Should rolling forecasts replace budgets in uncertain environments?

Abstract

Budgeting process has been largely criticized in the recent accounting literature. The responsiveness of budgets to fast-moving environments is now questioned. The purpose of this paper is to address this issue by suggesting that companies use Rolling Forecasts as an interactive and flexible tool to cope with turbulence. We designed a web-based survey directed to Spanish companies operating in an uncertain environment. Statistical results of the survey reveal that more than 60% of the respondents consider that changes in the environment makes it very difficult to establish accurate budgets. Respondents also mentioned that with the economic down cycle the establishment of reliable financial forecasts is requiring a great effort. At the same time, qualitative interviews have been conducted with companies already using Rolling Forecasts to test and further develop the use of this interactive tool. We found that the Rolling Forecasts are considered to be a dynamic strategic planning tool, very useful for cash management and day to day decision-making process, but that they cannot replace budget for evaluation and motivation purposes. The study has its limitations as the findings rely on a small number of survey respondents and interviewed organizations. Nevertheless the results have been compared, when possible, to those of similar surveys in order to validate them. The article supplies actualized information about budgeting practices in a turbulent environment and more specifically in the Spanish context.