Quick Answer
A forecast is an estimate of future financial results based on the most likely set of assumptions and expected conditions. A projection models hypothetical scenarios — "what if we raise prices by 20%" or "what if we enter the US market." Forecasts predict what you expect will happen; projections explore what could happen under specific conditions that may or may not be the most likely outcome.
The difference between a forecast and a projection is subtle but important, particularly for investor communications and audit purposes.
A forecast is management's best estimate of future results based on expected conditions. It reflects what the company believes will actually happen. A revenue forecast of £5M means management expects revenue to be approximately £5M.
Forecasts are used for: - Operational planning and resource allocation - Board reporting and quarterly updates - Market guidance (for listed companies) - Banking covenants and debt compliance
A projection models a specific set of hypothetical assumptions, which may or may not represent the most likely outcome. "If we raise prices by 20% and churn stays flat, revenue would be £6M" is a projection. Management is not saying they expect this to happen — they are exploring a possibility.
Projections are used for: - Scenario planning and strategic analysis - Investor due diligence and fundraising - Business case evaluation for new initiatives - Sensitivity analysis and stress testing
Under US auditing standards (AT-C Section 305) and similar UK guidance, the distinction between forecasts and projections has specific implications for attestation engagements. Accountants can provide different levels of assurance depending on whether financial statements are presented as forecasts or projections.
For practical purposes, the distinction matters when communicating with investors and boards. Presenting a projection as a forecast can create unrealistic expectations. Presenting a forecast as a projection can undermine confidence in management's planning capabilities.
Clearly label your financial outputs. Your primary plan should be labelled as a "forecast" — this is what you expect. Alternative scenarios should be labelled as "projections" — these are what-if analyses. In board packs and investor decks, make this distinction explicit.
Related Questions
A budget is a fixed financial plan approved for a specific period, typically one year, that sets spending targets and re...
Scenario planning in FP&A is the practice of creating multiple versions of your financial plan based on different assump...
A good revenue forecast should be within 5-10% of actuals for the current quarter and within 10-15% for the next quarter...
A what-if analysis is a technique that models the financial impact of changing specific assumptions or decisions in your...
Model three to five scenarios for most planning purposes. The standard set is base case (most likely), upside (optimisti...
FAQ
Investors typically want both. They want your base case forecast (what you expect will happen) plus projections showing upside and downside scenarios. The forecast shows operational confidence; the projections show strategic thinking and risk awareness.
Yes. If the hypothetical conditions assumed in a projection become the expected reality, the projection effectively becomes your forecast. For example, if a pricing increase from a projection is approved and implemented, those assumptions move into your forecast.
Include your base case forecast as the primary view. Add projections as scenario analysis to show the range of possible outcomes. Label them clearly so the board understands which is the expected case and which are hypothetical.
A budget is neither, technically. It is a plan — a target that the organisation commits to achieving. It is closer to a forecast (based on expected conditions) but carries the additional weight of an approved commitment and accountability framework.
Grove FP lets you create unlimited named scenarios. Label your primary plan as the forecast and create projections as separate scenarios. Compare any two side by side with clear labelling and automatic variance calculations.
Grove FP gives UK finance teams a modern platform for budgeting, forecasting, and reporting — so you can focus on the decisions that matter.
Budgeting, forecasting, and workforce planning in one platform. No credit card required.