This paper examines the budgeting process, budgeting, and the role of budgets in organizations. The budgeting process encompasses both the actual budget through which the financial activities of an organization are planned, monitored, and controlled, and the forecasting of the requirements upon which a budget is based (Scanlan, 2005). A forecast is an estimate of the level of demand for a product or for several products for some period of time in the future. To be meaningful, forecasts must project a variable in measurable units (Landry, Jalbert, & Chan, 2005).
There are many procedures by which forecasts may be developed. Some, such as subjective opinion forecasts, are not suitable for use in modern corporate organization budgeting applications. A somewhat more sophisticated forecasting procedure is the index-based forecast. Unfortunately, such forecasts are as good or as bad as the index that serves as its foundation and the degree of correlation between the actual demand and the forecast based on the index. Thus, a large volume of highly reliable data must be available if a valid and reliable index is to be constructed. A very high correlation (in the range of 90 percent) is required between sets of data used in the construction of indexes to be used for forecasting. This high correlation requirement is a major disadvantage associated with index-based forecasting of demand (Evans, 2002).
The best forecasts are those developed through the application of statistical procedures. Among the major statistical forecasting procedures are the following: (a) trend line projections; (b) cyclic demand projections; (c) curvilinear regression projections; and (d) exponentially weighted moving average projections. The first three of these proceduresùtrend projections, cyclic demand projections, and regression projections ù are used in the development of the in-patient loads for the hospital for 12-month periods. Trend line proj...