Planning, budgeting and forecasting are three key pillars of Enterprise Performance Management (EPM). The purpose of planning, budgeting and forecasting is to translate strategy into execution via long-term or mid-term plans as well as short-term budgets and forecasts.
Controlling uses planning to determine how the company’s goals are to be achieved. In addition, it ensures that the overall planning and the sub-plans of all individual business areas are consistent and free of contradictions. A top-down planning approach defines the strategic goals of the business and high-level activities required to achieve them.
Budgeting is when controlling translates planning into financial values. A budget is a goal-oriented plan formulated in terms of value. Within the plan, a certain time period with a certain degree of commitment is predefined. A budget allocates resources aligned to meet strategic goals and targets.
A forecast tracks the expected performance of the business so that timely decisions can be made to respond to shortfalls against targets or maximize opportunities. Forecasting goes beyond standard forecasts because controlling uses both financial and non-financial information as well as simulation and scenario considerations.
Planning, budgeting and forecasting processes are typically managed by financial controllers or the financial planning & analysis (FP&A) function in the office of the CFO. Orchestrated by finance, PB&F involves multiple operational business functions such as sales, HR and supply chain to ensure that strategic objectives are met and financial targets are reached.