Create an annual budget and stick to it: this personal financial advice works for so many people. What organizations are coming to realize however, is that it isn’t as viable when you apply it to the workings of a corporation. For household accounts, sure, annual budgeting makes sense, but when you’re working with the budgets for a large organization, the same just can’t be said any longer. Today we discuss this budgeting and forecasting conundrum.
Budgeting and forecasting with rolling forecasts isn’t some new trend being pushed by a small number of trendsetters. A few years ago, a thought-provoking article was posted on CFO.com, “Let It Roll: Why more companies are abandoning budgets in favor of rolling forecasts.” In it, the author discusses how annual budgets are being abandoned in favor of rolling forecasts, flexible business budgeting and event-driven planning. This, in comparison to annual budgeting, is what makes business more agile.
While budgeting is crucial, and can’t be done away with, their purpose overall has evolved. “Budgets do provide a level of detail (excruciating detail, some would argue) that can help shape incentive-compensation plans and capital-markets communications, but far too often the end result of what is often an arduous process is simply shelved and forgotten.”
Some are hesitant to jump ship altogether. According to the article, “despite the drawbacks of the traditional budget, many companies are not prepared to do without it, even as they adopt rolling forecasts. For them, budgets still serve a purpose.” While some companies have done away with annual budgets completely, others still see value and instead have adopted an approach that combines the two.
What are your thoughts? Is there still something to be said for the traditional annual budgeting process or have you switched to rolling forecasts? Are you using an amalgamation of the two? Join the conversation on True Sky’s social media: