Budgeting- difference between forecast and incremental budgeting

Forecasting and incremental budgeting are completely different. Forecasting is (for example) estimating what the level of sales will be next year - we will need this however we go about budgeting. The two main ways of arriving at the budgets are either incremental or zero-based. Incremental is taking last years figures and adjusting them for inflation and for changes in the level of activity. Zero based budgeting is ignoring what we did last year but looking again at the best way of doing things next year. (To explain in full would take too long here - you need to read the notes and watch the lectures that go with them) In both cases we need to forecast the level of activity. One use of the budgets (however we go about preparing them) is to see if the overall budgeted results for next year are what we require. For example, if we prepare the budgets and they show we are likely to make a loss then we will look to see whether there is anything we can do to avoid this - maybe increase selling prices; maybe see if we can cut some costs. Then we would re-do the budget. This is feed-forward control (and is nothing to do with what method we use to prepare the budgets) - using the budgets to help make decisions for the future.

Thank you John! I was guided with one sentence from a Kaplan book: "A feedback system would simply compare the actual historical result with the budgeted results". They have the common ground (historical figures), but they are using it for a different purposes. Best regards!

Comparing budget with actual is feedback control and is as Kaplan has written. You asked about feedforward control, which is what I explained :-)