Be Agile and Responsive: Implement A Rolling Forecast


A Tool for Now
Rolling forecasts are remarkably effective tools that allow companies to remain agile and respond to changes quickly. Unlike annual budgets, which set yearly targets, they reflect performance on a quarterly, monthly, or even weekly basis. With the disciplined use of rolling forecasts, you can:- Emphasize making improvements today rather than excuses for yesterday.
- Quickly identify rising business issues.
- Maintain focus on key performance areas.
- Drive forward thinking.
- Quickly recognize changes to the competitive landscape.
- Create more accountability in the planning process.
Frequent Forecasting: Keeping Pace with Change
With rolling forecasts, typically done monthly, a business can combine current market information with its past month’s performance to better predict sales, expenses, profits, investment, and other key variables. The “Great Recession” reinforced the need for timely financial forecasting. CFO magazine contributing Editor Russ Banham writes, “[M]any carefully prepared budgets were capsized by volatile stock markets, commodity prices and exchange rate.” He notes that some companies scrapped their annual budgets altogether, while others “execute a budget but, for the most part, manage the business without it.” Instead, they rely on “rolling forecasts, flexible budgets, and event-driven planning.” According to a recent survey by researchers Aberdeen Group, 71 percent of top performing organizations mitigate risks created by volatile business conditions by continuously updating their forecasts.Three Keys to Help You Roll with the Changes
When creating rolling forecasts, finance teams should keep three principles in mind:1. Seamlessness
The real art in creating successful rolling forecasts is to ensure they are seamlessly integrated into the company’s operations. Unlike the annual budget, which can be arduous and time-consuming to produce, rolling forecasts should not require a large time commitment. Using the right tools, finance teams should be able to research the market and adjust their projections easily, whether they pertain to volume, pricing or expenses, and continue to do so on a regular basis. Input from sales, operations, procurement and admin are essential, but they don’t need to be laborious.
2. Identifying the Biggest Drivers
The financial indicators companies need to watch differ for every business, depending on its circumstances. The biggest drivers vary widely from business to business. For example, marketing investment may be a key driver for a consumer product company while machine downtime may be a key driver for a manufacturer. To be useful key drivers must:
- Significantly impact the most important parts of your operation
- Be within your control – your actions must have influence over the driver
- Performance of the driver must be measurable.
3. Flexibility
The process should be flexible. If the company adds another product line, for instance, the business model has to be flexible enough to accommodate that. The finance team should not simply assume the same business drivers apply even as conditions change. A review process and flexibility should be built in to the system to prevent addressing issues that no longer matter. <h2>A Rolling Forecast Case Study</h2> A company I recently worked with had 15-month forward contracts that should have allowed for very accurate forecasting. The problem was that the reporting process for this firm wasn’t robust enough to provide a valuable rolling forecast. They faced two main challenges:
- Sales and marketing employees spent the majority of their time delivering services, while falling far behind on their administrative work.
- They were two to three months late issuing bills, leading to cash-flow problems and occasional difficulties making payroll.