Question

Describe the similarities and difference between a classical budgetary process and a rolling forecast process. Who are the key players in each and what is his or her role? What are the advantages and disadvantages of each?

Answer 1

Ans) The biggest difference between rolling forecasts and the traditional budgeting process is that annual budgets determine the plan for the entire upcoming fiscal year. Conversely, you should think of rolling forecasts as a living document. No longer are you spending all that time coming up with the annual budget.

- A responsibility budget is a budget that companies make for the expenses and revenues that are controlled by a specific manager. Since not all costs can controlled by managers, it makes sense to make a budget specifically charting the expenses that managers can control.

- Advantages:
• Increases the probability that the company goals and objectives will be achieved.
• helps in defining strengths and weaknesses on which the entity can concentrate.
• problems can be anticipated and avoided by possible remedial action (doing so after the problem crystalizes would be too late).

- Disdvantages of budgeting include the following:
• Time required.
• Gaming the system.
• Blame for outcomes.
• Expense allocations.
• Spend it or lose it.
• Only considers financial outcomes.
• Strategic rigidity.