Rolling Forecasts in Beyond Budgeting

Although Beyond Budgeting doesn’t provide a fixed recipe that includes any specific ingredient, rolling forecast can be a promising tool to achieve dynamic financial forecast and resource allocation. When included in Beyond Budgeting implementation, rolling forecasts must possess the following features to be effective:

  1. Focus on the key performance drivers (KPIs including ratios) and their trends: The process must only focus on a few key performance drivers (such as orders, sales, costs, and capital expenditures, etc.) and their trend analyses, instead of masses of details. In addition, the most important communications from forecasts are not the actual numbers, but the trends. When the focus is placed on actual numbers, it is similar to using the forecasts as targets or fixed performance contracts, which will lead to corruption and unethical behaviors in the process, as is the case in a traditional budgeting system.

Source:

CFO Thought Leader. (2014). Rolling Forecasts: What is this practice and how effective is it? [PDF file]. Retrieved from http://www.cfothoughtleader.com/wp-content/uploads/2014/04/Hope_ch33-1.pdf

Hope, J., & Fraser, R. (2003, Feb.). Who Needs Budgets? HBR. https://hbr.org/2003/02/who-needs-budgets

Hope, J., & Player, S. (2012). Beyond Performance Management: Why, When, and How to Use 40 Tools and Best Practices for Superior Business Performance. Boston, Massachusetts: HBR.

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Maggie Sun

MBA, certified agile coach and experienced strategy analyst, specializing in business agility, agile leadership, Beyond Budgeting, and general management.