What is Rolling Forecast?

Generally, between September and October, companies develop the budget for the following year, making a first review for adjustments after three months. Well, the rolling budget proposes a different solution that escapes a bit from this rigid scheme that most companies adopt.

In our new article, we will explain to you how this methodology of planning and budget management works and what the advantages of using this feature in your company.

Keep up and have a good reading!

What is the continuous budget or rolling forecast

The Continuous Budget (or Rolling Forecast) is a methodology generally used to cover budgets for a period of 12 months. In it, when a month ends, a review takes place and a new month is added at the end of the period being budgeted. Thus, the company will always have a budget of 12 months ahead.

As you can already imagine, the continuous budget requires recurrent monitoring of what was planned and accomplished , establishing a greater periodicity in budget reviews (f orecast ).

In turn, the periodic monitoring and updating of the budget leads to greater engagement and commitment from the managers and employees involved in the process.

And speaking of managers, when a company adopts the rolling forecast they need to be flexible and agile to respond to unforeseen circumstances and also create the habit of being constantly aware of what is happening in the budget.

With continuous budgeting it is possible to detect failures earlier, streamline decision making and make the process more dynamic.

How continuous budgeting works

In a very simple way, we can say that the continuous budget works as follows:

  • Delivery of monthly budget reports quickly and quickly;
  • Analysis of monthly reports by managers;
  • The managersanalyze what went right and what went wrong in the period and point out what can be done differently in the future;
  • They also analyze in detail the Revenues and Expenses of their respective departments and prepare the estimates for the future period.

Advantages and disadvantages of rolling forecast

Now let’s see what are the main advantages and disadvantages of companies using the rolling forecast methodology.

Rolling forecast advantages

Among the advantages of using the rolling forecast methodology is the fact that, as we always have a projection for the next 12 months, we have the opportunity to carry out reviews continuously, eliminating the need to stop the entire company for a large and complete budget review and this, in itself, already makes the process much more effective.

In addition, at the time of preparing the annual budget, the work will be less complex, as it has already been done during previous periods, requiring only a final review of the estimated data.

The continuous budget is very suitable for companies that work with products that have short life cycles or in very volatile markets, such as fashion or technology. After all, these companies work in a very dynamic and agile way, needing to keep their projections always in line with fluctuations in the economic scenario and quarterly or half-yearly budget revisions are not always enough.

Another advantage is to provide a high level of budget accuracy, since the data is always being updated, as the company evolves and the market conditions are changing.

Disadvantages of rolling forecast

One of the main disadvantages of the rolling forecast pointed out by the specialists is the high cost generated by the constant updating of budgets. The method also requires a great commitment from the employees involved, which can be seen as a disadvantage when thinking about the time spent working.

This is a budget management methodology not recommended for companies that work with products with long life cycles or in a more consolidated market, such as commodities or concessions. These types of businesses do not suffer as much variation in short periods of time and the work generated by the continuous budget will not outweigh the benefits obtained.

In addition, it must be borne in mind that the adoption of continuous budgeting requires a flexible organizational culture, which adapts quickly to new scenarios, as well as a controlling team active in preparing and maintaining the budget and ready to support department managers. and other people involved in the process.

What is the difference between budget and forecast

Finally, so that there is no doubt, it should be noted that many people are confused between these two concepts: budget and forecast. However, this is not at all complicated, as we will see below, they are different, but complementary.

Budget means a static budget, that is, the planning of goals, expenses, costs and expenses in a specific exercise period.

Forecast is to adjust this budget whenever necessary.

In practice, it works as follows: the company sets the budget for a certain period and, over time, compares it with what has been carried out. If necessary, adjustments are made so that the initial number is fulfilled, without changing the total budget amount.

For example, imagine a company that has an expense budget of R $ 1,200,000 per year. That is, it has something around R $ 100,000 to be spent monthly. However, in the sixth month, she has already spent R $ 800,000 and for the next six months only R $ 400,000 remains. To resolve this, we adjusted the monthly amount available to R $ 67,000, R $ 33,000 less, ensuring that the total amount of the pre-defined Budget is reached.

However, if the rolling forecast or continuous budget were applied in the example above , after the review we would have a new budget for the next 12 months, based on the figures from the last period.

In other words, the revised budget in June, which comes into force in July, should make forecasts until June of the following month.

Conclusion

You already know that budgeting is serious and that it is a subject that never ends. For this reason, it is important to keep up to date, whether through readings or courses.

And speaking of course, how about getting to know our Strategic Cost and Budget Management course , aimed at controllers , accountants, managers, financial directors and other professionals in the areas of accounting and finance related to the sectors of budget, costs, accounting, finance and controllership.

 

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