What is the primary purpose of revenue forecasting?

The primary purpose of revenue forecasting is to estimate future resource inflows. This involves predicting how much revenue will be generated from various sources, such as taxes, fees, and grants, over a specific period. Effective revenue forecasting is essential for creating a balanced budget, as it allows public finance officers to align expected revenues with planned expenditures, ensuring that financial resources are available to meet the organization’s needs.

By accurately forecasting revenue, budget planners can make informed decisions on resource allocation, identify potential funding shortfalls, and prioritize programs and services. This proactive approach helps in maintaining fiscal stability and supports strategic planning for future operational and capital projects.

While analyzing budget expenditures, conducting sensitivity analysis, and assessing collection rates are important components of overall budget management, they serve different purposes within the budgeting process and are not the primary focus of revenue forecasting.