financial planning and
forecasting. The book is divided into six parts: Information and Methodology for Financial Analysis,
Alternative Finance Theories and Their Application, Capital Budgeting and Leasing Decisions,
Corporate Policies and Their Interrelationships, Short-term Financial Decisions, Financial Planning
and Forecasting, and Overview. The theories used in this book are pre-Modigliani-Miller Theorem,
Modigliani-Miller Theorem, Capital Asset Pricing Model and Arbitrage Pricing Theory, and Option
Pricing Theory. The interrelationships among these theories are carefully analyzed. Meaningful real-
world examples of using these theories are discussed step-by-step, with relevant data and
methodology. Alternative planning and forecasting models are also used to show how the
interdisciplinary approach is helpful in making meaningful financial management decisions.

Michael Samonas,2015
Risk analysis has become critical to modern financial planning Financial Forecasting, Analysis and
Modelling provides a complete framework of long-term financial forecasts in a practical and accessible
way, helping finance professionals include uncertainty in their planning and budgeting process. With
thorough coverage of financial statement simulation models and clear, concise implementation
instruction, this book guides readers step-by-step through the entire projection plan development process.
Readers learn the tools, techniques, and special considerations that increase accuracy and smooth the
workflow, and develop a more robust analysis process that improves financial strategy. The companion
website provides a complete operational model that can be customised to develop financial projections or
a range of other key financial measures, giving readers an immediately-applicable tool to facilitate
effective decision-making. In the aftermath of the recent financial crisis, the need for experienced
financial modelling professionals has steadily increased as organization rush to adjust to economic
volatility and uncertainty. This book provides the deeper level of understanding needed to develop
stronger financial planning, with techniques tailored to real-life situations.
Develop long-term projection plans using Excel Use appropriate models to develop a more
proactive strategy Apply risk and uncertainty projections more accurately Master the Excel

49
Scenario Manager, Sensitivity Analysis, Monte Carlo Simulation, and more Risk plays a larger role in
financial planning than ever before, and possible outcomes must be measured before decisions are
made. Uncertainty has become a critical component in financial planning, and accuracy demands it be
used appropriately. With special focus on uncertainty in modelling and planning, Financial Forecasting,
Analysis and Modelling is a comprehensive guide to the mechanics of modern finance.

J Scott Armstrong, 1983


Individuals and organization have operated for hundreds of years by planning and forecasting in an
intuitive manner. It was not until the 1950s that formal approaches became popular. Since then, such
approaches have been used by business, government, and nonprofit organization. Advocates of formal
approaches (for example, Steiner, 1979) claim that an organization can improve its effectiveness if it can
forecast its environment, anticipate problems, and develop plans to respond to those problems. However,
informal planning and forecasting …

Thomas H Naylor,1983
This paper examines the role of forecasting in strategic planning through the use of analytical portfolio
models and corporate simulation models. It also outlines a conceptual framework on which it may be
possible to develop a theory of strategic planning—namely, microeconomic theory. It, finally,
describes a practical application of this theoretical framework, known as
the strategy matrix. It concludes by noting the importance of forecasting as an input to the strategy
matrix

Geraldo M Vasconcellos, 1988


This study interprets, summarizes, and applies to the financial planning and forecasting problem a
completely general yet operational approach to the analysis of econometric models by control methods
that has been developed by Gregory Chow. It is shown that his methodology is not only well suited for
the study of the general financial planning and forecasting problem facing business firms but also
suggests a sound approach to the assessment of alternative models.

Jack Clark Francis, 1983


This article reviews the past progress of financial planning models and takes a brief look into their
future. Mathematical models that can be solved via computers to give financial managers

50
insights into the future are the focus of the discussion.

