Budgeting: simulating scenarios and predicting outcomes with AI 


    Using past experience and data to predict future prospects. This is, in essence, the aim of the budgeting process. This process is simply where different company organs are periodically called upon to agree on the use and allocation of available resources. It is certainly a period of corporate life that carries great responsibility, on which the very future of the company depends. With budgeting you define your company’s targets and results. The use of artificial intelligence allows a large amount of data to be analysed, extracting information that the system uses to make predictions and simulations. Millions of market variables are mapped in real time and cross-referenced with your company’s dataset to make precise forecasts allowing you to stay one step ahead in your industry.

    Where we are, where we want to be: budgeting as an AI-assisted decision-making tool
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    What is Budgeting

    To give a more detailed explanation, budgeting can be defined as a process of projecting revenues and expenses, cash flows, production lines, working capital, capital expenditures, etc., for future years, which is based on rational logic of future prospects and uses data from the past. Basically, a financial plan for the future, available to the company management for decision-making. Budgeting can be prepared for the entire financial statement or for any of its components.

    The various aims of budgeting

    Here are the main aims in implementing the budgeting process, which are indispensable for corporate governance:

    • defining a map of objectives and the means required to achieve them;
    • making general targets explicit by using specific targets, so as to build a communication channel between those responsible;
    • distributing overall resources rationally among the various users;
    • providing parametric values to assess the performance level of managers;
    • incentivising and motivating staff.

    Budgeting, the various components in a company

    There are various divisions in your organisation and budgeting must take into account the needs of each. Combining the budgets of each division gives the final budget. 

    • Sales: outlines the company’s expected income stream.
    • Production: determines the number of units of a product to be produced by the company and the cost at which the products are to be manufactured. This is calculated according to the sales budget.
    • Procurement of direct materials: direct materials, as the name suggests, are used directly in the production of goods. The budget determines the amount and cost of these resources that are required for the production process.
    • Labour, overheads: relating to labour, overheads, etc. Budgets are prepared separately and then combined.
    • Cash flow: helps to formulate the company’s (incoming and outgoing) payment cycles in advance; therefore guarantees the ready availability of cash. The company can thereby keep track of its receivables and payables. To avoid a liquidity shortage, the company can organise accounts receivable and accounts payable plans.
    •  Forecast budgets: are prepared on the basis of each budget component. Budgeted financial statements are called pro forma financial statements.

    Budgeting with Vedrai’s artificial intelligence (H2)

    Artificial intelligence algorithms have the ability to dynamically master Big and Small Data, learn and progress by repeating patterns billions of times, and detect patterns in the data that would otherwise be hidden from human scrutiny. Finally, they can then predict the outcome of an target function.

    Vedrai’s artificial intelligence works through virtual agents. The main one is James, with the alter ego of a CEO. Here’s how James can help to significantly improve the budgeting process, with its features accessible from a dashboard, KPIs, sentiment and overall performance can be visualised.

    Business monitoring

    It can provide you with a comprehensive overview of company performance, highlighting key performance indicators; it shows you the current health of the company and allows you to assess future performance on a level playing field.

    Simulation of scenarios

    The agent simulates different budget allocation scenarios and allows you to see the results, enabling you to better calibrate available resources to meet your targets.

    Definition of targets

    An agent can support you in defining your business strategy, first showing you a feasibility index for a set goal, then the set of activities to be implemented to achieve that goal.