Implementing "Rolling Forecasts" to Keep Business Rolling

The 'rapid-response' economy is requiring companies to have immediate access to business data, rapidly make decisions, and update business projections in virtually real time. In doing so, many companies have found that the traditional fiscal year forecast has lost its competitive edge. Price fluctuations, emerging competitors, and new regulations are just examples — your company could be left vulnerable without a plan to analyze and reflect the adjustments that your current forecast hasn't anticipated.

Rolling forecasts provide a tool for FP&A professionals to more dynamically plan & project financial outcomes by providing management with a range of possibilities, responding to market conditions or the actions of competitors. It grants senior management more lead time and assists in financial planning and budgeting by allowing them to make important decisions on key resource allocations—all in order to drive continued profitability.

What is a Rolling Forecast?

A rolling forecast is an updated projection – typically provided monthly or quarterly - of business results covering a fixed number of future periods, most commonly 18 months.  With each passing month or quarter, one forecast period's data is replaced with actual results and a new period added.

A few central components of a rolling forecast are:

  • Extends beyond the current calendar/fiscal year to cover a standard number of periods
  • Updates automatically on a pre-determined basis
  • Based on business drivers, using data already available through operational reports
  • Facilitates the quick and efficient creation of new forecasts

Why Choose a Rolling Forecast?

Traditional forecasting fits within the framework of a standard, rigid annual budgeting and planning process that leaves little room to adapt to sudden market changes, and is generally focused around identifying gaps to budgeted targets.

However, a rolling forecast generates regular updates thus allowing organizations to be more honest and nimble to account for situations that a traditionally developed forecast may not reflect.

Often, organizations blindly strive to achieve these pre-set goals instead of candidly incorporating changing circumstances and re-setting plans with new actions that either help them get back on track or re-define the goals based on current market and internal realities.

How Do You Ensure a Rolling Forecast Will be Successful?

Even with the obvious planning and budgetary advantages of a rolling forecast, implementation can be tricky.  Yet over 80% of rolling forecast implementations are successful, in large part because the organizations followed three key principles:

  • People and culture. Everyone involved with the planning & implementation of a rolling forecast must understand what is involved and be an effective communicator, with the analytical skills to be able to see the "big picture."
  • Processes and design. A rolling forecast is not the same as a traditional forecast. The process should be quick, flexible, and driver-based to make it easier to assess different scenarios.
  • Alignment and participation. All rolling forecasts need to be tailored to the unique needs of the business, drawing on both financial and nonfinancial drivers that are closely related to operations.

Through the successful implementation of a rolling forecast, your company can stay protected from unforeseen outcomes related to economic or industry instability.