Question

5 advantages of using a rolling forecast instead of a traditional budgeting system?

Answer 1

TRADITIONAL BUDGETING SYSTEM

Traditional budgeting uses fixed forecasting which draws up a fixed budget for a fixed period of time typically as lengthy as a one fiscal year. Once it is published budget remains unmodified despite unanticipated market fluctuations that could take place along the line.

ROLLING FORECAST

On the other hand ,rolling forecasts allow for continuous planning with a constant number of periods. Eg: if you forecast period lasts for 12 months, as each month end another month will be added.

ADVANTAGES OF ROLLING FORECAST OVER TRADITIONAL BUDGETING:​​​​​​​

1. Accuracy :

A common complaint about traditional udgeting is that it is irrelevant by the time it gets completed. Rolling forecast allow you to make quick tweaks along the way rather relying on a single budget for a whole fiscal year.

2. Agility :

Rolling forecast allow you to adjust forecast to accommodate recent changes or trends in the environment . You are able to respond better in a time sensitive decisions.

3. Drive based:

With rolling forecast, your predictions are no longer based on past results. Instead your metrics like growth, market share, human capital, cutsomer satisfaction are fed into your system. Any fluctuations can be accounted throughout the year instead of just once.

4.Mitigate risk:

By continuously projecting future use of financial resources , rolling forecasts support scenerio planning or what if scenerio analyses which helps decision makers to proactively measure and minimise exposure to risk.

5. Oppurtunistic forecasting :

With rolling forecast, businesses can be more oppurtunistic in their decision making because they will have the ability to tweak their business assumption, alter budget allocation and adjust their spending more quick to better respond to environment demands .