Robin M Hogarth, 1981


The formal practice of forecasting and planning (F&P) has risen to prominence within a few decades and
now receives considerable attention from both academics and practitioners. This paper explicitly
recognizes the nature of F&P as future-oriented decision making activities and, as such, their dependence
upon judgmental inputs. A review of the extensive psychological literature on human judgmental abilities
is provided from this perspective. It is argued that many of the numerous information processing
limitations and biases revealed in this literature apply to tasks performed in F&P. In particular, the
“illusion of control,” accumulation of redundant information, failure to seek possible disconfirming
evidence, and overconfidence in judgment are liable to induce serious errors in F&P. In addition,
insufficient attention has been given to the implications of numerous studies that show that the predictive
judgment of humans is frequently less accurate than that of simple quantitative models. Applied studies of
F&P are also reviewed and shown to mirror many of the findings from psychology. The paper
subsequently draws implications from these reviews and suggests reconceptualizing F&P through use of
decision- theoretic concepts. At the organizational level this involves recognizing that F&P may perform
many, often conflicting, manifest and latent functions which should be identified and evaluated through a
multi-attribute utility framework. Operationally, greater use should be made of sensitivity analysis and
the concept of the value of information.

John C Gardner, , 2011


The purpose of this paper is to provide a case example to teach students how to estimate a companys
sustainable growth by using an extension of the DuPont System of financial analysis on Coca-Cola
Corporation. The DuPont system is based on a companys return on equity that is decomposed into three
components: net profit margin, total asset turnover, and the equity multiplier. The extended DuPont
system of financial analysis multiplies return on equity by the earnings retention rate to calculate
sustainable growth. Sustainable growth is the highest level of growth in sales that a company can achieve
using internally generated funds only.

Cheng-Few Lee, 2008


Advances in Quantitative Analysis of Finance and Accounting (New Series) is an annual publication
designed to disseminate developments in the quantitative analysis of finance and accounting. The
publication is a forum for statistical and quantitative analyses of issues in finance and accounting as
well as applications of quantitative methods to problems in financial management, financial accounting,
and business management. The objective is to promote interaction between academic research in
finance and accounting and applied research in the

51
financial community and the accounting profession. The papers in this volume cover a wide range of
topics including corporate finance and debt management, earnings management, equity market, auditing,
option pricing theory, and interest rate theory. In this volume there are eleven chapters, five of them are
corporate finance and debt management: 1. Liquidity and Adverse Selection: Evidence from the Five-or-
Fewer Rule Change; 2. Changing Business Environment and the Value of Relevance of Accounting
Information; 3. Pricing Risky Securities in Hidden Markov-Modulated Poisson Processes; 4. An
Empirical Assessment of Alternative Dividend Expectation Models; 5. Quantitative Market Risk
Disclosure, Bond Default Risk and The Cost of Debt: Why Value At Risk? There are two of the other six
chapters which cover interest rate theory: 1. Positive Interest Rates and Yields: Additional Serious
Considerations; 2. Collapse of Dimensionality in the Interest Rate Term Structure. The remaining four
chapters cover financial analysts earnings forecasts, equity market, auditing, and option pricing theory.
These four papers are: 1. Investors’ Apparent Under-weighting of Financial Analysts’ Earnings
Forecasts: The Role of Share Price Scaling and Omitted Risk Factors; 2. Predicting Stock Price by
Applying the Residual Income Model and Bayesian Statistics; 3. Intertemporal Associations Between
Non-Audit Services and Auditors’ Tendency to Allow Discretionary Accruals; 4. Put Option Portfolio
Insurance vs. Asset Allocation.

Anna Vladimirovna Badalyants, 2019


The article considers the relevance of financial planning at the present time, namely the planning of
financial results. Methods of forecasting are determined and the forecast of the main indicators of the
results of current activities is carried out using the extrapolation method. Ways to improve the efficiency
of financial planning are proposed.

TIRUPATHI MAHESH
The paper considers conceptual, methodical, and practical elements of the goal monetary forecasting
on the micro level, ie The corporation level, as a new tool of anticrisis economic management for a
enterprise to conquer its monetary difficulties and enhance its financial role inside a time-length of
practically any length. The technique of the research, the outcomes being presented within the paper,
is based totally on the idea of the financial ratio analysis, the concept of the employer cash flows, and
the idea of the Balanced Scorecard (in terms of its monetary score). It is depicted that the technique of
the target economic forecasting comprises the precise information-accounting support, a goal
economic forecasting of the company financial role, a target forecasting of the business enterprise’s
cash flows, a development of the specific events (managements’ decisions) aimed towards overcoming
the corporation’s financial issues and improving its financial role. The creator has said that inside the
present-day surroundings the goal financial forecasting is an effective device of the financial
forecasting that allows to installation the lowest for overcoming the

52
agency’s economic problems and strengthening its financial position. The essential fields of the
target financial forecasting software are an anticrisis bankrupt agency management, a management
of the enterprise at the verge of its bankruptcy, in addition to a enterprise’s investment enchantment
enhancement (in phrases of its economic aspect).

