In Microsoft dynamics AX , people always have questions on interpretation of the project budgets and forecasts. They often interpret these two as the same at times. But the budgeting and forecasting are two completely different project management tools(I would say cost and revenue management tools) which have their own advantages and requirements.
In today’s post, let us get to know what are the major differences between these two functionalities in AX 2012. First let us get to know a quick overview about these two terms.
The budget plan of a project works as a baseline for performance management of the project. It can be called as a rigid plan of spending in the project, which is established, approved and committed prior to the start of the project work.
On the other hand, the forecasting(Hours, expenses, items, Fee etc.) is a separate mechanism for predicting the actual transactions (Costs and revenues) which may be incurred in the project. (Usually it is setting expectations what is likely to happen).
If your organization focuses deeply on revenues and costs derived from specific transactions in the projects, then they can consider forecasting as a stronger cost and revenue management tool for their projects. Where as if they focus primarily on the financial amounts irrespective of transactional details, they can find budgeting as a very good cost and revenue management tool.
Below are few of the differences between these two.
- Forecasting cannot be done based on a period of time and are always date specific where as project budgets and allocated over a fiscal period or the span of a project.
- Forecasting can be done using every attribute that are entered on a project where as budgeting can be done at project, activity and category level.
- The forecast transactions can be inquired and viewed in the forecast forms and you can see the forecast for all the projects in the whole company where as the budget transactions can be viewed in the budget balances screen and is project specific.
- No formal approval process or agreement in involved in creating and maintaining the forecast where the budgets require a formal approval process and sometimes may require baseline paper work. For forecasting the user just needs access to the forecasts forms.
- Forecasting can be based on quantities where as the budgets will primarily based on the financial amounts.
- In Forecasting , only allow or disallowing of cost overrun is possible where as ib budgeting user can be promoted with a warning when the cost overruns.
- Automatic forecast controlling in done by the forecast reduction functionality and the actual transaction amounts are subtracted from the forecasted amounts without any audit trial. This make is difficult to trace the actual transactions where as in budgets, actual transaction amounts are subtracted from the remaining budgets and this facilitates a transparent audit trial.
Finally, the forecasts and budgets of a project are always closely related. AX 2012 provides option of automating the budget creation process from project forecasts. Also behind the scenes, AX 2012 maintains the budgets and its revisions related data in 2 separate forecast models(Original and Remaining) which are used by the system for budget control and future reporting purposes. (Basically the budget control which is present in AX 2012 uses the Automatic forecast reduction functionality which was present in AX 2009 also in the back end).
Please let me know if you need further clarifications on the budgeting and forecasting of the projects.