So much can be gained if you can make the leap of faith into committing to adding rolling projections to your budget system and reporting system. I believe adding rolling projections to your budget and financial reporting system is the magic elixir that turns everyday non-financial managers into financial wizards magically attuned to their financial universe and managing financial outcomes like they never before.
What are rolling projections? Should we be scared of them? No, we need to embrace them, not easy but can be done with a little effort on the training front and by building the infrastructure reports that make supporting rolling projections as simple as possible.
A rolling projection is the simple process of adding an adjusting column to your monthly income statements (statements of activity) that highlight and adjust for activity that is outside your original approved budget parameters.
Budgets are built and approved based upon a projection of your organization’s combined “out right guess”, that’s right a guess as in educated prediction, of where your organization, the economy, your constituents, your funding sources, even where your employee mindset will be in the coming year. Remember a budget is simply your initial prediction of results for next year. The funny thing about predictions are they often don’t pan-out as we hoped even when we predict with all the good intentions, conservativeness and best efforts that generally meet good business practices.
What I am trying to say is that budgets often are not perfect predictors of the future and can end up on the wrong side of actual realized results by the time the fiscal year is over. Does this stop us from preparing budgets each year? Of course it does not. What we can do is take comfort in our budget preparation process if we know the reporting, use and monitoring system will be supplemented with a rolling projection system to keep the approved budget both fresh and relevant.
Even better, institute rolling projections on a mandatory monthly update basis. This means with every income statement and or budget report issued each month add columns to include projection adjustments for the reminder of the year based on new information available so the resulting projection is constantly refreshed.
Keep the original budget in the first column with actual results in the next column and revised projection results for the year in the last column. This way using peripheral vision you will be able to view both the original budget and your revised projection at the same time gleaming valuable information from the comparison and gaining insight as you monitor an ever changing environment.
You can enhance your rolling projections even further by connecting managers and staff to the projection updating process. Next I will explore how to connect managers and staff to the rolling projections process and highlight the benefits that will be realized from this empowering process.