Tuesday, May 31, 2011

Budgets or Rolling Forecasts?

I'm not saying that I wholly agree with the comments expressed in the article, "Let It Roll: Why more companies are abandoning budgets in favor of rolling forecasts" by Russ Banham (from CFO.com). As with your business plan, as a cash management cfo you need to regularly check performance against actual and whether or not your assumptions about the industry, your market, and the next steps for your business hold out. All of these affect your budget and this review process should be done on a quarterly basis.The headline uses the term 'abandon' but the more appropriate word would be 'amend'. We're talking about a change from a more rigid traditional budget approach to a flexible budget approach. See the excerpt from the article below.


"Indeed, these days a budget is practically past its expiration date the moment the ink dries. "We used to have what we called the annual plan, and we'd spend six months of the previous year putting it together," says Neal Vorchheimer, senior vice president of finance for North America at consumer-products giant Unilever. "As soon as the budget was approved it was out of date. So we decided to do away with it."

Going with the Flow
In lieu of a traditional budget, Unilever now relies on an eight-quarter rolling forecast. The company, whose parent recorded 2010 revenues of $54 billion, forecast demand for all of 2011 and 2012 in January, while keeping in mind the fact that change is constant."


Click here to read "Let It Roll" in its entirety.

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