Agile is a loaded word in today’s business world. Not long ago, if someone said you were agile it meant they thought you could move quickly and were flexible. But the word has taken on significant meaning for companies and has made its way into the corporate lexicon across organizations.
Initially adopted as the name for a new approach to software planning and development, corporate agility can mean the difference between staying ahead of your competition and losing relevance in the market. Agile applies to all areas of an organization, including budgets. Changing to a flexible budgeting method, like rolling forecasts, allows for small, continuous changes that increase financial accuracy while accommodating shifting priorities and opportunities.
What is Agile?
When teams first began developing large software solutions, these projects were planned in a similar fashion to a traditional budget process. Requirements were gathered, estimates were created, and the entire project was mapped out all at once. The entire solution was delivered at the end, and changes in requirements or priorities could send the entire project into a tailspin.
Software engineers recognized this as an inefficient system, and in the 1990s began defining lightweight methods that took into account changes throughout the development process.
Eventually, in 2001, seventeen software engineers got together and created the Agile Manifesto – a set of principles for software development that fostered a collaborative and flexible environment for projects, and took into account shifting priorities and needs. It also provided a means of delivering pieces of the project over time instead of all at once.
As Agile development principles took hold for software development projects, other functional areas inside organizations began to recognize the benefits. Practices that embodied the spirit of the Agile software methodology filtered throughout organizations, giving companies the ability to take advantage of market changes and quickly pivot to meet new customer needs.
Agile Budgets with Rolling Forecasts
Rolling forecasting is a budgetary method intended to provide the entire organizations with the same kinds of benefits that Agile development does for IT. Instead of creating a single, static annual budget that doesn’t change regardless of organizational performance, companies that adopt a rolling forecast for budgeting make updates throughout the year that reflect changes in the economy, an industry, or even within the enterprise itself.
Like large software projects, it’s nearly impossible to predict in December what will be important for the organization the following October. Will industry opportunities require an investment in new technology? Will a drop-in market demand require a reduction in labor? Did sales far outpace what they were predicted to be in the second quarter?
When operating under an annual budget, there is little chance to take advantage of sudden changes or new priorities. A rolling forecast, however, takes into account when market conditions zig zag. Capital can be used more effectively, and market and profit variations can be well managed. Like Agile software development, the budget is delivered in smaller pieces, more frequently instead of all at once, when the original assumptions are no longer relevant.
Today’s enterprises need to be able to move fast to meet customer and market demands. Taking a page from IT’s playbook and utilizing flexible planning methods, like rolling forecasts, will prepare organizations for the rapid changes that have become part of nearly every industry.
In order to fully take advantage of the flexibility that comes with using rolling forecasts, businesses of every description rely on the Budget Maestro™ software solutions by Centage Corporation. Budget Maestro improves the efficiency and effectiveness of business budgeting and planning, financial forecasting, financial consolidation and reporting processes. For more information, take a tour of Budget Maestro, contact Centage, or call 800-366-5111 now.