If you work in a corporate finance role, you will know better than anyone the impact that planning and reporting has on the success of your organization. However, given the unprecedented volatility of the market in the past couple of years, many opinion leaders in the world of corporate finance sit firmly in different camps, in regards to the best practices in planning and reporting. Rolling forecasts, as opposed to traditional static budgeting have long proved to be the differentiating factor between successful or unsuccessful organizations. This method of financial planning is much more dynamic, and is typically used with Excel or a modern software system.
To caveat off the subject of tools used in Rolling Forecasts: the proliferation of technologies in recent years has had a profound impact on how finance professionals conduct rolling forecasts. In order to maximize their ability to plan and report well, those who work in the finance sector of their organization should understand the advantages of rolling forecasts, the best practices in forecasting, and how all of this relates to new technological developments.
What is a Rolling Forecast?
The rolling forecast involves a re-calibration of forecasts and resource allocation every month or quarter based on what actually happens in the business. If this is done making resource decisions as close to real time as possible, you can funnel resources more efficiently to where they are needed most. It provides managers with a timely vision into the next twelve months at any given point in the year. Additionally, a more frequent, reality-tested approach to target setting keeps everyone more honest, and eliminates the biases elicited by some sales managers during the traditional budgeting process.
In comparison, year-end forecasts help to make the decisions required to achieve annual goals. However, this more traditional approach to budgeting can be relatively inflexible. Due to the time needed for preparation, they are also based on data that may be halfway up to date when creating the forecast, but quickly become outdated during the fiscal year. This is where introducing rolling forecasts is particularly valuable for organizations in industries and markets with high volatility.
Rolling forecasts are used periodically throughout the fiscal year. They either serve as a supplement to the fiscal year forecast, budget and other plans, or they can completely replace the annual forecast. For rolling forecasts, an interval is defined at which you create and review the forecasts. Since there isn’t a universally used standard, organizations must determine what best suits their needs.
Rolling forecasts are a type of planning approach that uses an organization's existing data to help predict aspects of business performance at predetermined intervals. In this process, new forecasts are regularly prepared for a specific period on an ongoing basis. They are most often used in finance but can be equally helpful in other functions such as sales, HR, and more. In the uncertainty of the global pandemic, the use of rolling forecasts increased as businesses of all types looked to reduce uncertainty and increase agility.
Best Practices & The Importance of Technology’s Role
Rolling forecasts typically supplement the forecasts already in use in many organizations rather than replacing them. In practice, this means one thing above all: additional work for finance. Especially if their tasks are only supported by Excel spreadsheets (not that this is a bad tool, but it does have its limitations).
To implement continuous performance management with rolling forecasting, a specialized solution is highly recommended. Having timely forecasts available can be very beneficial. However, being able to act promptly on the forecasts is also of paramount importance. Automating processes and unifying them to free up time for analysis and recommendations of action must come with a more agile approach.
Keeping communications consistent throughout the entire process of introducing rolling forecasts should be a top priority. You should involve your key stakeholders at every step. Implementing technology is much easier, and makes execution much faster, if your organization planning is already based on a modern software solution that serves as a central platform for all departments and processes. This implementation process can be even smoother and yield even better results if the chosen software is designed to be used in tandem with a more traditional tool like Excel. Optimized value creation is supported by collaborative, unified planning enabled by quality technology across all departments in a business.
Key Takeaways
Companies are starting to move away from traditional forecasting in favor of rolling forecasts and scenario planning. Planning and budgeting is an opportunity to assess your risk and opportunities. It’s key to avoid mixing your rolling forecasts with your planning/budgeting and target setting as many companies find themselves making the mistake of conflating the two processes. It is also important to note that in order to be agile in managing your business you absolutely need agile technology that can easily change with an ever changing external environment.
Continuous, predictive forecasting enabled by technology frees up resources and increases forecast speed and accuracy for better decision support. Replacing manual forecasts with automated driver-based models provides a level of data granularity that spreadsheets simply cannot. Utilizing modern technology like artificial intelligence and machine learning solutions in their rolling forecasts has enabled large, multinational companies to achieve real-time, continuous forecasts with 90% accuracy and, in some cases, even higher.
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