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Budgets that are continuously amended are called rolling budgets. The rolling budget is set for a certain period of time and is then amended when that time period ends. Rolling budgets are more flexible than standard budgets because they take into account variations in income and expenditure.
A budget sets out the amount of money an entity controls, how it intends to spend it, and how the money will be funded. Budgets are broken down into subsections with the overall budget being called the master budget. The master budget requires a balance sheet and an income statement. Subsections include departmental budgets and expenditures.
Variance is caused by an element of the budget costing more or less than expected, or by income being higher or lower than expected. Common causes of variance include slowed productivity, reduced sales, and changes in the cost of raw materials. Well-constructed budgets try to anticipate variance by adding emergency funds or by underestimating income in hopes of exceeding expectations.
Each rolling budget spans a specific time frame. These can be quarterly, yearly, or spread over a multi-year period, and the amendments to the budget happen at regular intervals within these time frames. For example, if a rolling budget is set yearly between April and March, then it is amended each month. The amended budget also runs for 12 months, so subsequent years may have a different span, such as April to March and then May to April the following year.
By employing a rolling budget, a business or entity can add an extra degree of flexibility. This may allow them to better react to changes in costs and revenue. For example, the cost of oil is a cause for concern for many companies. If a haulage firm budgets $2.50 USD per gallon of gasoline, but prices rise to $3.00 USD per gallon, then the variance could prove expensive.
A standard budget would look to accommodate these kinds of unexpected cost changes by moving money into the fuel budget from a reserve or emergency fund. This amount would be calculated for the remainder of the budget. With a rolling budget, however, the amended budget will provision the fuel expense for higher prices over a 12 month period. If the prices later go down, then the budget will be re-amended with a smaller fuel budget.
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