A Quick Guide to Getting Started with Rolling Forecasts

  • A Quick Guide to Getting Started with Rolling Forecasts

    A Quick Guide to Getting Started with Rolling Forecasts

    Rolling forecasts are widely regarded as a useful and reliable alternative or addition to traditional budgeting for the modern business world. In a rapidly changing business landscape, static budgets simply aren’t responsive enough to give many companies the flexibility they need to plan for the future. To quote Steve Player, the North American program director at the Beyond Budgeting Roundtable, “It makes no sense to use a 19th-century tool to manage a 21st-century company in a volatile global economy.”

    The problem with traditional budgets in today’s world is that they’re not adaptable or flexible enough. Most are obsolete before they’re even officially accepted. They may work for companies with minimal growth, predictable sales, and a stable industry. But they’re not responsive enough to accurately predict the financial needs of businesses experiencing rapid growth and/or industry fluctuations. To keep up in today’s volatile economic climate, you need a planning strategy that is easy to understand and responds to real-time changes. That’s where rolling forecasts come in.

    Implementing rolling forecasts is not without challenges. An EPM Channel survey reported only 42% of companies are using a rolling forecast. This same survey found that 20% of the companies included in this survey said that they had tried and failed to implement a rolling forecast. Rolling forecasts are quite a bit more complex than traditional budgets and this makes implementing them a challenge. With the right knowledge and tools, however, it is not an impossible challenge to overcome.


    What Are Rolling Forecasts?

    There isn’t a standard definition for exactly what a rolling forecast is. Basically, though, a rolling forecast is one that is updated regularly throughout the year to reflect changes in the industry and/or economy. This is in contrast to a static budget, which typically lasts at least a year and doesn’t change during that time.

    Most companies tend to do rolling forecasts on a 12- or 18-month time scale. Longer time periods are used as well. It just depends on the company’s individual needs and what makes sense for their unique situation. Usually, a rolling forecast involves re-forecasting once a month. However, some companies using a rolling forecast only re-forecast quarterly or twice-yearly. Still others treat re-forecasting as part of the finance manager’s weekly duties.

    The Advantages of Rolling Forecasts

    When done well, re-forecasting provides action-oriented insights on multiple levels. In the short-term, it provides companies with the information they need to realign resources and cope with fluctuating demand so they can meet year-end financial objectives. The rolling forecast also spots medium-term actions senior executives may choose to take in managing market expectations. In the long-term, rolling forecasts indicate action steps the company can take to close emerging performance gaps between them and their competitors.

    Rolling forecasts can be much more accurate than a static budget, especially for businesses experiencing rapid growth and/or industry fluctuations. As long as you’re working with reliable data, updating the forecast regularly gives you a much more accurate picture of income and expenses than a traditional budget can. They do require more work, though which can make them challenging to implement. Ideally, that extra work will pay off by giving you a more agile, reliable way to predict future business expenses and income.

    Depending on the company, rolling forecasts can make budgets obsolete, or work in tandem with the budget. Some companies still create an annual budget, but simply use it as a year-end guide and rely on the rolling forecast for more up-to-date information. If your company wants to switch over to rolling forecasts, then gradually, implementing rolling quarterly forecasts while putting less emphasis on traditional budgets may be a good place to start.


    Implementation Challenges You Might Face

    One of the first challenges you might face when starting to implement rolling forecasts is resistance from within your organization. Change is hard for many people to get behind. There’s a good chance people within your company will resist moving away from the traditional, tried-and-true budgeting model. Choosing to implement a rolling forecast alongside a static budget may help with this transition. The traditional budget can act as a useful guidepost while the rolling forecast helps keep things up-to-date.

    Rolling forecasts also require additional resources. You’ll need increased oversight, recent and accurate data, and time devoted to adjusting the forecast if you want to take full advantage of rolling forecasts. This puts an additional workload on your accountants, who will need to constantly re-forecast throughout the year. It’s very likely they will also need additional training to help them quickly get up to speed with working on a rolling forecast.

    Perhaps one of the main reasons that a relatively few numbers of companies have implemented rolling forecasts is that they treat it as a re-budget. Re-doing the entire budget from the ground up every month is not feasible, but thankfully that’s not what rolling forecasts call for. Effective forecasting must be a quick, light-touch assessment to review business trajectory, check internal and external changes, and realign resources based on new opportunities or issues. In this system, rolling forecasts become a fundamental task of managers that, ideally, only takes up a few hours every month.

    Key Steps to Getting Started With Rolling Forecasts

    Even though implementing rolling forecasts is a challenge, there are steps you can take to help ensure that your implementation goes smoothly. In their article on rolling forecasts, CFI identified eight key steps to implementing a rolling forecast that works. These steps are an excellent starting point for making sure your company hits all the essentials when developing a rolling forecast.


    1. Identify the objectives – setting clear goals from the start is essential to creating a rolling forecast that will work well for your company.
    2. Consider the time frame – it’s up to your company to decide how far into the future your forecast will go and how often you’ll re-forecast. This will partly depend on the objectives you set in step one.
    3. Determine the level of detail – typically, longer forecasts have less detail but in situations where a bad decision would be especially costly higher it pays-off to put extra effort into creating more detailed, accurate forecasts.
    4. Identify the contributors to the process – choose team members who are objective, unbiased, and have the insight needed to make meaningful contributions to the rolling forecast.
    5. Identify value drivers – too many goals and focuses can make the forecast unnecessarily complicated. Make sure you identify and focus on factors that are most likely to contribute to success in your company and industry.
    6. Verify the source of data – your forecast is only as accurate and credible as the data you base it on. Getting accurate data to work with should be a high priority.
    7. Create scenarios and sensitivities – part of creating rolling forecasts is assessing possible financial outcomes based on certain assumptions. Knowledge of possible scenarios helps make it easier to update the forecast and make more strategic decisions.
    8. Measure actual and estimated forecasts – after implementation, track the rolling forecast to see the variance between actual performance and set targets. If there is a variance, try to find its cause and continue adjusting the forecasting process to make it more accurate.

    The Role of Automation in Re-Forecasting

    We can’t automate the process of creating rolling forecasts for you, at least not entirely. However, the more automation you implement in your company’s financial processes the easier it becomes to create a rolling forecast. Automation brings many benefits to your company. Among other benefits, you’ll save money on processing costs, speed up processing, and increase accuracy.

    One of the big advantages of using business process automation is how much time you save. By using NextProcess software to automate your company’s financial processes, you help free-up time for employees to focus on financial planning and re-forecasting. Automating accounts payable, purchasing, and other financial departments helps eliminate the need for human employees to do routine tasks. And that gives them the time needed to help with rolling forecasts.

    Another advantage of processing software is that it supplies you with the sort of real-time information that’s essential when you’re re-forecasting every month. Our software suite provides modules to power and simplify your capital project management, procurement and purchase orders, accounts payable, travel and expense reporting, and payment disbursements. It also automatically logs every bit of data related to your financial process. You’ll be able to quickly access any information on past and current financial processes just by logging into the system and doing a quick search.

    If you’re ready to implement the sort of quality business process automation that will support your efforts to improve financial planning, get in touch with NextProcess. We’ll be happy to answer any of your questions and/or set up a free demo so you can see our software in action.