Your annual budget took six weeks to complete last fall. By February, two major customers changed their volume projections. By May, material costs had increased 15%—double what you budgeted. By August, you're managing to a plan that bears little resemblance to current reality.
Sound familiar? This is the classic static budget problem: it's outdated before the ink dries, yet companies spend the entire year comparing actual results to increasingly irrelevant targets.
Rolling forecasts offer an alternative. Instead of budgeting once annually, you continuously update projections, always maintaining a forward-looking horizon that adapts as conditions change. But rolling forecasts require more ongoing effort. They demand discipline. And they challenge traditional budgeting culture.
So which approach works best for manufacturing businesses? The answer depends on your business characteristics, market volatility, and management philosophy. Here's how to decide.
Create once annually, typically covering the upcoming fiscal year. Set targets for revenue, expenses, capital, and cash flow. Compare actual results to budget monthly or quarterly. Variance analysis explains why actuals differ from plan.
Example timeline:
Budget remains fixed regardless of how conditions change. If Q1 revenue is 20% below budget, you still compare Q2-Q4 actuals to the original budget, even though that budget was based on assumptions no longer valid.
Update continuously (typically monthly or quarterly), always projecting a consistent forward period (usually 12-18 months). As each month or quarter ends, drop the completed period, update remaining periods, and add a new period to maintain the horizon.
Example timeline (12-month rolling):
Forecast adapts to changing conditions. If Q1 revenue is 20% below projection, you update Q2-Q4 forecasts to reflect new reality rather than comparing to stale assumptions.
Understanding how to build a rolling forecast that actually works provides the foundation for this comparison.
Static budgets dominate manufacturing for good reasons:
Static budgets set annual goals: "Revenue $15M, operating margin 18%, CapEx $2M." These targets align the organization, drive accountability, and provide clear success measures.
Rolling forecasts, by definition, continuously change. While they provide better projections, they offer less clear annual accountability. "Our Q4 forecast is now $14.2M" doesn't have the same goal-setting power as "Our annual budget is $15M."
Build once, use all year. Managers submit budget requests in fall, finance consolidates, leadership approves, done. Minimal ongoing work required until next year.
Rolling forecasts require monthly or quarterly updates. Every period, review assumptions, update projections, communicate changes. More administratively intensive.
Performance reviews use budget vs. actual. "You achieved 103% of budget revenue" is straightforward. Everyone understands budget targets from day one.
Rolling forecasts create moving targets. Evaluating performance requires more nuance: "You achieved 98% of initial projection but 105% of updated forecast—how do we evaluate this?"
Everyone understands annual budgets. New managers know the drill. Board members expect it. Bankers and investors work with annual plans.
Rolling forecasts are less familiar. Require change management, training, and cultural adaptation. Resistance is common.
If your business operates in a relatively predictable environment—stable customer base, mature products, gradual market evolution—static budgets work reasonably well. Annual planning frequency matches pace of change.
The same characteristics that make static budgets simple also create significant limitations:
The world changes faster than annual planning cycles. Customer demand shifts. Competitors act. Costs move. Regulations change. Technology disrupts. Yet your budget remains frozen.
By midyear, you're often managing to a plan disconnected from reality. Variance analysis explains why you missed outdated targets rather than helping you navigate current conditions.
Static budgets drive attention to past variances rather than future opportunities and risks. Monthly reviews dissect why last month missed budget instead of discussing what's coming and how to respond.
This rearview-mirror focus delays adaptation. Problems are recognized in variance reports after they've occurred rather than anticipated in forward projections.
When compensation and performance reviews tie to budget achievement, people game the system. Sales sandbags revenue targets. Operations inflates cost budgets. Everyone builds cushion.
The result: budgets that don't reflect true capability or stretch goals but rather negotiated numbers everyone can safely beat.
Static budgets create "use it or lose it" dynamics. Departments rush to spend budget by year-end, fearing next year's budget will be lower if they underspend. Strategic opportunities that arise mid-year struggle to get funding because "it's not in the budget."
Understanding dynamic budgeting approaches reveals how to maintain flexibility.
Rolling forecasts address static budget limitations:
Rolling forecasts reflect reality, not outdated assumptions. Update monthly or quarterly with latest information: current backlog, recent wins/losses, cost trends, capacity utilization.
