A rolling budget method of budgeting in which as each month passes, an additional budget month is added such that there is always a 12-month budget. It is also known as a continuous budget, a perpetual budget, or a rolling horizon budget.
A rolling budget is a forward looking budget. It’s constantly looking n-periods into the future. Rolling budgets are being adopted because it forces us to constantly look to the future and revise our estimates. The failure of traditional fiscal year budgeting is that as we progress through the fiscal year the number of periods in the budget decrease and make it harder to assess future prospects of the company.
i. The benefit of a rolling budget is that the company’s management will always have a budget that looks forward for one full year.
ii. Planning and control will be based on a more accurate budget.
iii. Rolling budgets reduce the element of uncertainty in budgeting since there is concentration on the short term when the degree of uncertainty is much smaller.
iv. There is always a budget that extends into the future( normally 12months)
v. It forces management to re assess the budgets regularly and to produce budgets which are more up to date.
i. An increase in budgeting work may lead to less control of the actual results.
ii. There is a danger that the budgets may become the last budget positive or minus a bit.
iii. They are more costly and time consuming than incremental budgets.
iv. May demotivate employees if they feel that they spend a large proportion of their time in budgeting.
A rolling budget could use 3-month periods or quarters instead of months. Also, a company might have a 5-year rolling budget for capital expenditures. In this case a full year will be added to replace the year that has just ended. This 5-year rolling budget means that management will always have a 5-year planning horizon.
Typically you can still prepare a...