Jack Alexander 2018


Critical insights for savvy financial analysts Financial Planning & Analysis and Performance
Management is the essential desk reference for CFOs, FP&A professionals, investment banking
professionals, and equity research analysts. With thought-provoking discussion and refreshing
perspective, this book provides insightful reference for critical areas that directly impact an
organization’s effectiveness. From budgeting and forecasting, analysis, and performance management,
to financial communication, metrics, and benchmarking, these insights delve into the cornerstones of
business and value drivers. Dashboards, graphs, and other visual aids illustrate complex concepts and
provide reference at a glance, while the author’s experience as a CFO, educator, and general manager
leads to comprehensive and practical analytical techniques for real world application. Financial analysts
are under constant pressure to perform at higher and higher levels within the realm of this consistently
challenging function. Though areas ripe for improvement abound, true resources are scarce— until
now. This book provides real-world guidance for analysts ready to: Assess performance of FP&A
function and develop improvement program Improve planning and forecasting with new and
provocative thinking Step up your game with leading edge analytical tools and practical solutions Plan,
analyze and improve critical business and value drivers Build analytical capability and effective
presentation of financial information Effectively evaluate capital investments in uncertain times The
most effective analysts are those who are constantly striving for improvement, always seeking new
solutions, and forever in pursuit of enlightening resources with real, useful information. Packed with
examples, practical solutions, models, and novel approaches, Financial Planning & Analysis and
Performance Management is an invaluable addition to the analyst’s professional library. Access to a
website with many of the tools introduced are included with the purchase of the book.

Allison Squires, 2017


Aim

This study will critically evaluate forecasting models and their content in workforce planning policies
for nursing professionals and to highlight the strengths and the weaknesses of existing approaches.

Background

Although macro‐level nursing workforce issues may not be the first thing that many nurse managers
consider in daily operations, the current and impending nursing shortage in many countries makes
nursing specific models for workforce forecasting important.

53
Method

A scoping review was conducted using a directed and summative content analysis approach to capture
supply and demand analytic methods of nurse workforce planning and forecasting. The literature on nurse
workforce forecasting studies published in peer‐reviewed journals as well as in grey literature was included
in the scoping review.

Results

Thirty six studies met the inclusion criteria, with the majority coming from the USA. Forecasting
methods were biased towards service utilization analyses and were not consistent across studies.

Conclusion

Current methods for nurse workforce forecasting are inconsistent and have not accounted
sufficiently for socioeconomic and political factors that can influence workforce projections.
Additional studies examining past trends are needed to improve future modelling.

Implications for nursing management

Accurate nursing workforce forecasting can help nurse managers, administrators and policy
makers to understand the supply and demand of the workforce to prepare and maintain an
adequate and competent current and future workforce.

Ganesh Garge ,2020


Efficient management of financial resources is important for every effective sport program. The most
critical aspects of financial management include the way the finances are being handled, alternatives to
expenditure issues and the knowledge of the important aspects of the particular sector. The individual
responsible for sports finance should be having accounting expertise and know-howof the political
aspects, transparency, risk control and much more.
This study focuses on a comparative study of budgeting, forecasting and planning of sports
organization and also specifically points out the key differences between financial planning and
budgeting, highlighting the advantages individually and the study has been conducted using past
researches

Alexandr V Tekin,, 2017


Within a perspective series of modern studies, devoted to development of the methodology of strategic
planning and management of entrepreneurial activities on the basis of various tools, in particular, budget
planning and forecasting, the issue of determining the role of modern and perspective information and
communication technologies in this process remains important.
Thus, the article is devoted to determining the role of modern information technologies and systems in
the process of strategic management of entrepreneurial structures’ activities and the role of such
technologies and systems within budget and financial provision of such activities.

