An important component for successful budgeting and forecasting principles and practice is the ability to align top-down financial performance with bottom-up plans. Some companies set downward goals and then pass the annual budgeting process to the finance department with the task of sticking to the numbers. Other companies need bottom-up plans, and then take the overall numbers to the next level so that the plan meets strategic goals.

None of these approaches are consistent with the pursuit of excellence in realistic budget planning. An important component of successful planning is the ability to align top-down financial goals with bottom-up plans. This process must go through a large number of iterations so that top-down and bottom-up initiatives can meet and coincide. The result is a plan that receives the approval of various stakeholders: Functional departments, because they helped create this plan, and they will be rewarded if they execute it. General management, because strategic goals are consistent with operational goals. The finance department because it added value to productive and collaborative efforts rather than requiring participation in a simple exercise.

Budget planning or forecast should be based on a model, accompanied by formulas that are directly related to the main key factors of the business. The fact of importing or manipulating old real numbers does not give any indications of the main operational reasons or financial consequences for the company. By integrating models based on activity mechanisms into plans, you ensure that all functions are consistent and helps coordinate planning between these functions. For example, by understanding the trends and profitability of certain consumer products that sell very well during a recession, a distributor can determine marketing, inventory, and sales expenses to maximize profits.

The finance department can provide operations managers with a useful template with information on past evidence and current data on inventory levels and marketing promotions, as well as hypothetical formulas. The assistance provided by the financial department does not affect the responsibilities of department heads with respect to their own plans. On the contrary, it saves time by providing a solid and concrete coordinate system: it is a starting point containing important information about the relationships of various departments with other functions. Managers can make changes to this basic level to reflect the latest business conditions. This approach also guarantees collaboration between the various functions and departments of the company.

Strategic and operational plans for forecasting principles and practice should certainly be agreed upon, but plans related to various functional areas should also be coordinated. Best practices include direct involvement of line managers, as well as a collaborative approach to planning and forecasting.

The head of the department must understand the main strategic goals, as well as know what is planned in other departments. For example, in business planning of launching a new product, production should increase production, marketing should advertise more, and sales should attract. But the marketing plan should also include training programs to familiarize sellers with the new product. In addition, the department responsible for material aspects should plan for hiring, provide new equipment, storage facilities for products, and so on. Such collaborative planning can be accomplished through an iterative process that allows managers to plan and share alternative scenarios and contingency plans, which is important in the context of current economic uncertainty. The finance department also plays a key role in helping coordinate plans across the business, and also helps align operational tactics with the financial goals of the entire organization.

In difficult economic conditions and due to great market pressure, forecasting once a month or more may be required. If revenue forecasts fall below targets, a bank or financial services company may need to recalibrate its products and services in order to attract new customers or avoid losing existing customers. Using a model-based forecasting approach, marketing can run several simulation scenarios to test the launch of new products or services with impact assessments for customers or customer segments.