By Jim Wong, CPA | October 28, 2013


Budgeting is often a word that draws an adverse reaction from many senior executives. In his best selling book, “Winning,” General Electric Chairman Jack Welch says the budgeting process is “the most ineffective practice in management. It sucks the energy, time, fun, and big dreams out of an organization.”

The process is the same each year — you send out budget worksheets to department heads, they return them with inflated or low-balled spending projections. You adjust those projections to something more realistic, and after several rounds of this game of back and forth, the budget is born.

“That laborious process would take as long as five months — so long that business conditions usually changed in such a way that the approved budget ended up being more a window to the past than a guide to the future,” says Neil Amato, contributor to the Journal of Accountancy.

However, Amato says, “The faster pace of business, and better technology that can automate control functions, is making traditional, line-item budgets less useful.”

Because the standard annual budget becomes out of date throughout the year, more and more companies have decided to put a rolling budget in place. So instead if attempting to predict the economy, industry, and competition, which constantly change, companies adjust their budgets throughout the year based on actual results.

Amato shares some tips to help you get your team to embrace rolling forecasts.

Get Over the Mental Hurdle
Many executives have once a year budgeting engrained in their routine, but this is an old thought process. “In today’s dynamic environment, data can provide instant analysis, meaning the focus must be on shorter-term goals,” says Amato.

Use Technology
Today, technology is able to do some of the legwork. Amato shares the example of Northern Quest Resort & Casino. They purchased software to help automate the forecasting process instead of using multiple Excel spreadsheets. Tim Quinn, CPA, CGMA who works for Northern Quest Resort & Casino says, “The software pulls numbers directly out of our general ledger. If I want to look ahead and factor in growth of one percent or two percent, I can see what that looks like.”

Encourage Collaboration
Since it’s tough to get people over the mental hurdle that you don’t need a traditional budget, encourage your team to collaborate and understand why a rolling forecast is important. “Participation breeds acceptance,” says Mark Biersmith, CEO of RoadMasters Holdings. So be open and honest with your team about what this change means for the company.

Show Faith in Managers
Another hurdle is persuading department heads to stop inflating their budgets. “Show them that requests for funding or resources, based on current conditions and targeted toward delivering outcomes, will be honored, and they are less likely to make arbitrary additions to their budget,” suggests Amato.

The benefit of a rolling forecast is it forces companies to track their spending more closely. So instead of budgeting for hundreds of line-item categories, organizations can spend more time on something that adds value.

Has your company moved towards a rolling forecast? If so, why? If not, are you thinking of making the transition?


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