If you’re a finance professional like me, you’ve probably felt the frustration of rigid budgets that become irrelevant just a few months into the new year.
In this article, I’m going to show you how rolling forecasts can help you keep your plans agile and aligned with reality.
If you’re still relying only on traditional budgeting, you could be leaving your business flying blind in today’s fast-changing world.
Before getting into the details of traditional budgeting and rolling Forecast
Let’s look at some different ways this question could come up — especially if you’re preparing for interviews or a discussion.
- How does rolling forecasting differ from traditional budgeting?
- What are the key differences between annual budgeting and rolling forecasting?
- Why do companies use rolling forecasts or shift from traditional budgeting to rolling forecasts?
- Traditional budgeting vs rolling forecasting — which one is better?
- How does rolling forecasting improve on traditional budgeting?
- What are the pros and cons of traditional budgeting compared to rolling forecasting?
- When should a company use rolling forecasts instead of a traditional budget?
- How does rolling forecasting improve financial planning compared to static budgeting?
- What makes rolling forecasting more flexible than traditional budgeting?
- Why is rolling forecasting becoming more popular than annual budgeting?
Now that we’ve seen the different ways this question can come up, let me break it down for you and explain what traditional budgeting and rolling forecasting actually mean.
Traditional Budgets vs Rolling Forecasts
Let’s start with traditional budgeting.
This is where you create a fixed plan for the entire year. Usually before the year even begins. Once that budget is locked in, it pretty much stays the same, even if things change during the year.
Now, rolling forecasting works very differently.
Instead of setting a plan once and leaving it, you update your forecast regularly, maybe every month or every quarter. And you’re always adding new periods. So you’re not just looking at the rest of the year, you’re constantly looking ahead, whether it’s 12 months, 18 months, or even longer.
Now that we’ve got a clear understanding of both traditional budget and rolling forecast
let me show you a quick example of how a 5-quarter rolling forecast works in practice.
Example
In a traditional budget, you typically prepare a plan for the whole year. Either at the end of the previous year or right at the start of the new one.
Once the year starts, you’re tracking actual results, but the budget itself is pretty much locked in.
For example, by the end of Q1, you have 3 months of actuals and 9 months of forecast left. By the end of Q2, you’ve got 6 months of actuals and 6 months of forecast — and this cycle just continues.
The key thing is, you’re always comparing actual results against a budget that was set months ago, which doesn’t always reflect current reality.
Now, rolling forecasting works a bit differently. Instead of just focusing on the current year, you’re always forecasting ahead. Usually for the next five quarters.
The idea is to always keep a forward-looking view, so you’re not just stuck in the current year’s box.
So let’s say Q1 just ended. You lock in your actuals for Q1, and then you update your forecast to cover the next five quarters. When Q2 ends, you do the same. Now you have two quarters of actuals, and you extend your forecast so you’re always looking at the next five quarters.
This way, by the time you reach the end of Q3, you’ve already got a pretty good forecast for most of the next year. It saves you a lot of time when it’s time to build your next annual budget because you’ve already been updating and refining your numbers all along.
Now that you’ve got a clear picture of how rolling forecasts actually work, let’s take a minute to talk about why so many companies are moving away from traditional budgeting — and the 4 big limitations that make it harder to keep up with today’s fast-changing world.
Limitations of Traditional Budgets
First, it’s static. You set the budget once, usually before the year even starts, and after that, it doesn’t really change.
The problem is, business conditions change all the time. New competitors, shifts in customer demand, cost fluctuations. But your budget is stuck in the assumptions you made months ago.
Second, it’s time-consuming. Traditional budgeting is a massive process.
It can take weeks, even months, to gather data, align with different teams, and lock in the numbers. And after all that effort, the budget can quickly become outdated.
Third, it’s more about targets than reality. Traditional budgets are often used to set performance goals, so teams focus more on “hitting the budget” rather than adjusting to what’s actually happening in the business. That can lead to sandbagging, or the opposite — over-promising just to meet targets.
Finally, it’s not very agile. If something major happens mid-year. Like a supply chain disruption or a new product launch. Your budget doesn’t easily adapt to that. You’re either stuck working with outdated numbers or scrambling to do a complete reforecast.
Finally let’s talk about the benefits of rolling forecasts. And why so many companies are making the switch.
Benefits of a Rolling Forecast
The biggest one is flexibility.
With rolling forecasts, you’re not stuck with numbers you set months ago. You’re constantly updating your outlook based on what’s actually happening. Whether it’s sales trends, market shifts, or changes inside the business. That makes your planning process a lot more real-time and useful.
Another huge benefit is better visibility.
Since you’re always forecasting ahead. Not just to year-end but for the next 12 or 18 months. You’re thinking beyond the current year. This helps you spot risks and opportunities earlier, so you can plan ahead instead of reacting at the last minute.
Rolling forecasts also keep your planning grounded in reality.
With traditional budgets, teams sometimes get caught up in “hitting the budget” instead of focusing on what’s actually happening in the business. Rolling forecasts shift the focus to what’s real — and how you need to adapt to stay on track.
And finally, rolling forecasts make the annual budgeting process so much easier.
Because you’ve been updating your numbers all along, you’re not scrambling to build a budget from scratch. You’ve already got a solid, up-to-date forecast — so you can focus more on the big strategic decisions instead of just gathering data.
Overall, it’s a much more adaptive, forward-looking approach, and that’s why rolling forecasts are becoming such an essential tool for modern finance teams.
What’s your experience? Does your company still rely on traditional budgeting, or have you started using rolling forecasts?
Let me know in the comments.
If you found this article helpful, give it a thumbs up, share it with your finance friends, and don’t forget to subscribe for more insights on building a powerful career in FP&A.
And if you’re ready to learn FP&A skills, check out the links for free resources on FP&A https://fpnaprofessionals.com/
Take Your FP&A Career to the Next Level with CGFPA®
If you’re serious about building a high-impact FP&A career and want to shorten the learning curve, check out the Certified Global FP&A Professional (CGFPA®) program by the FP&A Professionals Institute (FPI). It’s designed to give you real-world FP&A skills: from building models to presenting to leadership and everything in between. These are lessons they don’t teach you in a typical job
The CGFPA program is designed by CFOs and FP&A industry experts to equip you with:
- Practical skills across budgeting, forecasting, variance analysis, and financial modeling.
- Hands-on training in data storytelling and advanced data analytics.
- Real-world case studies to develop business partnering and decision-support capabilities.
- A CPD recognized credential that signals your expertise in modern FP&A.
For more details about the CGFPA Program visit our site here.
Submit your CGFPA Application Form here to check your eligibility
At FP&A Professionals Institute our mission is to help 1 million professionals master finance and FP&A skills. Whether you’re a beginner or an experienced professional, we offer comprehensive programs to help you excel.
🔗 Download Free FP&A Interview Prep Resources – Check the links here
🌐 Visit www.fpnaprofessionals.com to kickstart your FP&A journey today
Check out the book From Accounting to FP&A on Amazon for more insights from these experts. If you found this helpful, don’t forget to like, share, and subscribe to our YouTube channel for regular FP&A insights.