Question & Answer: Why is it important to project the first year on a monthly basis and the subsequent yearly budgets, on a…

Expert Answer

It is important to project the first year on monthly basis:

• Low visibility of income and expenditure hence not much useful to plan for longer periods.
• Better plan resources monthly as limited availability of resources.
• Changing environment with each day hence monthly basis planning is more productive.
• Easy to modify monthly budgets if any divergent from planned budget.

It is important to project the subsequent yearly budgets, on a quarterly basis:

• More productive to plan quarterly than put lot of effort in planning monthly.
• Stable business environment helps better budget estimates and hence quarterly budgets are effective.
• Seasonality is to be considered while planning quarterly budgets.