The plan has one revenue number. The cost base was committed against it.

A forecast is a guess about the world. A cost base is a decision you have already made. Most annual plans quietly confuse the two.

By Steve 5 min read
Abstract bridge artwork for The plan has one revenue number. The cost base was committed against it.

A budget arrives with a single revenue line for next year. Everyone in the room knows it is uncertain. Everyone says so. Then hiring, software renewals, warehouse space and marketing commitments are all set against that one number, and the uncertainty that was acknowledged in the meeting disappears from the balance sheet. This is not a forecasting problem. Forecasts are supposed to be wrong. It is a commitment problem: the plan treats a probability distribution as a fact, and then converts that fact into obligations that are far harder to…

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Important: General information only. Rialto Bridge articles describe patterns and considerations that may apply to a business; they are not financial, legal, tax or accounting advice, and they take no account of your particular circumstances. Consider your own situation and seek advice from a qualified professional before acting.

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