Rolling budget Anna Bondareva Victor Gaag Anastasya Naskidaeva

Content Variants of rolling budget (RB) Definitions of RB Why do managers need RB? RB vs. Traditional budget (“+” and “-”) Guidelines for successful implementation of RB Conclusion Management Accounting for International companies Professor Igor N. Baranov 2

Variants of budgeting Rolling budget Revised while being implemented with permanent horizon of planning Management Accounting for International companies Professor Igor N. Baranov 3

Variants of budgeting Management Accounting for International companies Professor Igor N. Baranov 4

Rolling (continuous) budget: A budget continuously updated by adding a further accounting period (month or quarter) when the earliest accounting period has expired. Its use is particularly beneficial where future costs and/or activities can not be forecast accurately Management Accounting for International companies Professor Igor N. Baranov 5

Why do managers need RB? Control Revision Reassessment of competitive factors Forecast Management Accounting for International companies Professor Igor N. Baranov Better financial results 6

RB vs. Traditional (Advantages of RB) Encourage managers to assess, think strategically year -round rather than just once a year at budget time Managers have a full year’s budget always available and the rolling budget forces them to continue plan ahead “A static budget simply doesn’t reflect the pace of business today, ” says Jill Langerman, CPA, president and CFO of the accounting firm Fair, Anderson & Langerman in Las Vegas Management Accounting for International companies Professor Igor N. Baranov 7

RB vs. Traditional (Disadvantages of RB) Takes too much time & effort Can create uncertainty for managers as the budget is constantly being changed Management Accounting for International companies Professor Igor N. Baranov 8

Why do companies failure while implementing RB? Poor management? Poor software? Management Accounting for International companies Professor Igor N. Baranov 9

They use RB Management Accounting for International companies Professor Igor N. Baranov 10

Practical Example #1 Volvo relies on several types of rolling forecasts: every month a «flash» forecast that looks 3 months ahead: informs managers about current demand every quarter - a 12 -month forecast: updates managers’ assumptions about customer behavior & economic trends every year - 2 additional forecasts 1) looking 4 years ahead 2) looking 10 years ahead access the company’s market positioning & determine schedules for phasing out old models & phasing in new Management Accounting for International ones. companies Professor Igor N. Baranov 11

Practical Example #2 Cicso- a producer of ¾ of the world’s computer networking equipment a hybrid of traditional & rolling budgets an annual plan which remains fixed for a year But each quarter it is reviewed against actual performance & adjusted for the remainder of the year. Besides they produce rolling 12 -month financial forecasts on a monthly basis, incorporating numerous «what-if» scenarious into its calculations. Management Accounting for International companies Professor Igor N. Baranov 12

Guidelines for successful implementation of RB: 1. 2. 3. 4. Firstly, a firm needs to ensure that the overall volume of information required is reasonable. Too many details can lead to misunderstanding and moving into wrong direction Secondly, senior managers as well as line managers need to be actively involved Thirdly, re-forecasts and re-budgets must be based on a thorough analysis of the changes in operating variables and marketplace Fourthly, adoption of RB must not reinforce the concentration on financial measures and result in the exclusion of other critical operating measures Management Accounting for International companies Professor Igor N. Baranov 13

Conclusion The concept of rolling budget states that budgeting is a continuous process, but not something that takes place once a year than a budget is drawn up Therefore sound managers are encouraged to constantly look ahead revising and reassessing a company’s future projections several times a year. “A static budget simply doesn’t reflect the pace of business today, ” says Jill Langerman, CPA, president and CFO of the accounting firm Fair, Anderson & Langerman in Las Vegas. Management Accounting for International companies Professor Igor N. Baranov 14

Thank you ! Management Accounting for International companies Professor Igor N. Baranov 15