Few topics divide finance teams like the annual budget. Some see it as essential control; others, as our Diary of a CFO guest Dr Stephen Morlidge argues in our beyond budgeting interview, see it as a costly ritual that is out of date before it is signed off. The rolling forecast is often presented as the alternative. In practice, most organisations need to understand both. This article explains the difference between a rolling forecast and a budget, the pros and cons of each, and how many finance teams combine them.
The short answer: an annual budget is a fixed plan for the financial year, used to set targets and measure performance. A rolling forecast always looks a set period ahead, typically 12 to 18 months, and is updated monthly or quarterly to give the latest view of the future. Most finance teams need both: a lighter budget for targets and a rolling forecast for decisions.
What is a budget?
A budget is a financial plan for a fixed period, usually the financial year. It sets targets, allocates resources and gives managers a baseline to be measured against. Once approved, it normally stays fixed for the year.
What is a rolling forecast?
A rolling forecast is a forecast that always looks the same distance ahead, for example 12, 15 or 18 months, regardless of where you are in the financial year. Each month or quarter, the period just completed drops off, actuals are loaded and a new period is added at the end. The forecast never runs out and is always your latest view of the future.
Rolling forecast vs budget: the key differences
| Annual budget | Rolling forecast | |
|---|---|---|
| Purpose | Set targets and allocate resources | Give the best current view of the future |
| Time horizon | Fixed financial year | Always a set number of months ahead |
| How often it changes | Once a year | Monthly or quarterly |
| Level of detail | Often very detailed | Usually higher level, driver-based |
| Used for | Performance measurement and control | Decision-making, cash and resource planning |
| Main risk | Out of date quickly | Can become a box-ticking exercise if not used |
The case for the annual budget
- It sets clear targets and accountability for managers.
- It is often required by boards, lenders and investors.
- It forces a structured conversation about priorities and resources once a year.
The downsides are well known. Budgets take weeks or months to prepare, are based on assumptions that quickly change, and can encourage sandbagging and “use it or lose it” spending. As Stephen Morlidge puts it, budgets control people, not costs.
The case for the rolling forecast
- It keeps the organisation looking forward rather than explaining the past.
- It responds to change, so decisions are based on current information.
- It always shows at least a year ahead, so there is no “cliff edge” in the final quarter.
- It works well with driver-based planning and scenario modelling.
The challenges are practical. Rolling forecasts need regular input from the business and fast access to actuals. If every update takes weeks, the process collapses. That is why most successful rolling forecasts use a small number of drivers and a planning system rather than spreadsheets.
Do you need both?
For most organisations, yes. A common approach is to keep a lighter annual budget for targets and governance, and run a rolling forecast for day-to-day decisions, cash planning and investment choices. Both live in the same model, so you can compare actuals, budget and the latest forecast side by side.
Some organisations go further and replace the detailed budget entirely with targets plus a rolling forecast. Sandvik, for example, moved to a five-quarter rolling forecast in under three months. Read the Sandvik story.
How to move to a rolling forecast
- Choose the horizon and frequency. 12 to 18 months, updated monthly or quarterly, suits most organisations.
- Identify the key drivers. Forecast at driver level rather than every account. See our guide to driver-based planning.
- Automate actuals. Connect your ERP so actuals load automatically each period.
- Agree who contributes. Keep input focused on the people who own the drivers.
- Use it. Make the rolling forecast the basis for monthly business reviews and decisions, not just another report.
Planning software makes this much easier. See how rolling forecast software and budgeting and forecasting software support both processes in one model.
Frequently asked questions
What is the difference between a rolling forecast and a budget?
A budget is a fixed plan for the financial year used to set targets. A rolling forecast always looks a set period ahead, such as 12 or 18 months, and is updated regularly to give the latest view of the future.
Can a rolling forecast replace the budget?
Some organisations replace the detailed budget with high-level targets plus a rolling forecast. Many keep both: a lighter budget for targets and governance and a rolling forecast for decisions.
How often should a rolling forecast be updated?
Most organisations update monthly or quarterly, usually aligned to the management reporting cycle.
How far ahead should a rolling forecast look?
Twelve to eighteen months is common. Five quarters is also popular because it always shows at least the next full year.
Do you need software for rolling forecasts?
Not at first, but spreadsheets become slow and error-prone when actuals must be loaded and many people contribute every month. Planning software makes rolling forecasts quick to update.
About Kybos
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