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Plan, Budget, Forecast, and Prediction Differences; and Then Some Puns

Posted By Thom Young, May 5, 2015
Updated: April 22, 2015

What Is the Difference between a Plan, a Budget, a Forecast, and a Prediction?

I belong to several business discussion groups, and this question was recently posed in a LinkedIn blog from the Harvard Business Review (Harvard Business School). Usually, the issues are more pragmatic than philosophical, and I always gain some insights by following the interaction between people here. The forum is an international one as well, so the discussion isn’t as dominated as some by American perspectives on issues—not that American perspectives are bad, but discussions about the uniquely different aspects of American social structure tend to get off into the political realm, which, in my view, is irrelevant to the point of discussing business management and sales. Product development, sales distribution, human resources, and corporate culture transcend any kind of political structure. Producing a profit is a universal goal. The manner of getting there is the crux of the debate.

There is an old saying that “those who fail to plan, plan to fail.” The essence of business management is about planning. Budget, forecast, and prediction are very important parts of the planning process: you can’t have a plan unless you do the research necessary to put together a budget of the costs to achieve a goal, and you can’t prepare a budget without doing the research necessary to forecast results and make predictions in your budget. These interrelations are the essence of a proper plan.

Poor planning is better than no planning! Why? Well, if you have a plan and measure your progress against the plan, you develop a report card that allows you to change your method and correct errors in the assumptions made in putting the plan together. The result of doing this process properly makes your plan work. Sounds simple, doesn’t it? The whole of this process takes many years to learn, but learning it properly will make a world of difference in your life and give your business a much better chance of success.

The essence of planning is reviewing information relative to the goal. Setting the goal is the hard part. What do you want out of your efforts in life? Platitudes like “to be successful” or “to be happy” or “to live a good life” sound nice, but they don’t have much substance in the planning part of setting a goal. You have to get in front of that person in the mirror and have a long, hard discussion about what those platitudes mean. Then you can start figuring out how to achieve them. Success means many different things to many different people. The same can be said about being happy and living a good life. This hard heart-to-heart discussion with yourself has to quantify those things. Do you want a big house and lots of money? Now you’re getting to the nib of the matter, because identifying what you want is the first part of working out what you need to do to get it.

Many people think that luck forms a large part of the path to success. I’ve often said that it’s strange how hard these lucky people work to stay focused on their goals and keep on the path to achieve them. Business planning is no different than personal planning and, especially in our business, the component parts are easy to break down no matter whether you are the owner, a department manager, or a CSR. Your income and success are tied directly to your production results. Your market share or the size of the book of business you manage determine your income level. If you make your employer money, you make money. It’s not rocket science. You are a cost centre in which the biggest part of the cost is your earnings. Support and other component parts of your position—like premises, advertising, and administration—all form part of the costs of employing you. If those costs exceed the revenues you produce, you better have a plan to correct that or the matter will be taken out of your control. The only difference between receiving a commission on your work or a predetermined salary is that your performance review comes with every pay cycle if you’re on commission. The business owner is no different: if the revenues from operations fail to produce sufficient returns to keep the lights on and the employees employed, corrective action must be taken quickly or a total failure comes quicker than you think. Most sales-oriented businesses (which are virtually all business) have less than 90 days of working capital to keep the doors open if the revenues fall below the breakeven point. Fast action is necessary to protect the business if sales objectives aren’t met.

In my years in private business, I’ve learned the hard way about the need for proper planning and review of budgets and forecasts. The old adage that “wise people don’t make errors in judgement but errors in judgement often make people wise” sort of follows along the lines of “don’t make the same mistakes twice.”

I cannot stress enough that setting goals and preparing a plan to achieve those goals is the way to become successful. Decide what you want, and put in place the action plan needed to achieve it. Stop and review your progress at regular intervals, and determine both what has hindered you from meeting your objectives and what has helped you exceed them. Do more of the latter. Do this long enough, and you’ll find yourself surprised by what you have achieved. Others will notice your success before you do!

I could share much more with you on this topic and, as I have promised in the past, will revisit it again in the future!


Everyone Needs a Good Laugh Every Now and Then

After talking about such a serious subject, having a good laugh is in order! These posts have been circulating on the internet.

Here’s an amusing twist on words and puns.
  • How does Moses make his tea? Hebrews it....
  • Venison for dinner again? Oh deer!
  • A cartoonist was found dead in his home. Details are sketchy.
  • I used to be a banker, but then I lost interest.
  • Haunted French pancakes give me the crêpes.
  • England has no kidney bank, but it does have a Liverpool.
  • I tried to catch some fog, but I mist.
  • They told me I had type-A blood, but it was a Type-O.
  • I changed my iPod's name to Titanic. It's syncing now.
  • Jokes about German sausages are the wurst.
  • I stayed up all night to see where the sun went, and then it dawned on me.
  • This girl said she recognized me from the vegetarian club, but I'd never met herbivore.
  • When chemists die, apparently they barium.
  • I'm reading a book about anti-gravity. I just can't put it down.
  • I did a theatrical performance about puns. It was a play on words.
  • . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
  • I didn't like my beard at first. Then it grew on me.
  • Did you hear about the cross-eyed teacher who lost her job because she couldn't control her pupils?
  • When you get a bladder infection; urine trouble.
  • Broken pencils are pretty much pointless.
  • What do you call a dinosaur with an extensive vocabulary? A thesaurus.
  • I dropped out of the communism class because of lousy Marx.
  • All the toilets in New York’s police stations have been stolen. As of now, it appears the police have nothing to go on.
  • I got a job at a bakery because I kneaded dough.
  • Velcro—what a rip off!

For me, Sinko de Mayo is truly a day to celebrate. Few people have come to know the “true” origin of Sinko de Mayo. I’m pleased to set the record straight. A little known fact is that, back in 1912, Hellmann’s mayonnaise was manufactured in England. In fact, the Titanic was carrying 12,000 jars of the condiment scheduled for delivery in Vera Cruz, Mexico, which was to be the next port of call for the great ship after its stop in New York. This would have been the largest single shipment of mayonnaise ever delivered to Mexico, but, as we know, the great ship did not make it to New York. The ship hit an iceberg and sank, and the cargo was forever lost. The people of Mexico, who were crazy about mayonnaise and were eagerly awaiting its delivery, were disconsolate at the loss. Their anguish was so great, that they declared a National Day of Mourning, which they still observe to this day. The National Day of Mourning occurs each year on May 5th and is known, of course as Sinko de Mayo. Go out on this day, grab a couple of slices of Wonder Bread and a jar of Hellman’s mayonnaise, and have a party. You know I will!

In Closing

If all goes according to plan, you’ll be receiving this on the 5th May. The date "is observed to commemorate the Mexican army's unlikely victory over French forces at the Battle of Puebla on May 5, 1862, under the leadership of General Ignacio Zaragoza Seguín. In the United States, Cinco de Mayo is sometimes mistaken to be Mexico's Independence Day—the most important national holiday in Mexico—which is celebrated on September 16” (Wikipedia). Le ruego a mis amigos mexicanos que me perdones por burlarse de su lengua.

The opinions expressed in this blog are not necessarily those of IBAA.
Comment on this post below or email Thom Young privately. Thom also encourages suggestions for topics.

Tags:  budget  business plan  economic forecast  economic prediction  economics 

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