Decision-makers work with projections that actually reflect current conditions and informed expectations, not stale annual targets.
Rolling forecasts maintain constant forward horizon. Always looking 12-18 months ahead means you see capacity constraints, cash needs, and resource requirements with adequate lead time.
Static budgets lose forward visibility as the year progresses. By Q4, you're only projecting 3 months ahead. Rolling forecasts always maintain longer perspective.
Current, forward-looking forecasts support better decisions. Should we accept this large order? Can we afford to hire? Do we need additional financing? Rolling forecasts answer these questions with relevant projections.
Static budgets answer these questions with increasingly irrelevant targets that may no longer reflect business trajectory.
When forecasts update regularly, less incentive to sandbag. You can't hide behind conservative assumptions that won't be updated for 12 months. Regular updates expose unrealistic projections quickly.
Rolling forecasts are built for volatility. Market shifts? Update the forecast. New competitor? Adjust projections. Cost spike? Reflect it immediately. The forecast evolves as business reality evolves.
Understanding manufacturing rolling forecasting techniques shows specific methods for manufacturers.
Rolling forecasts aren't perfect either:
Monthly or quarterly forecast updates require ongoing effort. Finance teams update models. Department heads provide input. Leadership reviews and approves. This continuous cycle consumes more time than annual budgeting.
"What's our annual revenue target?" becomes harder to answer. Initial projection? Latest forecast? Average of all forecasts? This ambiguity complicates goal-setting and accountability.
Organizations accustomed to annual budgets resist rolling forecasts. "Why are we updating again? We just did this last quarter!" Finance becomes seen as constantly asking for updates rather than annual event everyone tolerates.
Rolling forecasts only work with consistent execution. Skip a few months and they become stale. Updating becomes "when we get around to it" rather than systematic discipline.
Without commitment, rolling forecasts devolve into annually-updated static budgets with extra steps.
Many manufacturers find a hybrid approach works best:
Annual budget sets targets, allocates strategic resources, drives accountability Quarterly rolling forecast maintains current projections for decision-making
Example:
Annual budget remains the accountability target. Rolling forecast provides decision-making projections that reflect current reality.
Annual strategic budget covers major strategic decisions (headcount plans, capital investments, market entries) Monthly operational forecast covers tactical decisions (hiring timing, inventory levels, cash management)
Strategic decisions don't need monthly updates. Operational decisions do. This approach focuses monthly effort where it adds most value.
Understanding how CFOs use forecasting to guide decision-making shows how both tools serve different purposes.
Your business is relatively stable
You have limited finance resources
Annual planning frequency matches change pace
Your business faces significant volatility
You need better decision-making tools
You have finance capability
You want accountability AND adaptability
You have mixed volatility
You're transitioning
Understanding aligning budgets with strategic goals helps integrate either approach with strategy.
For Static Budgets:
For Rolling Forecasts:
For Hybrid Approaches:
Working with a fractional CFO helps implement either approach effectively.
Doing both poorly: Half-hearted rolling forecasts plus detailed budgets creates double work without benefits
Starting too complex: Elaborate models taking weeks to update won't be maintained
No decision link: Forecasts not informing actual decisions are wasted effort
Abandoning budgets too fast: Organizations need adaptation time. Hybrid often works better than abrupt transitions
Expecting perfection: Neither produces perfect projections. Both improve decisions when executed reasonably well
Rolling forecasts vs. static budgets isn't right vs. wrong—it's fit for purpose. Static budgets excel at setting clear targets and driving accountability in stable environments. Rolling forecasts excel at maintaining current projections and enabling adaptation in volatile environments.
For many manufacturers, hybrid approaches work best: annual budgets for strategic planning and accountability, combined with rolling forecasts for operational decision-making and adaptation.
The right answer depends on your specific circumstances:
Start with honest assessment of these factors. Then choose the approach—or combination—that fits your needs. And remember: executing either approach reasonably well beats perfect design that's never consistently implemented.
The goal isn't picking the theoretically superior method. It's selecting the approach you'll actually use to make better decisions, allocate resources more effectively, and adapt to changing conditions successfully.