What is a Rolling Horizon Budget?

A rolling horizon budget periodically adds more forecast periods so that a one-year budget is always presented. As each budget period is reached, management formulates a new budget period that is added to the far end of the budget, thereby maintaining a one-year budget. For example, once January is completed, a new January budget period is added for the following year, so that the new budget covers February of the current year through January of the next year.

Advantages of a Rolling Horizon Budget

There are several advantages associated with using a rolling horizon budget, which are as follows:

Increases flexibility. By consistently updating the budget, financial plans remain aligned with current realities, reducing the risk of outdated assumptions.
Improves forecasting accuracy. Regular updates ensure that forecasts are based on the most recent data, thereby improving the accuracy of predictions.
Improves decision-making. Regularly updated budget data allows decision-makers to address issues early, which minimizes the impact of potential problems.
Useful in a dynamic industry. Rolling budgets are particularly beneficial in fast-paced industries where conditions change rapidly, such as technology, healthcare, or consumer goods. They help organizations stay agile and competitive.
Mitigates risk. By continuously revising projections, rolling budgets reduce uncertainty and reliance on fixed long-term assumptions.

Disadvantages of a Rolling Horizon Budget

However, it can take a substantial amount of time to maintain this budget model, since it is constantly being revised. This can lead to some unwillingness to adjust the budget details each month, leading to perfunctory updates to the model that do not necessarily reflect the latest information. A further concern is that the focus of the budgeting team is only on making near-term updates to the budgeting model, rather than engaging in longer-term strategic analyses that might be of greater benefit to the organization.