On the complementary role of budget and rolling forecast - A case study of Philips Company (consumer Lifestyle sector) in the Netherlands

Abstract

Current business atmosphere is considered much more dynamic and complex than before that makes traditional management accounting tools such as annual budgeting inappropriate to confront such enduring competition. According to Bescos et al. (2003), the degree of environmental uncertainty is one important contingency factor which can be a major driver of dissatisfaction with budgeting system. There are two viewpoints concerning altering the dissatisfaction with budgeting. One is better budgeting and the other is beyond budgeting. Better budgeting helps to keep annual budget and complementing annual budget with advanced managerial techniques such as rolling forecast. Nowadays in order to keep competing, companies are increasingly adopting rolling forecast because it is more adaptive and by employing rolling forecast they are capable of updating the forecasts and plans quickly that enables them to obtain a better position to respond to threats and opportunities. Therein, the current study aims to understand better budgeting process and to explore why and how the rolling forecast can be employed together with fixed budgets and how the use of rolling forecast can support fixed budget in an uncertain environment. In order to deepen this study, a case study – Philips (Consumer lifestyle sector) - is applied, and its empirical findings were compared and analyzed with respect to the results found in the literature review. Finally empirical findings indicate that the objectives such as setting a goal and commitment and motivation functions that are of high importance and cannot be covered by rolling forecast are covered by annual budgeting. It is also shown that rolling forecast would be an adaptation of the budget to bring more flexibility and an improved level of decision-making to the process in an uncertain environment specifically when it comes to resource allocation, supply chain management, and production planning.