How is "financial forecasting" related to budgeting?

Financial forecasting is closely tied to budgeting as it plays a critical role in predicting future financial outcomes based on historical data and current trends. The process involves analyzing past financial performance, current economic conditions, and any market variables that could impact future revenue and expenses.

When creating a budget, organizations utilize these forecasts to project income and plan expenditures, ensuring that they allocate resources effectively to meet financial goals. By accurately predicting future outcomes, businesses can create a realistic budget that accounts for potential changes in revenue streams, operational costs, and other financial variables, making the budgeting process more strategic and informed.

Using financial forecasts enhances the reliability and effectiveness of the budgeting process, allowing organizations to make informed decisions and ensure financial sustainability.