Rolling budgets as a supplement to annual budgets
May 15, 2016
Annual budgets have been criticized and alternatives to them have been proposed: rolling budgets (forecasts), activity-based budgeting, zero-based budgeting and beyond budgeting.†In this article, we will take a look at rolling budgets.
There has been a lot of talk about drawbacks of the annual budget process.† The annual budget has been used for years by many companies, but some are saying it may be losing its edge as a management tool.
Some issues associated with the annual budget are listed below:
- The annual budget process takes a lot of time and resources and may be a rather expensive process.
- By the time the annual budget has been finalized and approved, the assumptions utilized to create it are proven wrong.
- The annual budget process may result in undesirable behavior by managers.
- A disconnect may exist between the annual budget and company strategy which may harm the company strategy execution.
To remediate the annual budget issues, alternative solutions have been proposed which either completely replace the annual budget or complement it.
Alternatives and supplements to the annual budget process include:
- Rolling budgets (forecasts)
- Activity-based budgeting
- Zero-based budgeting
- Beyond budgeting
Perhaps the most widely used tool aside from the annual budget itself is the rolling budget (forecast).† Letís take a look at it in more detail.