Rolling budget definition
/What is a Rolling Budget?
A rolling budget is continually updated to add a new budget period as the most recent budget period is completed. Thus, the rolling budget involves the incremental extension of the existing budget model. By doing so, a business always has a budget that extends one year into the future.
A rolling budget calls for considerably more management attention than is the case when a company produces a one-year static budget, since some budget updating activities must now be repeated every month. In addition, if a company uses participative budgeting to create its budgets on a rolling basis, the total employee time used over the course of a year is substantial. Consequently, it is best to adopt a leaner approach to a rolling budget, with fewer people involved in the process.
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Advantages of a Rolling Budget
A rolling budget has the advantage of having someone constantly attend to the budget model and revise budget assumptions for the last incremental period of the budget. This provides some assurance that the budget model will always align with the actual conditions being experienced by a business. Another advantage is that the firm can always provide a full-year budget model to any lender or creditor who wants to see this information.
Disadvantages of a Rolling Budget
The downside of a rolling budget is that it may not yield a budget that is more achievable than the traditional static budget, since the budget periods prior to the incremental month just added are not revised. This results in a certain amount of variance from actual operating conditions in the months before the most recent monthly addition.
Example of a Rolling Budget
ABC Company has adopted a 12-month planning horizon, and its initial budget is from January to December. After a month passes, the January period is complete, so it now adds a budget for the following January, so that it still has a 12-month planning horizon that extends from February of the current year to January of the next year.
Terms Similar to Rolling Budget
A rolling budget is also described as continuous budgeting.