Rolling Forecast – A False Choice?

Instead of debating the relative merits of rolling forecasts over annual budgets, the right question to ask is “What’s the best way for us to plan in our organization?” Because maybe the answer involves elements of both.

There’s an annual budget process that’s approved by Management and/or the Board of Directors, and it’s used among other things to set performance targets. Few organizations lock away the budget in a drawer. Instead, every month they compare Actual vs Budget and complete a variance analysis. That analysis can, and often does, lead to a reforecast.

So an Annual Budget and Rolling Forecast can co-exist.

Rather than debating the good and bad of budgeting versus rolling forecast, you’re much better off devoting your time to answering the question “What is the best way for us to plan in our organization?” Here are some common objectives people have in improving their planning process:

  • Improve the reliability of our financial projections

  • Build a greater sense of ownership and accountability of the numbers

  • Align the goals of the organization and line up the proper resources behind them

  • Minimize the non-value added mechanics of the process

  • Improve the decisions made in the process to maximize the benefit of planning to the organization

If these are the goals, then what changes do you need to make to your planning process? And if you are considering a move to Rolling Forecast, or Zero Based Budgeting, or Value Planning, or Activity Based Budgeting anything else; you need to determine how the changes to your process will get you closer to any of your goals.

As Finance professionals we’re usually pretty detailed oriented, and rigorous in our thinking. We need to apply those same skills when it comes to assessing any recommendation for changing your budget process… and recognize a false choice when we see one.

 

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