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THE CHALLENGES ASSOCIATED WITH AN EFFECTIVE IMPLEMENTATION OF ROLLING BUDGETS ARE MANAGEMENT CHALLENGES, AND SOFTWARE TECHNOLOGY CAN ONLY BECOME PART OF THE SOLUTION WHEN MANAGERS ARE READY TO USE IT TO ENHANCE THEIR DECISION MAKING.
Businesses are increasingly using rolling budgets. Also called continuous budgeting, rolling budgets always involve maintaining a plan for a specified time period in the future. To implement rolling budgets, many advocate leveraging new technological resources, which means software. It must be understood that the technology (e.g., bolt-on software packages) is not the solution. It is a tool by which and an environment in which management can have the opportunity to develop solution sets.
Published surveys of financial officers of the largest industrial companies in the United States, Australia, Holland, Japan, and the United Kingdom show a number of interesting similarities as well as differences in budgeting practices across countries.1 First, the use of master budgets is very widespread in all of these countries. Another significant finding is that financial managers in many countries distinguish between cost behavior patterns-variable versus fixed costs-for a common reason: They want to prepare more meaningful budgets by building flexibility into the model.
How do these facts impact the concept of rolling budgets? Rolling budgets always involve maintaining a plan for a specified time period in the future. This result is achieved by adding a new time period in the future as the current time period that ended is dropped. Large companies, such as Electrolux and General Electric, prepare strategic plans and then integrate annual operating budgets that are divided into four-quarter rolling budgets, and smaller high-tech public companies, such as Keithley Instruments in Solon, Ohio, follow a similar pattern of planning.
The annual operating budgets are prepared based upon best estimates of what management expects to occur and wants to achieve during the coming year. Flexibility is built into the process by considering how costs and revenues will change if different levels of activity occur (e.g., flexible budgeting), and each quarter's changes are made to reflect changes in the economic and financial environment-things such as what the competition is doing, how the economy is spending for capital goods, and any planned changes in their product mix (adding or dropping a product line). In...