Feedforward control is one of budgeting aspect which tries to identify and prevent the problem before it even occurs. This method will compare the actual result with the forecast and figure out the solution before it too late.
We usually do it in the middle of the budget period. It aims the predict the future and compare it with the company goals, and the action will be taken if there is any significant variance.
The budget and future expectation comparison will submit to the budget committee if the expectation is falling below the budget, it may be adjusted or apply a new strategic level.
Feedforward Control Example
Company A has prepared a budget for 202X, which they expect to make sales of around 1.2 million from January to December.
However, at the end of March 202X, they can sell around $ 200K, so they forecast that up to December 202X, they can only sell about $ 800K, which is $ 400K less than the budget.
By using feedforward control, the company will be able to identify the issue before it actually happens. Even we operate for three months, but we found that the budget will not meet.
The company will able to make a new strategy which will boost the sale to meet the target.
What are the advantages of feedforward control over budgeting?
|Advantages of feedforward Control
|Encourage the management to be proactive
|The manager will keep an eye open for any market change, which can impact the budget. They can see the problem before it even occurs, the company will have enough time to find the best possible solution.
|It can save time at the year-end
|We will be able to save time at year-end because the budget is already monitored on a monthly/quarterly basis. It is less likely to have errors because managers have reviewed it on a monthly basis.
|Be prepare for the problem
|The forecast will identify the problem far ahead of time. The top management will have enough time to revise the strategy and prepare for impact.
What are the disadvantages of feedforward control?
|Disadvantages of feedforward control
|The managers will spend more time on monthly budget comparison.
|Require expensive system
|The budget usually prepares in a template which is summary and easy for BoD review. However, our accounting system may different. It may require expensive accounting software to summary and prepare in budget template. If we use the manual process, it will take forever to complete it.
|Focus on budget rather than daily operation
|Managers play a very important role in daily operations. They should spend their time dealing with production, product quality, customer satisfaction and so on. They should pay much attention to the company’s long term goal rather than the monthly budget review.