ARTICLE

Rolling forecast versus annual budget: what each one is for

A budget finished in November explains less of the business by July. Material prices have moved and a large customer has pushed back its orders, but the budget figures are where they were. A rolling forecast deals with this by moving its window forward every month.

The annual budget: an agreed target

A budget is prepared once, before the financial year, approved, and used as the yardstick for each department.

Its strength is that it stays put. Everyone knows the target, and a variance means something because the base does not move.

Its weakness is a view that shrinks every month. By the last quarter the budget covers only the three months left, with figures set before anything that has happened this year.

The rolling forecast: always the same distance ahead

A rolling forecast always covers the same number of months ahead, usually twelve, counted from the latest closed month. When a new month closes it becomes actual, and another month is added to the end of the window.

Close August 2026 and the window runs from September 2026 to August 2027. Close September and it moves to October 2026 through September 2027.

The opening balances have to come from the balance sheet of the latest closed month. Move the window but keep the old opening balances, and forecast cash and inventory are wrong from the first month.

Run them together, not one instead of the other

Most companies that run a rolling forecast still keep a budget. The budget measures performance against target; the forecast drives the cash, production and purchasing plans.

Make the forecast the target as well, and whoever prepares it has a reason to keep it low. It then stops doing its real job, which is to say what is likely to happen.

The question a rolling forecast answers well is when cash will be at its lowest in the next twelve months, and when a facility needs to be in place. A budget that stops in December cannot answer that late in the year.

What to settle before building one

Tie assumptions to actual dates, not to month one to twelve. A price rise planned for March has to stay in March however many times the window moves.

One-off items, such as a machine purchase or a dividend, stay on their intended dates. They do not slide with the window.

Agree who updates which assumption, and how soon after the close it has to be done. A forecast that arrives late leaves less time to act on it.

Negative cash in a forecast is not an error in the file; it is a signal to arrange funding. A model that borrows automatically hides that signal.

In the Excel files

Report 09, the rolling 12-month forecast, moves the last closed month from a single cell; the window and the opening balances follow, with three dated scenarios. Report 05, Forecast & Outlook, is a full-year forecast linking sales, production, inventory, profit and cash.

Common questions

With a rolling forecast, is a budget still needed?

Usually, yes. The budget is the target used to measure performance and approve spending; the rolling forecast plans cash and operations. A few companies drop the annual budget altogether, but they then need another way to set targets and approve spend.

How often should a rolling forecast be updated?

Each monthly close is the usual rhythm; some companies go quarterly to cut the workload. Quarterly means the view shortens between updates, so set the horizon long enough for the cash decisions it has to support.