Budget Type and Performance — The Moderating Effect of Uncertainty

Calls for improvements to traditional yearly corporate budgeting practices have a common thread, the failure of these practices to provide adequate plans in uncertain environments. Rolling budgets that require continuously updated forecasts have been suggested as a means to improve the traditional budget process. We hypothesise that when the environment is highly uncertain, learning effects from rolling forecasting result in superior performance. In the same environment, traditional budgeting results in poorer performance because there is no systematic method for exploring and understanding environmental uncertainty. Alternatively, rolling forecasting causes inferior performance in low uncertainty conditions because commitment to the budget goal is more important than the benefits of learning from forecasting.