Rolling forecast: the key to continuous performance management
Forecasting is a technique used by medium-sized and large organisations that leverages historic data to make informed predictions on the direction of future trends. There is an agile form of forecasting that is making this vital process more efficient: the rolling forecast.
The dynamic nature of running a business - with multiple variables driving continuous change and exposing new risks - demands a flexible approach to forecasting.
To address this, the rolling forecast is becoming a popular alternative to traditional static budgeting models, which are limited to making projections based on a single timeframe, restricting time-sensitive decisions.
What are rolling forecasts?
This agile alternative to static budgeting predicts the rolling performance of a business over a continuous period using existing data.
Rather than managing the business based on a budget forecast that was established historically over a single timeframe, a rolling forecast provides the flexibility to continuously revisit and update budgeting assumptions.
For example, if a business sets a budget for the calendar year, a rolling forecast will enable it to re-forecast the next twelve months at the end of each quarter - setting it apart from traditional static annual forecasts, which are restricted to creating new projections towards the end of the year.
Consequently, the business can adapt its strategy and resource allocations based on economic, industry, and organisational changes.
How implementing a rolling forecast will benefit your business
The benefits of implementing a rolling forecast budgeting model into your business are compelling:
- Risk analysis: Businesses are exposed to an ever-changing risk landscape. A rolling forecast empowers them to continuously adapt to dynamic economic and industry conditions, reducing their risk exposure. It will also help them to identify areas of the business that require improvement and allocate additional resources accordingly.
- Financial planning: The preparation of effective annual budgets requires careful consideration of multiple variables to create accurate plans for the future. Rolling forecasts facilitate this vital requirement, enabling the business to respond rapidly to market changes and trends - fostering a plan that is far more realistic and reliable. In contrast, the adoption of a static budget will restrict their response until the next budgeting period.
- Business performance: A rolling forecast provides relevant and fresh insights around the internal environment and external market, closely aligning them with the business’s strategic objectives. Access to this source of actionable information allows key decision-makers to fine-tune the financial and the business strategy.
How to implement an effective rolling forecast in your company?
With ever-increasing volatility in the business environment, the need for organisations to have agility when planning has been brought into sharp focus.
There is no one-size-fits-all model for implementing a rolling forecast, meaning each business must align its own unique set of requirements and circumstances to this process.
The following steps provide a general framework for rolling forecast best practice:
- Identify the strategic goal and promote it: This will encourage stakeholders to embrace the new process and achieve the organisational goals.
- Identify the relevant stakeholders: Engage stakeholders who will contribute relevant, unbiased, and insightful actions.
- Consider the timescale needed to achieve the stated goals: A rolling forecast must accommodate a time frame that’s relevant to the business’s unique requirements.
- Assess key data sources: The information used to make decisions must be accurate and relevant to the rolling forecast model.
- Implement appropriate technologies and processes: Effective rolling forecasts rely on a robust technology infrastructure that supports an intuitive and flexible platform; one that can easily adapt to changing conditions - both internally and externally.
- Track performance against the rolling forecast: A rolling forecast allows the business to increase its visibility of performance and provides the agility to make necessary adjustments in line with its strategic goals.
Things to avoid
Common mistakes businesses must avoid when implementing a rolling forecast include:
- Don’t confuse forecasts with targets: There is a distinct difference between targets and forecasts: targets are typically medium-term aspirations or goals; while forecasts outline an organisation’s strategic direction.
- Don’t forecast with spreadsheets: The spreadsheet is unsuitable as a tool for integrated cross-organisational communication.
- Don’t demand forecast accuracy: Businesses often fall into the trap of assuming that forecasting is about controlling the future. However, these unrealistic aims typically become unrealistic in a volatile and chaotic business environment.
- Avoid excessive detail: Less is often more, with excessive detail often leading to additional work and mistakes. Focus on the information that matters.
- Don’t treat forecasts as a “special event”: Businesses will not generate high quality, reliable forecasts if they treat them as a special event. Forecasting should be an ongoing, cost-effective process that drives continuous improvement.
For more details on helping you to implement effective rolling forecast in your company , don’t hesitate to contact the Jenji team at firstname.lastname@example.org. We will be glad to assist you in setting up your project.