How should organizations conduct their annual budgeting and forecasting process amidst today’s volatile and continuously changing business market?
For many years, many businesses have stuck to doing static annual forecasts months ahead of time to plan their finances. Still, because we live in such volatile times where markets are constantly disrupted, this model isn’t feasible anymore.
To adapt to the changing times, financial forecasts need to be scalable and flexible to reforecasting amidst the current circumstances, otherwise, they can turn out worthless.
Financial leaders today are expected to sift through large volumes of data and need to be able to reforecast quickly to respond to market changes, but this can be difficult to accomplish with an outdated financial model that is tied to limitations around static forecasts.
This is where rolling forecasts come in. Below are a few reasons why rolling forecasts are more relevant today.
Rolling Forecasts are more agile
Annual budgets are crucial to every organization as they determine the financial plan for the upcoming fiscal year. Creating a yearly budget is a tedious process that requires a lot of data and research on your company’s resources and needs.
The most significant difference between static and rolling forecasts is that a rolling forecast allows continuous planning with a constant number of periods. Given your forecast period is 12 months, rolling forecasts adds another month each time a month ends, so you always have a clear view of what the next 12 months look like into the future. It can also adopt 18-36 forecast periods or more, giving finance leaders a better outlook of what the company’s finances look like in the future while allowing them to make budget adjustments as predictions change.
One might think of a rolling forecast as a living document that changes when new data and metrics are inputted. And because an organization’s outlook is updated continuously, finance leaders will always have the long-term data available to them. This is extremely useful for CFOs to make essential and time-sensitive business decisions throughout the year for a set period. Rolling forecasts give CFOs the strategic lens to adapt to trends so they can always look ahead and adjust the business strategy as predictions change.
Rolling Forecasts Provide Better Accuracy
A common limitation for traditional annual budgeting is that it is often limited to a set period. By the time the annual budget is completed, market disruptions and trends can change in the blink of an eye, rendering it outdated and irrelevant. On the other hand, rolling forecasts provide finance leaders the flexibility to make quick adjustments, so forecast errors are addressed early on before they impact the accuracy and timeliness of the company’s annual budget.
Rolling Forecasts Respond to Drivers
Rolling forecasts also allow key business drivers to be added into the system to improve the quality of your projections. Budget predictions are no longer just limited to past results. The data evolves according to updated metrics, such as market share, capital, category growth, and customer satisfaction. Any changes in your organization’s daily operations can be accounted for throughout the year rather than just once at the end of the year, such as in traditional annual budgets.
So how do you determine if your organization should adopt rolling forecasts?
Every organization needs to improve its planning process and choose the right rolling financial forecast tool that best fits their needs according to structure and marketplace.
If you’re still trying to determine whether you need to adopt a rolling forecast, below are a few questions you’ll need to consider:
- Is your annual budget planning time-consuming, which takes more than three months to complete?
- Is your annual budget based on data assumptions that usually turn out to be wrong?
- Are your budget discussions often about financial variances and less on how the business is operating?
- Is your current budgeting process tedious and draining instead of contributing to your organization’s plan for success?
- Does your organization find it challenging to adapt to changes in the marketplace?
- Does your current budgeting process lack clear ownership?
Better Rolling Forecasts with Performance Canvas Financials
Today’s CFOs need a comprehensive financial planning and analysis tool that allows them to conduct rolling forecasts and reforecast quickly amidst market fluctuations.
Performance Canvas is a consolidated reporting, budgeting, and forecasting tool that streamlines and automates your annual budget process, allowing you to cut your budget cycle time to half.
If you think a rolling forecast model is right for your organization, explore what Performance Canvas Financials can offer you.
