Management

1. (A CENTRAL UNIVERSITY)
Session :- 2022-2023
DEPARTMENT OF BUSINESS MANAGEMENT
TOPIC:- ROLE OF BUDGETING AND FORECASTING IN MANAGING
UNCERTAINITY AND RISKS
CLASS :- MBA 3rd Semester(2nd Year)
SUBJECT :- MANAGEMENT ACCOUNTING
PRESENTED TO PRESENTED BY
DR. MONIKA KASHYAP SHIVRAGINI

2.  Budgeting and forecasting are essential practices in
financial planning that help organizations manage
uncertainty and mitigate risks.
 Budgeting, helps organizations plan and allocate
resources effectively, ensuring that financial goals
are aligned with strategic objectives.
 Forecasting, in accounting refers to the process of
using current and historic cost data to predict
future costs. Forecasting is important for planning
purposes.

3.  Risk management plays a crucial role in financial
planning by helping organizations identify, assess, and
mitigate potential risks. It involves the process of
analyzing uncertainties and implementing strategies to
minimize potential losses.
RISK MANAGEMENT
RISK
ASSESSMENT
RISK
MITIGATION
RISK
MONITORING

4.  Early Detection of Risks:- The budgeting and
forecasting processes involve a thorough
analysis of historical data, market trends, and
internal factors. This allows organizations to
identify potential risks and uncertainties early
on.
 Strategic Planning:- Budgets and forecasts
provide a financial roadmap for the
organization. Strategic decisions can be made
based on the insights gained from these tools,
considering potential risks and uncertainties in
the business environment.

5.  Resource Allocation:- By aligning budgets with
strategic priorities and forecasting future resource
needs, organizations can allocate resources more
efficiently. This helps mitigate the risk of resource
shortages or misallocation.
 Scenario Planning:- Forecasting allows organizations to
model different scenarios, considering a range of
potential outcomes. This helps in developing
contingency plans and preparing the organization to
adapt to various situations.
 Cash Flow Management:- Cash flow forecasts are an
essential part of financial planning. Managing cash
flow effectively is crucial in uncertain times to ensure
the organization has the liquidity needed to meet its
obligations.

6.  Planning and Control:- Budgeting and forecasting help
organizations plan and control their resources
effectively, ensuring that they are able to achieve their
goals and objectives despite uncertainty and risk.
 Risk Management:- Budgeting and forecasting help
organizations identify and manage risks, allowing them
to take proactive measures to mitigate potential
negative impacts on their operations and finances.
 Decision Making:- Budgeting and forecasting provide
organizations with the information they need to make
informed decisions about resource allocation,
investment, and strategy, even in the face of uncertainty
and risk.

7.  Performance Evaluation:- Budgeting and
forecasting help organizations evaluate their
performance over time, identifying areas for
improvement and making adjustments as needed
to ensure that they are on track to achieve their
goals and objectives.
 Communication:- Budgeting and forecasting
provide organizations with a clear and consistent
framework for communicating their financial plans
and performance to stakeholders, including
investors, customers, and employees.
 Investment and Financing:- Budgeting and
forecasting help organizations secure investment
and financing by demonstrating their financial
stability and potential for growth, even in the face
of uncertainty and risk.

8.  Helps manage uncertainty and risk by providing a
framework for financial planning and decision-making.
 Allows for better allocation of resources and
prioritization of spending based on financial goals and
objectives.
 Provides a basis for monitoring and evaluating
financial performance and making adjustments as
needed.
 Helps identify potential financial risks and
opportunities, allowing for proactive management and
mitigation of risks.
 Enables better communication and collaboration
among stakeholders, including management,
employees, and external partners.

9.  Can be time-consuming and resource-intensive,
requiring significant planning and analysis.
 May not accurately reflect future financial conditions
or market trends, leading to inaccurate forecasts and
budgeting decisions.
 Can be influenced by subjective factors, such as
management bias or external factors beyond control.
 May not account for unforeseen events or changes in
the business environment, leading to inaccurate
forecasts and budgeting decisions.
 Can create a culture of rigidity and inflexibility, making
it difficult to adapt to changing circumstances or new
opportunities.

10.  In conclusion, it is crucial for organizations to
continuously improve and adapt their financial
planning processes. By regularly reviewing and
updating budgets and forecasts, organizations
can better respond to changing market
conditions and identify new opportunities.