The budget is a detailed representation of the future results, financial position, and cash flows that management wants the business
to achieve during a certain period of time.
The budget may only be updated once a year, depending on how frequently senior management wants to revise information.
The budget is compared to actual results to determine variances from expected performance.
Management takes remedial steps to bring actual results back into line with the budget.
The budget to actual comparison can trigger changes in performance-based compensation paid to employees.
Forecasting
The forecast is typically limited to major revenue and expense line items. There is usually no forecast for financial position,
though cash flows may be forecasted.
The forecast is updated at regular intervals, perhaps monthly or quarterly.
The forecast may be used for short-term operational considerations, such as adjustments to staffing,
inventory levels, and the production plan.
There is no variance analysis that compares the forecast to actual results.
Changes in the forecast do not impact performance-based compensation paid to employees.