54
The article provides the main categories of information systems used by modern entrepreneurial
structures, determines certain peculiarities of strategic intra-company and entrepreneurial management,
and determines the limits of their contours and landmarks. It is determined that budgeting that is based on
modern and most development, perspectives, and leading information systems could be considered a
complex technology of management of entrepreneurial activities and used for achieving strategic goals
and solving the corresponding strategic tasks. Information technologies that can transform budgeting of
modern companies in near future are described.

Hung Nguyen,, 2017


Load forecasting plays a fundamental role throughout all segments of system health management for
utility companies, including, but not limited to, financial planning, rate design, power system operation,
and electrical grid maintenance. Recently, due to the deployment of Smart Grid technologies, utility
companies' ability to create accurate forecasts is of even greater importance, especially in consideration
of demand response programs, charging of plug-in electric vehicles, and use of distributed energy
resources. In this paper, several time series Autoregressive Integrated Moving Average (ARIMA) and
Seasonal Autoregressive Integrated Moving Average (SARIMA) models will be introduced for the
purpose of generating forecasts of short-term load demand, at an hourly interval, based on data made
available by the Electric Reliability Council of Texas (ERCOT). The case study which expands on the
short-term data analyzed in [1] includes over 100,000 data points representing electricity load in Texas
recorded over the past 14 years.

James Derbyshire,2017
In this paper we show that New Product Development (NPD) is subject to fundamental uncertainty that
is both epistemic and ontic in nature. We argue that this uncertainty cannot be mitigated using
forecasting techniques exclusively, because these are most useful in circumstances characteristic of
probabilistic risk, as distinct from non-probabilistic uncertainty. We show that the mitigation of
uncertainty in relation to NPD requires techniques able to take account of the socio-economic factors
that can combine to cause present assumptions about future demand conditions to be incorrect. This can
be achieved through an Intuitive Logics (IL) scenario planning process designed specifically to mitigate
uncertainty associated with NPD by incorporating insights from both quantitative modelling alongside
consideration of political, social, technological and legal factors, as-well-as stakeholder motivations that
are central to successful NPD. In this paper we therefore achieve three objectives: 1) identify the aspects
of the current IL process salient to mitigating the uncertainty of NPD; 2) show how advances in
diffusion modelling can be used to identify the social-network and contagion effects that lead to a
product's full diffusion; and 3) show how the IL process can be further enhanced to facilitate detailed
consideration of the factors enabling and inhibiting initial market-acceptance, and then
the forecasted full diffusion of a considered new product. We provide a step-by-step guide to the

55
implementation of this adapted IL scenario planning process designed specifically to mitigate
uncertainty in relation to NPD

MO Tkhakakhova, 2018
The article discusses the concept of planning and forecasting, agricultural organization, OOO" Sunrise"
and event to raise the level of profitability

ОВ Скакалін, 2020
The paper considers one of the main stages of forecasting future values of the time series based on its
historical values, which are the basis for financial planning in the economy, trade, and management of
complex geographically distributed systems. Such systems collect and store historical values of
economic, technical, financial, technological indicators in corporate databases. This factor significantly
increases the amount of input information for forecasting tasks. At the same time, the development of
hardware and software platforms increases the

Tetiana Paientko, 2017


The current system of forecasting and tax planning in Ukraine is oriented to the needs of the government,
its goal being to calculate the desired amounts of tax revenue. Fiscal authorities apply administrative
pressure on businesses to implement tax plans. In Ukraine, tax forecasting is a process that is focused on
achieving short-term goals without taking into account the impact of such actions on the future economic
environment, therefore negatively affecting the quality of forecasts. The aim of this article is to justify the
directions of tax forecasting improvement in the macro financial controlling system. Elements of tax
forecasting and the planning system are examined. The main methods of tax forecasting that are applied
by the Ministry of Finance of Ukraine are analyzed. The need to improve the methodology for tax fore-
casting, taking into account the expectations of economic agents, is proved. Tools and criteria for effec-
tive tax planning and forecasting in Ukraine for controlling bases are developed

