Rolling Budget Method
A rolling budget is a budget that is continuously updated and modified throughout the fiscal year. It is an alternative to traditional annual budgeting, which requires all budget decisions in an organization to be made in advance and remain static throughout the fiscal year. In contrast, the rolling budget method allows organizations to adjust and amend their budget decisions to better reflect their current reality or upcoming needs as they come up, rather than relying solely on the data from the prior year. This can help organizations stay ahead of current trends and be more proactive, instead of reactive, in their budget decisions.
The rolling budget method begins with using the prior years budget for guidance, but allows for changes and updates to those budget amounts. This is beneficial to organizations because it acknowledges that the financial landscape can change due to market fluctuations, changes in production costs, changes in demand for products and services, and other unforeseen occurrences. The rolling budget method allows for budget modifications throughout the fiscal year and enables organizations to adjust their budget as needed to accommodate for any changing external factors.
The rolling budget method also allows organizations to adjust their budget based on the organizations current priorities and available resources. While it relies on the prior years budget as a starting point, it is not necessarily bound by it. This allows organizations to reallocate resources to projects or departments that may be better suited to their current needs and priorities.
The rolling budgeting process begins by setting specific do-not-exceed limits or targets in specific expense areas. For example, an organization may set a target expenditure limit of $100,000 in its marketing budget. When actual expenditures exceed that target limit, the organization can adjust the limit in response. This could mean reducing the amount allocated for other expenses to offset the additional marketing expenditures, or the organization may opt to simply reach the actual expenditure achieved without disruption from the rolling budget.
While the rolling budget method provides a more flexible budgeting practice, it is important to remember that it still has its limits. Organizations must closely monitor their budgeting process and make sure that current budget decisions remain aligned with their overall goals. It is also important to set and maintain do-not-exceed limits, so that organizations don’t overspend in order to achieve their budget goals.
The rolling budget method provides organizations the flexibility to accommodate for unexpected events and changing market conditions, while still maintaining a defined budgeting process. For organizations that need to plan quickly, this method may help ensure that they remain on track and in budget, no matter the circumstances. By remaining vigilant in their budget monitoring and setting do-not-exceed limits, organizations can use the rolling budget method to their advantage, as it can provide organizations the flexibility needed to maintain their budget while also adjusting to their current needs.
