Whether the change is short term or long term, a company’s vulnerability to economic changes make budgeting and planning difficult for the finance department. How can the finance staff plan efficiently if they have no idea of what the future holds. Peter Drucker once said, “the only thing we know about the future is that it will be different.”
Companies are deciding to shift from traditional forecasting to rolling forecasting. The principle of rolling forecasting is to constantly retain the forecast period in the entire year. As an alternative to revising forecasts through the end of the year, these companies perceive that rolling forecasting supports them in identifying trends and obtain increased prominence into their performance in the future.
Large companies need rolling forecasting and they give the flexible planning capabilities that vigorous businesses require. However, most companies are not successful in implementing rolling forecasts reading to a very complicated procedure that is hard to sustain.
The questions are: Does rolling forecasting keep up to its promise? Does it really work?
Keeping its promise, for real?
There are some reports that claim rolling forecasting is a less effective performance management process and that it does not provide an improvement in the precision of their forecast. They revise forecasts more often, doing more work for the business and finance.
On the other hand, there are others that claim rolling forecasting enhances their ability to change business estimates easily, change budget distributions, amend their expenses swiftly, and enable them to cope with growing consumer and industry demands.
Utilizing Best practice is the Key to Efficient Rolling Forecasting
Never rely on Excel– Excel is not easily shared and therefore, the latest spreadsheet version is not always guaranteed. This leads to version control problems and reduced reliability of the forecasts. Companies need a system that can provide a reliable baseline for future forecast.
Identify financial goals– The main goals of forecasting are making a clear perspective of a company’s financial future to support business decisions and understand the possible effects of those decisions after executing them. These should be considered along with the forecast so finance staff can understand the driving forces behind each goal and make better-focused plans.
Differentiate strategic and capital projects– Strategic and capital projects do not get along in the same timeframe of rolling forecasting. Both have different variables which could lead to increase or decrease in the budget needed for those projects. They should be planned independently from the forecast while being incorporated in the entire plan.
The effectiveness of rolling forecasting depends on how companies execute along with their forecast and planning process. When executed correctly and efficiently, it can offer the swiftness needed to improve planning estimates regularly, better perspectives into the financial influence of decisions, and establish a clear view of the financial future of companies.
What would you like to do next?