56
Thomas Dilger, 2020
Despite the many problems the COVID-19 pandemic creates in the economies worldwide, recent
research in academia tries to find new ways to support enterprises and companies counteracting the
crisis. This study discusses the question of how an agile project budgeting resp. The Continuous
Planning and Forecasting Framework (CPFF) for agile project management can be used to support
teams working in an" agilefall"(the in-between state of traditional and agile) environment to reach a
certain level of certainty under uncertain conditions. This contribution refines the first drafted
Continuous Forecasting Framework, presented on the Software Engineering 2020, incorporating
feedback from academia and practitioners using agile methods. For readers who have never worked in
a real agile environment, it is often difficult to grasp why getting off the strict path following an
iterative beyond budgeting approach could increase certainty. Therefore, the authors depict the
framework by applying it to specific problems within traditional project boundaries focusing on
elements that could help teams overcoming the" agilefall"-budgeting trap.

Omer Berat Sezer,, 2020


Financial time series forecasting is undoubtedly the top choice of computational intelligence for finance
researchers in both academia and the finance industry due to its broad implementation areas and
substantial impact. Machine Learning (ML) researchers have created various models, and a vast number
of studies have been published accordingly. As such, a significant number of surveys exist covering ML
studies on financial time series forecasting. Lately, Deep Learning (DL) models have appeared within the
field, with results that significantly outperform their traditional ML counterparts. Even though there is a
growing interest in developing models for financial time series forecasting, there is a lack of review
papers that solely focus on DL for finance. Hence, the motivation of this paper is to provide a
comprehensive literature review of DL studies on financial time series forecasting implementation. We
not only categorized the studies according to their intended forecasting implementation areas, such as
index, forex, and commodity forecasting, but we also grouped them based on their DL model choices,
such as Convolutional Neural Networks (CNNs), Deep Belief Networks (DBNs), and Long-Short Term
Memory (LSTM). We also tried to envision the future of the field by highlighting its possible setbacks
and opportunities for the benefit of interested researchers.

Ron Messer,2020
As a junior financial analyst, I successfully predicted—by examining time series data sets— future
spending for a large division within a decentralized organization. I observed that there was a noticeable
trend, as well as seasonal pattern in expenditures, and therefore, having a wealth of historical data
available, I was able to forecast—within 1% of the final amounts—the spending for the fiscal year. The
forecasting model that I developed reduced uncertainty about divisional disbursements, thereby making
financial planning much easier for the company.

57
Yoonhwa Jung,2020
The sites selected for solar PV facilities significantly affect the amount of electric power that can be
generated over the long term. Therefore, predicting the power output of a specific PV plant is important
when evaluating potential PV sites. However, whether prediction models built with data from existing PV
plants can be applied to other plants for long-term power forecasting remains poorly understood. In this
case, topographical and meteorological conditions, which differ among sites and change over time, make
it challenging to accurately estimate the potential for energy generation at a new site. This study proposes
a monthly PV power forecasting model to predict the amount of PV solar power that could be generated
at a new site. The forecasting model is trained with time series datasets collected over 63 months from
164 PV sites with data such as the power plant capacity and electricity trading data, weather conditions,
and estimated solar irradiation. Specifically, a recurrent neural network (RNN) model with long short-
term memory was built to recognize the temporal patterns in the time series data and tested to evaluate
the forecasting performance for PV facilities not used in the training process. The results show that the
proposed model achieves the normalized root-mean-square- error of 7.416% and the mean absolute-
percentage-error (MAPE) of 10.805% for the testing data (i.e., new plants). Furthermore, when the
previous 10 months’ data were used, the temporal patterns were well captured for forecasting, with a
MAPE of 11.535%. Thus, the proposed RNN approach successfully captures the temporal patterns in
monthly data and can estimate the potential for power generation at any new site for which weather
information and terrain data are available. Consequently, this work will allow planning officials to search
for and evaluate suitable locations for PV plants in a wide area.

