As accountants, we should know the value of rolling forecasts. Most of us have the vision, but quite often we are lacking on implementation. Having helped companies across various industries successfully implement rolling forecasts, here are my top 5 tips for rolling forecast success.
What are rolling forecasts?
Rolling forecasts are typically undertaken on a monthly or quarterly basis and have a time horizon at least 12 months into the future. The benefits of rolling forecasts are numerous and can include these:
- The flexibility to re-allocate resources such as labour, raw materials and capital to better align with current and expected business conditions
- Fosters a culture of accountability and ownership with the wider business in terms of businesses performance and alignment with its financial goals
- Better identifies risks and opportunities that should continually be evaluated in an ever-changing business environment
- Removes the need to do a disruptive and time-consuming annual budget. The business may simply adopt the most recent forecast as their budget.
With these benefits in mind, how does a business successfully adopt a rolling forecast methodology? Here are my top 5 tips.
How to adopt a rolling forecast
1. Move beyond Excel
This one is first for a good reason – spreadsheets are static and one-dimensional. It is essential to consider a fit-for-purpose software platform to eliminate errors and drive automation, whilst retaining flexibility to change models in line with business needs.
Making the process efficient and easy to undertake is vital in achieving success when non-finance people are involved in the forecasting process.
2. Leverage drivers
True rolling forecasts predict an organisation’s performance in response to economic change and growth. It is not just about drivers of profitability – it is about what drives your working capital and risk. Each of these components should be properly integrated, but rarely are.
You need to construct your planning models with a focus on the key internal and external drivers of revenue and expense. Don’t overcomplicate it – start with a few of the primary drivers and add more once the rolling forecast is bedded down.
3. Conduct scenario analysis
Most of us manage to unify the planning models across departments so scenario analysis can be undertaken, but quite often our models don’t enable scenario modelling with the sufficient flexibility or level of detail. This is usually because we all ‘cut corners’ to facilitate the forecast, which is generally due to inadequate tools (see point 1).
There are software platforms available that help you easily conduct different scenarios and compare and contrast the impact of certain decisions.
4. Choose the right time frame
Clearly, forecasting intervals and the time horizon should reflect the needs of the organisation. Work out how long your business takes to make key decisions about operations, capacity and capital spending and align your forecasting strategy accordingly.
5. Monitor performance
It may seem obvious, but ultimately this is about the convergence of Planning and Analytics across departments within your business so that sales, finance, HR and operations are continually in sync, and metrics and KPIs are constantly monitored, reviewed and fed back into plans.
So those are my top 5 tips. But where are the points relating to tackling people and culture here, you ask? Well you will have much more success if you tackle systems and process first, of which I have alluded to in some of my points above.
Processes should be fast, flexible and allow for collaboration, whilst reducing or eliminating non value-adding activities. Systems, by definition, should not centre on Excel spreadsheets, because they are not capable in providing the process improvements necessary to drive change in the people and culture.
Remember, the value of introducing rolling forecasts cannot be underestimated. Having a more agile business that is more able to adapt to competitive threats or changing business conditions, whilst also fostering a culture of ownership and accountability of forecasts, will have a real and positive impact on business profitability.
Considering rolling forecasts for your organisation? Looking for a solution to help you budget and forecast efficiently? QMetrix works with organisations across Australia to strategise and implement corporate Budgeting and Planning solutions.
This post was originally published on 5 September 2015 and updated since.