Comment équilibrez-vous les avantages et les défis de la budgétisation progressive?

The past is not the future but it is a good starting point. For example if someone is going to have a baby they can take last years expenses then add in new expected expenses for the baby into the new year budget to make sure that they stay the course as new changes are coming.

Balancing the benefits and challenges of incremental budgeting involves leveraging its stability and efficiency while mitigating its rigidity and limited strategic focus. Organizations should supplement it with other budgeting methods, regularly review and adjust the budget, encourage flexibility, communicate effectively, and use performance metrics to ensure it aligns with changing circumstances and strategic goals while still maintaining a sense of predictability and historical perspective.

Balancing benefits and challenges in incremental budgeting involves maintaining stability and ease of use (benefits) while addressing potential inefficiency and lack of flexibility (challenges). Consider combining with other budgeting methods for a balanced approach.

I like this because it prepares you for what ever comes down the road in the future! It gives you a pro-active approach instead of a re-active approach to problem solving problems now and those anticipated in the future! I feel like a lot more companies both large and small should apply this measure to their budget forecasting process that will determine how quickly you can react and respond to real live action problems now and those that might come in the feature!

Take last years numbers and use them as a starting point this year but each month compare the 2023 numbers vs current numbers month to month. What's the old vs new average? What areas need adjustments? How can you plan for unknowns? - Think emergency fund for one.

Another significant advantage is the promotion of proactive decision-making. Traditional budgets, being retrospective in nature, often lead to reactive decision-making. In contrast, rolling forecasts focus on the future, enabling organizations to anticipate changes and strategize accordingly. This forward-looking approach ensures that businesses are not just responding to past or current events but are also preparing for future scenarios.

The basis of a rolling forecast is usually a 12-month fiscal year budget. Then, every time a month closes and you have actual numbers, you will replace the budget numbers for that month, with the new data you get. For example, if a company uses has a calendar year as its fiscal year (i.e. January thru December), then it's April’s rolling forecast, will start with 3 months of actual ( January thru March), plus 9 months of budget ( April thru December). From that point, the corporate finance team should only have to make incremental changes to improve the forecast accuracy.

Balancing incremental budgeting (for stability) and rolling forecasts (for flexibility) means keeping financial plans steady while staying ready to adjust as things change. It's like having a reliable map for most of your journey and a GPS to navigate detours as they come up.

Rolling forecasts provide an enhanced level of agility. In a traditional budgeting scenario, deviations from the initial budget due to unforeseen market changes can lead to inefficient resource allocation. With rolling forecasts, organizations can adjust their financial plans in real-time, ensuring that resources are always directed towards the most pertinent and immediate needs. This agility allows businesses to pivot quickly in response to market shifts, competitive pressures, or unforeseen challenges.

Without a doubt, it is a powerful tool in this vuca world. Perfectly responding to such volatile scenarios. But like any tool, the maturity of the company must be assessed before applying it. In my years of experience I have seen companies navigate in the dark because they do not respect the stage of business evolution. Tips: involve the areas, respect people, validate with other tools and monitors constantly.

By combining incremental or historical trend-based budgeting with a rolling forecasting approach, organizations can improve accuracy, agility, and responsiveness, while optimizing resource use and holding stakeholders accountable. This approach entails utilizing incremental budgeting for accounts with fixed costs and limited inputs, and employing rolling forecasting for accounts that require input driver-based modeling. For instance, utilizing input driver-based modeling to forecast revenues based on inputs from sales and marketing can promote accountability and facilitate better coordination and communication within the organization. This, in turn, can lead to the development of refined approaches in the future.

A união de métodos é o melhor caminho, como citado, alguns gastos fixos deve-se aplicar o orçamento incremental na maioria dos casos, pois não há muitas oportunidades de redução e muitas vezes ficamos na mao dos nossos fornecedores. Por outro lado não devemos aplicar o mesmo para os demais gastos que devem ser trabalhados para uma redução ou um investimento em determinada área.

In my experience, the benefits include: - Stability: As it builds upon the previous budget, which can be helpful in industries with predictable revenue. - Simplicity: It is a straightforward process that is easy to understand and implement. - Efficiency: For routine, ongoing expenses, it reduces the need for extensive reevaluation. There are certain challenges: - Rigidity: It could be inflexible and may not adapt well to changing circumstances or new opportunities. - Risk of Overspending: It might lead to wasteful spending on outdated or less critical areas. To balance, we can consider below: - Periodic Reviews to reassess & identify areas where changes may not be optimal. -Flexibility: Maintain a reserve fund for unexpected needs.

I usually don't encourage the combination of the two approaches as one limits the effectiveness of the other. Rolling forecast is a good approach especially for multi-annual planning and budgeting but combining it with incremental budgeting is becomes more disastrous. In my view, i don't see any way to balance the benefits and challenges of both approaches as i don't advocate for incremental budgeting. Rolling forecast better supports a multi-year results based budgeting which can be blended with a zero based budgeting where there is need to justify every single spending.

Even though they seem to be exclusive. Everyone who is from fp&a knows that we use methodologies in parallel according to the maturity of the data and the level of knowledge of the participants. We can use one methodology for one line of the financial statement and another for the others. This is how everyday life works. Culture is what impacts the choice the most.