When you refer to a forward-looking financial expectation, do you call it financial forecasting or a financial projection?
There is not a generally accepted distinction between a financial forecast vs projection within the finance community. In normal dialogue, planning and forecasting are the same in terms of synonyms. Although there is one subtle distinction associated with the time horizon of each. So, let’s explore the difference between prediction and forecasting.
“Financial forecast definition” is a projection of financial results or key metrics in the near term (1 to 4 quarters out) with visibility to leading indicators. For revenue or booking forecasts, there is good pipeline or backlog data to make a solid forecast. For an expense forecast, there is visibility into hiring pipeline or opex spend based on committed or almost committed contracts.
Now we can explore what is a financial projection. The term “projection” is used within finance in the financial projection meaning to predict financial results further out into the future (1 or more years) and using high-level drivers like sales capacity, market growth rate, and historical growth trends for future projections.
So both financial forecasts and projections are used within organizations to estimate a future financial position of the organization. These financial forecasts and projections are developed by the Financial Planning & Analysis (FP&A) team within an organization’s finance department as tools to support business strategy, tactical changes, and strategic decision-making. By estimating expected future financial results in quarterly projections or an annual projection, executives can make better decisions on where to invest, where to pull back, and what to prepare for.
Financial forecasting and financial projections are typically developed using a combination of quantitative and qualitative methods to ensure rigorous analysis of available data is combined with insights derived from executives, analysts, market trends, and other experts and sources. Financial forecasts vs projections exist at many levels in the organization, from granular forecasting of product demand at the SKU level, to sales projections for a specific sales region, to overall financial results by department or the entire company.
So, it’s solved: financial forecasts vs projections are generally accepted synonyms, and the terms budget forecast and projection can be used interchangeably. Technically, you can place a distinction on the time horizon of each, though the difference between prediction and forecasting is minor and rarely gets applied in the real world.
Regardless of your definition of financial forecast vs projection, Planful Financial Planning supports traditional financial budget and projections, quarterly projections, and long-range strategic projections. It allows you to start with whatever planning process you desire and evolve it as you see fit. Planful also enables you to easily forecast, project, and evaluate estimates of different financial outcomes before they happen so you can make better decisions and, ultimately, achieve your desired goals and objectives.
If you’re forecasting a need to accelerate and streamline your planning, budgeting, and forecasting processes, visit planful.com/now. Our forecast says you’ll be happy you did.