Budgeting is a concept constantly riddling the minds of CFOs. How can a company build a better and more efficient budgeting approach that will maintain accuracy, while improving agility?

In a recent webinar entitled “Ask the Expert: Building a Better Way to Budget,” Steve Player, the Program Director at Beyond Budgeting Round Table, reflected on this question.

Watch the Webinar Replay

Understanding the Budget Process

The key to operating an efficient budget process is by ensuring every team member is well-versed in their role and has strong comprehension of the budgeting process. Unfortunately, this is often not the case. A poll conducted in the webinar revealed that just over 50 percent of businesses don’t feel that their budgeting process is well understood throughout the company. This can lead to a host of problems while greatly prolonging the process of budgeting.

The Formula for Transforming a Budget

Steve Player lays out the right formula for changing a budget. The process starts with dissatisfaction, which is the initial factor that motivates the desire for change. The business also has to have a vision for change, know the first steps to implement change, and have a resistance to change.

Beyond Budgeting Principles

There are 12 key principles that can guide a budget change, which include:

Principles to Change Governance:

  1. Values
  2. Governance
  3. Transparency
  4. Teams
  5. Trust
  6. Accountability

Principles to Change Processes:

  1. Goals
  2. Rewards
  3. Planning
  4. Coordination
  5. Resources
  6. Controls

For those unsure about how to proceed with a budget change, these core principles can guide you through an effective change, altering both the governance and the processes of the budget.

Figuring Out Where to Start

Budget changes can feel overwhelming. To know where to start, you need to thoroughly assess where you’re currently at. There are two primary methods of implementation. There is the revolutionary approach, which is an approach that’s led by visionary leadership, the goal being to achieve the budget change very quickly. Then there is the evolutionary approach, which relies on incrementally implementing the principles to gradually improve upon the budget over time. This method focuses heavily on leveraging rolling forecasts, while still partially relying on the traditional budget. Eventually, over time, the rolling forecast can completely replace the traditional budget.

Problems with the Traditional Budget

The main problem with the traditional budget, according to Steve Player, is that it “tries to do too much.” It relies on the same set of numbers for setting targets, forecasting, and allocating resources, which creates complications within forecasting and resource distribution. Instead, the numbers for each should be unique.

Budgeting and forecasting

Targets need to be set relative to others in the industry, while forecasts need to be realistic. Resource allocation also has to remain separate so businesses can dynamically shift resources depending on the needs of each department at varying times. By separating targets, forecasts, and resource allocation, businesses can improve the accuracy of budgeting and avoid the limitations of traditional budgets.

Adapting Your Budget for a Constantly Changing World

When considering new budget options, many businesses contemplate implementing a zero-based budget. However, this still isn’t ideal, as it’s hard to adjust the budget over time. Rather, rolling forecasts provide the most elasticity, offering businesses the ability to continually update the forecast as circumstances in the industry or economy shift.

The forecast needs to constantly look toward the future, and businesses can do this by regularly reviewing their processes. For the rolling forecast to be successful, the business needs to continually check their current business processes, plan for the future, and act upon changes as they arise. Scenario planning is key for rolling forecasts. With frequent scenario planning, businesses can predict the impact of a range of potential outcomes, enabling them to better plan for the future.

Many businesses are dissatisfied with their budgeting process, but they don’t know where to begin in implementing a new one. An evolutionary approach to budget change can provide businesses with a way to gradually improve upon their budget process, without completely overhauling their strategy and disrupting the flow of business. Cloud-based enterprise performance management(EPM) software can help you get started. It provides the tools you need to support annual budgeting and implement rolling forecasts effectively, while accessing tools to aid in analysis and scenario planning.

To learn more, watch the complete webinar, Ask the Expert: Building A Better Way to Budget.

Watch the Webinar Replay

9 responses to “Building a Better Budget with the Help of Rolling Forecasts”

  1. Derek Hazelwood says:

    I believe it is important to realize that a budget is a starting point snapshot. There is no silver bullet to streamlining a forecasting process. It takes work, engagement, partnership, and most of all…consistency to the process. If you switch up the formatting of the planning phase, you risk disruption to the entire process.

  2. Kate says:

    one way we use rolling forecasts is by constantly updating our headcount. This is an easy way to make a significant difference in your expenses.

  3. Jarrod says:

    The trickiest part of rolling forecasts for us is just know where to start without the presence of visionary leadership. The evolutionary approach seems to be the way to go as we start added pieces over time. Hopefully it doesn’t take us billions of years.

  4. Brian says:

    Agreed that rolling forecasts are important. The budgets are static, therefore, rolling assumptions are needed to determine the correct drivers over time.

  5. Jean Dane says:

    The annual budget is a guideline and should be used as such, and in my opinion should not be used to measure success. Our business are to fluid and to tie yourself to something prepared 6 – 9 months ago is setting yourself up for failure.

  6. Jim Perry says:

    Steve Player is a hugely engaging speaker and truly a pleasure to speak with at Host Analytics events. While I agree with the tenets of “zero based budgeting,” and (selfishly) support Steve’s vision to eliminate the annual budget process, I think that the concept is a bit too progressive at this point in time. Many Boards are “old school” and abide by traditional best practice. That said, some firms have adopted the approach and I hope that it will gain momentum.

  7. Megan says:

    I agree that many Boards are still old school and want to stick with traditional best practice. I don’t foresee many Boards wanting to be the game changers when it comes to that approach.

  8. Heidi says:

    Interesting blog post/approach. Our budget focuses purely on operating expenses – which is primarily driven by salaries/benefits (we’re a bank). Guessing that the impact of a rolling forecast is much more useful for someone projecting income and expenses as a whole. So – our challenge is just to get those income/other expenses rolled in to our process first! Baby steps!

  9. Lee Johnston says:

    I thoroughly enjoy listening to Steve’s perspective on budgeting. Always insightful. I like the idea of rolling forecasts but I don’t fully understand the process. How do you effectively manage spending without a plan in place. Are there some general expense guidelines set up at the beginning of the year on a consolidated basis at least? I understand the need to stay fluid and the value in allowing management to reallocate spending based on current needs but how do departments know how much they are allowed to spend, and how does management decide how much there is to allocate if no budget was established? What am I missing?

As Vice President of Demand Generation, Nick provides digital marketing and demand generation leadership to Host Analytics, the leader in cloud-based financial applications including planning, close, reporting and analytics. Nick has held marketing, business development, and consulting roles in companies like HBO, Nuance, Equilar, and Aspect Communications. Nick holds a Bachelor of Science in Communications from Ohio University, Athens, Ohio.

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