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Budgeting versus Rolling Forecasts

Every organization has a budget.  And many organizations spend far too much time on the annual budgeting process.  So does it make sense to just stop budgeting all together?

Industry Market Trends asked this question in its recent article, “Is it Time To Scrap the Annual Budget Process?”  Steve Player, program director of the Beyond Budgeting Roundtable is quoted as saying, “the budget as a cost-control measure is a management process that can kill the organization.  It’s part of the dumb stuff that finance does and should stop doing.”

The article also quotes our own CFO, John Orlando.   John’s view is that rolling forecasts are a better approach.  “In the budget process you have to marshal a tremendous amount of work and resources, but then the first couple of months of the fiscal year go by, and after February your budget may not mean anything at all.”

And, as the article points out, a PwC Financial Services Institute report found that budgeting processes cost an average of $12 million a year for a company with over $10 billion in revenue; it also states that for 60 percent of companies, the annual budget takes longer than three months.”

Those are a lot of strong reasons to rethink budgeting.  What do you think?  Is budgeting still worth the time and money it takes?