Georgios N Kouziokas, 2020


Considering that in the literature there is a very limited number of studies proposing new SVM kernels
especially in regression problems, the scope of this research is to investigate the development of a novel
Support Vector Machine Kernel. The proposed new W-SVM (Weighted- SVM) kernel was developed by
applying a suitably transformed weight vector derived from particle swarm optimized neural networks in
order to satisfy the kernel conditions of Mercer’s theorem and then incorporated to a Bayesian Optimized
(BO) kernel for building the new proposed W-SVM kernel. The proposed SVM kernel was applied in
Gross Domestic Product growth forecasting. The new kernel has led to significantly improved
forecasting results compared to all the other conventional ANN, SVM, and optimized BO-SVM, PSO-
ANN machine learning models

Krzysztof Waliszewski,, 2020


The financial sector’s focus on simplifying decision-making processes, maximally shortening
procedures via cooperation with the fintech industry, robotisation and the use of artificial intelligence
are a response to market needs and becoming an important element of how

58
financial service groups compete on the market. The theory of consumer behaviour assumes that
consumers have needs that they will hierarchise, and that they will make choices to maximise their own
satisfaction. The purpose of the article is to diagnose the sociological and economic determinants
underlying consumer satisfaction in terms of planning personal finances using modern technologies.
Comparisons of international data were conducted via quantitative analysis of robo-advice using Mann-
Whitney U tests, the Chi-square test and Spearman’s rho correlation. The survey results show that the
majority of socioeconomic characteristics of households are statistically significant when considering
satisfaction with robo-advisory financial services and spending analysis, as well as with artificial
intelligence suggesting improvements. This study is a contribution to the literature on consumer
behaviour in the modern world

AAAW Kusuma, 2020


In this modern era, people become aware and use insurance as part of their long-term financial planning
in terms of protecting against unpredictable risk. Health insurance is one type of insurance that can be
used to help people in alleviating the costs of treatment of the disease they suffered. Some insurance
companies offer insurance products that finance the treatment of Tuberculosis (TB), and one of the
references used to calculate premiums is TB morbidity. A model for predicting TB morbidity is needed so
that premium calculations can be carried out properly. This study aims to predict the TB morbidity rate in
Indonesia using the Temporal Convolutional Neural Network (TCNN) method. The results of the model
validation were measured by using the Mean Absolute Percentage Error (MAPE) value, where the model
produced in this study has a score below 10 %. The model that obtained in this study is then used to
forecast TB morbidity rate in Indonesia from 2019 to 2021.

Punit Gupta, 2021


Forecasting is a crucial factor in development of store head businesses either commercial or economical
that require frontend sales to outgrow. Demand forecasting hence deals with providing our stores a
significant amount of backup supply prediction which hence can deal with the supply to meet the ups and
downs of our demand. Hence, a predictive model has been developed to maintain the supply of goods and
featuring the predictions of upcoming demand for the next few selected time period. The model involves
being highly trained in the field of Machine Learning using various predefined models such as Linear
Regression, GBT Model and even using the time series analysis for the defined period and using the
outcome from the factor of inputs provided by the user to finally predict the upcoming demand and
provide (increase or decrease) the given supply in the specific field, thereby saving the businesses from
any uncertain downhill and hence helping analytics to provide more reasonable theories for increasing the
profit margin in the upcoming foreseeable future and even get a track record and deep insights of the
previous demand using a business intelligence software, like PowerBI.

59
Jimbo Henri Claver,, 2020
In this article, we develop a model of forecasting credit and debit of pension funds of the NSIF in
Cameroon. By using time series tools and relying on the ARMA model (Auto-Regressive Moving
Average), we appropriately analyze and predict the main existing credit and debit of funds. The aim is to
elaborate a model that is able to provide reliable information on credit and debit, mainly on the financial
balance of the regime in order to guarantee and also ensure the management and financial planning of
pension funds managed by the National Social Insurance Fund (NSIF) in Cameroon.

Konstantinos Nikolopoulos,, 2021


Policymakers during COVID-19 operate in uncharted territory and must make tough decisions.
Operational Research – the ubiquitous ‘science of better’ – plays a vital role in supporting this decision-
making process. To that end, using data from the USA, India, UK, Germany, and Singapore up to mid-
April 2020, we provide predictive analytics tools for forecasting and planning during a pandemic. We
forecast COVID-19 growth rates with statistical, epidemiological, machine- and deep-learning models,
and a new hybrid forecasting method based on nearest neighbors and clustering. We further model and
forecast the excess demand for products and services during the pandemic using auxiliary data (google
trends) and simulating governmental decisions (lockdown). Our empirical results can immediately help
policymakers and planners make better decisions during the ongoing and future pandemics.

