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Rolling Forecast

What is a Rolling Forecast?

A rolling forecast is a financial management tool that uses historical data to continuously predict future numbers over a predetermined time horizon, typically the next 12 months. Updated on a monthly or quarterly basis, it enables businesses to plan, respond, and refocus their efforts quickly as market conditions change, providing more accurate estimates and supporting various business functions.

Benefits of Adopting Rolling Forecasts

  • Responsive to Market Changes: Rolling forecasts help businesses respond to changing market conditions faster, identify performance gaps, shorten planning cycles, and facilitate better decision-making.
  • Accuracy and Flexibility: Increased accuracy of estimates and support for business flexibility are key benefits of adopting rolling forecasts.
  • Strategic Advantage for Leaders: Business leaders gain a longer line of sight and more lead time to change course, preparing for potential new opportunities or addressing emerging performance issues.
  • Comprehensive Resource Allocation: Resource allocation benefits include participation from various departments, such as human resources, sales, and purchasing, ensuring a comprehensive understanding of the business.
  • Efficiency Through Technology: Implementing the right software can reduce time spent on forecasting, allowing businesses to reallocate resources for analysis and action.

Implementing a Rolling Forecast System

Implementing a rolling forecast system involves several notable steps.

  • Initial Setup: Implementing a rolling forecast system starts with articulating the objective of the forecast and identifying stakeholders in the process. Set parameters such as granularity of information, update cadence, operational drivers, data sources, and the forecast's time frame.
  • Forecast Preparation and Review: Prepare the forecast using robust automation and review the results, analyzing variances to adjust as needed.
  • Integration with Business Processes: Ensure the forecast system integrates with existing processes, linking it to the company's mission and incorporating it into ongoing business activities.
  • Resource Allocation and Technological Support: Allocate adequate human resources and technological support to maintain and enhance the forecasting process.
  • Decision-Making Tool: Use the forecast as a strategic tool for decision-making and improving performance, continuously tracking and adjusting the forecast as necessary.

Rolling Forecast vs. Traditional Budgeting

Rolling forecasts offer several advantages over traditional budgeting. They enable businesses to respond more quickly to changing market conditions, identify performance gaps, and shorten planning cycles. This agility allows for continuous planning over a predetermined time horizon, making them particularly useful in today's fast-paced business environment.

On the other hand, traditional budgeting is often based on static forecasts, which project numbers for a single time frame. This approach can limit flexibility and hinder decision-making, as it does not account for the ever-changing nature of the business landscape. In summary, rolling forecasts provide a more dynamic and adaptable financial management tool compared to traditional budgeting methods.

Essential Components of a Rolling Forecast

When developing a rolling forecast, there are several essential components to consider:

  1. Corporate Performance Management (CPM) system: Utilize a CPM system to ensure accuracy and efficiency in producing rolling forecasts.
  2. Automation: Simplify the process and reduce the risk of errors by automating the creation of forecasts.
  3. Driver-based forecasting: Identify specific factors or drivers that influence your forecasts to create more accurate predictions.
  4. What-if scenarios: Test different drivers based on your driver-based forecast to see their impact on subsequent months.
  5. Variance analysis: Measure the variance between your forecasted and actual results to assess the effectiveness and accuracy of your rolling forecast.

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