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ACCA Strategic Professional · Advanced Performance Management · Budgetary planning and control

Harbor Logistics operates in a highly volatile market where customer demand and fuel prices change unpredictably every few weeks. The finance director is concerned that the annual fixed budget is out of date by the end of the first quarter. Which budgeting approach is MOST appropriate to address this environment?

Rolling forecasts are most appropriate because they are updated regularly and always look a fixed period ahead, so they reflect changing demand and fuel prices. Fixed annual incremental or imposed budgets become outdated quickly in volatile markets, and a five-yearly zero-based exercise is far too infrequent.

  1. AIncremental budgeting based on last year's actuals plus an inflation uplift
  2. BRolling forecasts that are updated regularly and extend a fixed period aheadCorrect
  3. CA top-down imposed budget fixed for the full year
  4. DZero-based budgeting performed once every five years

Explanation

Rolling budgets or forecasts are continuously updated and always cover a set future period, so they suit unstable environments. Incremental and imposed annual budgets stay fixed and become obsolete quickly. Zero-based budgeting every five years does not address short-term volatility.

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