60
Chapter number 4 : -
Data analysis in
presentation

61
Following are the questions off questionnaire so let us see and then analysis the research
collected data

4.1) Gender

Gender %of responses No of response


Male 71.4 28
Female 28.6 8

Gender

Interpretation
• The above data response the gender of the responses.
• There are the 71.4 % of male response
• And 28.6 %are females’ response

62
4.2) Age
% of
Age Number of responses response
20 28 70%
21 4 15%
22 4 15%

Interpretation
1) The above presentation shows the age difference of the
responses
2) Each profile indicates that the age group 20 year
constitute Lee a major age group off respondent.
3) The next on the list is age group 21 year with 15 %sample
size
4) And the age group 22 year with 15% sample size

63
4.3) Educational Qualification

High school 29 56.6


Graduate 16 30.2
Post Graduate 5 11.3
Other

Interpretation

1) The above presentation shows the response of education .


2) 56.6% response is of high school
3) 30.2% response is of Graduate
4) 11.3% response is of post Graduate

64
4.4) Which of the investment you normally do

Answers No of the responses %of responses


FD 28 54.7%
Insurance 14 28.3%
Mutual funds 3 7.5%
Shares 4 9.4%

Interpretation
1) The above diagram shows the investment which person
normally do
2) in their survey 54.7% response is for FD investment
3) 28.3% response is for insurance investment
4) 7.5% response is for Mutual funds investment
5) And 9.4% ressponse is for shares investment.

65
4.5) Which investment do you find safe

Answer No of responses % of responses


Mutual funds 5 11.3
Loan 4 9.4
FD 33 62.3
Insurance 9 17

Interpretation
1) The above diagram shows the response that which investment
is safe for persons
2) In there survey 11.3% response is for Mutual funds
3) 9.4% response is for Loan
4) 62.3% response is for FD
5) And 17% response is for insurance.

66
4.6) what is the purpose of investment

Number of
Answers responses %of responses
Children education 10 18.9
Girls marriage 4 9.4
Retirement 21 41.5
Uncertainty 16 30.2

Interpretation
1) The above diagram show the response of person for their
purpose of investment
2) In the survey 18.9% response is for children education
3)9.4% response is for Girls marriage
4)41.5% response is for Retirement
5)And 30.2% repsone is for Uncertainty

67
4.7) Duration of investment

Answers No of responses %of responses


Long term 41 77.4
Short term 11 22.6

Interpretation
1) The above diagram show the response of person in duration of investment
2) In the survey 77.4% response Is for Long term
3) And 22.6% response is for short term.

68
4.8) whether investment return can bit or overcome the inflation

Answers Number of % of response


response
Yes 42 81.1
No 10 18.9

Interpretation

1) The above diagram show the response of person that


investment can bit or overcome the inflation
2) In the survey 81.1% response is for yes
3) And 18.9% response is for no.

70
4.9) which investment gives you high returns

Answers No of response % of response


Loan 4 9.4%
Mutual funds 18 35.8%
Insurance 4 9.4%
FD 23 43.4%

Interpretation
1) The above diagram show the response of person that Which
investment gives them high returns
2) In the survey 9.4% response is for Loan
3) 35.8% response is for Mutual funds
4) 9.4% response is for Insurance
5) And 43.4% response is for FD

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4.10) Are you taking financial advice from advisor

Answers No of % of
response response
Yes 26 50.9
No 26 49.1

Interpretation

1) The above diagram show the response of person that do they take
advice from advisor
2) In the survey 50.9% response is for yes
3) And 49.1 % response is for no.

72
Chapter 5: Findings,
Conclusion and
Recommendation

73
FINDINGES CONCLUSIONS AND SUGESTIONS:

5.1 INTRODUCTION

As stated in chapter 1, one of the key challenges facing organization today is the
ability to plan for the future and predict operating performance. An effective, timeous
and accurate budgeting, forecasting and financial planning process offers
organization an opportunity to prepare for and be in a position to succeed in a rapidly
changing business environment.

