What Is a Baseline?
A baseline is a fixed point of reference that is utilized for comparison purposes. In business, the progress of a project or product is frequently measured against a baseline number for costs, sales, or quite a few different factors. A project might surpass a baseline number or fail to meet it.
For instance, a company that needs to measure the progress of a product line can utilize the number of units sold during the principal year as a baseline against which subsequent annual sales are measured. The baseline fills in as the starting point against which all future sales are measured.
Figuring out a Baseline
A baseline can be any number that fills in as a reasonable and defined starting point for comparison purposes. It could be utilized to assess the effects of a change, track the progress of an improvement project, or measure the difference between two periods of time.
For instance, a public company will follow the performance of every product line by picking one year as a baseline and measuring all subsequent years against it.
A baseline is regularly utilized when a financial statement or budget analysis is prepared. The statement or analysis involves existing revenues and spending as a baseline for surveying whether another project is executed effectively.
The Baseline in Financial Statement Analysis
A financial statement analysis that utilizes a baseline is called horizontal analysis. It compares a company's historical financial data over a number of reporting periods that might be month to month, quarterly, or annually.
The principal period in a horizontal analysis is meant as the baseline period. All subsequent periods are then measured as a percentage of the baseline. So a period that has a similar revenue as the baseline would have 100% revenue.
In data technology, there are three regularly utilized baseline points: cost, scope, and schedule.
This exercise is valuable in spotting trends, taking a gander at areas of growth or decline, and surveying financial performance overall. Ratios like profit margin are likewise compared horizontally against the baseline year to draw determinations about a company's continuous performance.
The Baseline in Budgeting
Project budgeting works based on what is known as a cost baseline. The cost baseline is the budget approved for the project, typically broken down in a few detail by cost category and cost period of time.
In the event that a company opens another warehouse, for instance, and the cost baseline has been set at $100,000 each month consistently for quite a long time, any month to month cost surpassing $100,000 is a red flag for the budget analyst.
Nonetheless, project costs definitely change from baseline numbers as obscure and startling expenses or even, at times, savings are realized. The cost baseline can be refreshed to reflect genuine project costs.
The Baseline in Information Technology
In data technology management, a baseline might be set for anticipated or maximal levels of performance. There are three generally utilized baseline points: cost, scope, and schedule.
Software applications utilized by project management experts regularly are intended to keep up with and track these three critical baseline measurements.
- In horizontal financial analysis, the numbers for the main reporting period act as the baselines for comparison of subsequent periods.
- In project budgeting, the approved budget numbers are the baselines for comparison of real expenses.
- In data technology management, the baseline is the anticipated or maximal level of performance.