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Many other statistical techniques can also be brought to bear on this problem. These provide an
objective estimate of future sales from the data itself. Their advantage is that they are not prone to
biases in the form of either wishful thinking or undue pessimism. Their drawback is that they cannot
take into account all of the variables witnessed by sales personnel and, therefore, do not have as much
of a feel for the market. Companies must utilize a variety of inputs into the projection process, and
they derive some level of comfort when several different approaches yield similar results.
The projection process is a critical part of the budgeting process. It follows from the SWOT
analysis and the resulting strategic and tactical plans. Once these are formulated, sales projections and
the subsequent budgeting process just outlined provide an evaluation of the effectiveness of the
business plan.
Fixed Budgets versus Flexible Budgets
Many organizations operate in an environment where they can predict with great accuracy the volume
of business they will experience during the upcoming budget period. In such cases, budgets prepared
for a single level of activity typically are very useful in planning and controlling business activities.
Budgets prepared for a single level of activity are called fixed budgets.
Organizations that have trouble predicting accurately the volume of activity they will experience
during the budget period often find that a budget prepared for only one level of activity is not very
helpful in planning and controlling their business activities. These organizations can operate better
with a budget prepared for several levels of activity and covering a range of possible levels of activity.
This type of budget is called a flexible budget.
Fixed Budgets