Against the knowledge of the importance of timely, accurate and complete financial
planning information, the main purpose of this research has been to establish whether
organization add value to strategic decision-making through their budgeting,
forecasting and financial planning information. In support of the main research
purpose, the study focused on achieving the following sub-objectives:

• to investigate current organisational paradigms towards budgeting,


forecasting and financial planning
• to explore the various factors influencing budget and forecast accuracy and
quality
• to explore the role of the finance department in a value-adding budgeting,
forecasting and financial planning process
• to determine the role of financial planning information in the strategic
decision-making of firms

The objectives of the study were achieved by performing an in-depth study on


budgeting, forecasting and financial planning as presented in the literature.

The empirical survey entailed self-administered questionnaires being sent to


companies in the Eastern Cape’s manufacturing sector. In the rest of this

74
chapter, the significant empirical findings that emerged from the study will be
summarised. After this, areas for future research are considered.

5.2 SIGNIFICANT FINDINGS IN RESPECT OF THE RESEARCH OBJECTIVES

The findings of the empirical surveys and the interpretation thereof cannot supply
answers on all aspects relating to budgeting, forecasting and financial planning.
However, it is the belief that the findings of this study do provide valuable insight and
understanding regarding budgeting, forecasting and financial planning as a strategic
tool in the decision-making process.

5.3 FINDING
1. IN MY SURVEY I GOT MORE RESPONSE FROM GRADUATE STUDENTS
2. IN MY SURVEY MALE RESPONSE ARE MORE BECAUSE THEY LIKE TO
INVEST
3. AGE GROUP BETWEEN 20-25 HAVE MORE INTEREST IN INVESTMENT THEY
GAUVE BEST RESPONSE IN SURVEY
4. IN MY SURVEY MANY PEOPLE’S LIKE TO INVEST IN FD
5. MOSTLY PEOPLE’S ARE REDAY FOR A LONG TERM INVESTMENT
6. IN MY SURVEY MOSTLY THE PURPOSE OF INVESTMENT FOR PEOPLE IS
FOR RETIREMENT
7. MOSTLY FD INVESTMENT IS SAFE BECAUSE IT GET MORE RESPONSE IN MY
SURVEY
8. FD GIVES HIGH RETURN IN INVESTMENT ACCORDING TO MY SURVEY
RESPONSE
9. MOSTLY PEOPLE’S ARE TAKING FINANCIAL ADVICE FROM ADVISOR IN MY
SURVEY RESPONSE
10. ACCORDING TO MY SURVEY MANY PEOPLE’S HAVE MORE INTEREST
a. FOR INVESTMENT IN FD
11. AS MY RESPONSE SHOWS LONG TERM FD GIVES HIGH RETURNS

75
5.4

76
5.5

77
Chapter 6: Bibliography and Reference

78
BIBLIOGRAPHY

1) https://www.seminarsonly.com/E ngineering-Projects/Finance/Financial-Planning-and-
Forecasting.php#:~:text=Financial% 20Planning%20and%20Forecasting
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2) https://www.investopedia.com/as k/answers/051315/whats-difference-between-financial-
plan-and-financial-forecast.asp
3) https://www.slideshare.net/mobil e/Davidthugu/financial-planning-forecasting-44776448
4) https://www.kbmanage.com/conc ept/financial-forecasting
5) https://www.researchgate.net/pu blication/222234119_Financial_pla
nning_and_forecasting_models_an _overview
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CjwKCAjwr_uCBhAFEiwAX8YJgf-n5teYN_O6W2P3FZfOxO916l4vO85
Y3a471wrwhuAFvtdK6ylXrhoCWzk QAvD_BwE
10) https://www.accountingnotes.ne t/financial-management/financial-forecasting-meaning-
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11) https://www.businessmanageme ntideas.com/financial-management/forecasting-financial-
management/financial-forecasting-and-decision-making-financial-management/16537
12) https://www.managementstudyg uide.com/financial-planning.htm

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