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Welcome to the Strafford Blog

Static vs Rolling Budget: Which is right for you?

Posted by Michele Morrill

Apr 12, 2017 11:29:33 AM

rolling_forecast

Static budgets and rolling forecasts are different approaches to achieving a similar goal - predicting the future finances of an organization. While static budgets continue to be the most common choice, rolling forecasts provide features that work better for some companies. The ideal budgeting approach largely depends on the business model. The size, growth-rate, and industry fluctuations of your organization can help you determine the ideal budgeting method.

Finance executives are rethinking their use of static annual budgets and are considering the more flexible rolling forecast as they are increasingly required to make corporate finance more agile and adaptable. Which model is right for your organization? Let’s explore the differences.

 Static vs Rolling Budget

Static Budget

Rolling Budget

Easy Implementation: Static budgets are easy to implement and follow

Forecast Adjusts: Adjusts the forecast during the year in response to changes in the business environment

Annual Forecasting: Forecasting is done only once a year, so may demand fewer resources and less robust information systems

Flexible Budget: Views the budget as a guide, not something that is set in stone

Cost Control: Because there is no built-in wiggle room, they can help companies control costs and make smart spending decisions

Agile Process: Can reallocate funds from the segments of his business that aren’t performing well to those that are experiencing success

Calm Environments: Useful in unvarying environments, where the business is not exposed to extremely variations in commerce or the economy

Current Data: More up-to-date, increasing continuity and oversight

Long View: Can provide long-term perspective and the tactical depth required to grow the business

Consistent View: Management will always have a budget that looks forward for one full year

Correct Errors: Mistakes made last month will not affect your expenses this month

Manage Expenses: Can even out expenses over the year

Consistent Numbers: The numbers are constant, which can make it easier to plan

Strategic Direction: Leadership has a vision of the future, giving direction for company strategy

Stable Variances: Stable and consistent budget variances, which can offer strong insight into costs and profits when a variance analysis is performed

Dynamic Guidance: Provides both senior executives and middle management dynamic guidance on how much to spend based on the business' changing reality


Why consider a rolling forecast?

For a more realistic forecast (or budget) that, if not too complex, corporate finance systems can be easily maintained, and will allow you and the management team to focus on key business drivers without getting mired in too much detail. Additionally, best-of-breed enterprise performance management (EPM) systems like Hyperion Planning and SAP Business Planning and Consolidation, can easily support cross-fiscal year corporate forecasting.

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Topics: Budgeting and Forecasting, Finance Best Practices