Best Practices

Unlock business success with rolling forecasts

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Forecasting is a critical tool for businesses as it helps them plan and prepare for the future. A forecast is an estimate of what is likely to happen in the future based on historical data, trends, and other relevant information. It involves making informed projections for businesses to make better decisions on resource allocation and chalking out budgets. 

Rolling forecasts, particularly, are useful because they allow companies to adapt to changing market conditions and other unforeseen circumstances. They help companies adjust their plans as needed and be on track to achieve their goals. 

What is a rolling forecast?

Rolling forecasts use past data to predict future business performance by regularly creating new forecasts for specific periods. These involve continuous updates and adjustments of future projections based on new data and changes in the business environment.

A rolling forecast uses historical data to make predictions about future financial results. This way, a company or business can adjust its plans and resources based on changes in the economy or the overall business environment. A rolling forecast involves revisiting and updating budget assumptions throughout the year. It allows projecting results based on a combination of actual YTD financial results and updated revenue and expense forecasts for future periods. 

The process typically covers a period of four to six quarters into the future and involves regularly adding new forecast periods to ensure that the financial plan adapts to changing trends.

Difference between rolling forecasts and static budgets

Key differences between rolling forecasts and static budgets include frequency, timeframe, features, and application. 

Frequency

Rolling forecasts are an ongoing process, where budgets are revisited and updated throughout the year as per actual financial results. Static budgets are prepared annually and generally do not take into account changes in the business environment that may occur throughout the year.

Timeframe

Rolling forecasts focus on a shorter period into the future, generally 4-6 quarters. This allows for more frequent updates and adjustments as per the latest trends. Static budgets focus on a longer period, usually a full fiscal year.

Features

Rolling forecasts are more flexible and adaptable, allowing for changes in resource allocation and planning based on new data and insights. Static budgets are less flexible, with less room for adjustment or deviation from the original plan, potentially leading to missed opportunities or unexpected costs.

Application

Rolling forecasts can be used in any business area to improve accuracy and responsiveness. Static budgets are commonly used as a benchmark for business performance.

Creating a rolling forecast

The following steps can help a business create a rolling forecast:

  1. Select a time period. A rolling forecast is commonly used to cover a period of 12 to 18 months.
  1. Set the frequency of updates. A business must decide how often to update the forecast. This can be done monthly, quarterly, or more frequently, depending on specific needs.
  1. Gather data. To begin the process of rolling forecasts, companies must gather their historical financial data, market trends, and any other relevant information that may impact the forecast.
  1. Establish assumptions. Based on the data collected, the business must chalk out a set of assumptions around the future business environment. These assumptions will form the foundation of the forecast.
  1. Create the forecast. The business can then use these assumptions to create a detailed financial forecast for the chosen period.
  1. Make regular updates. As the forecast period progresses, the business must continue to update the forecast based on actual data. The underlying assumptions can also be adjusted as necessary.

What are the benefits of a rolling forecast?

Organizations that use rolling forecasts benefit in many ways. Often, they have improved agility because rolling forecasts allow companies to swiftly adapt to business environment changes. They’re also often more accurate, as updating the forecast regularly allows companies to improve the accuracy of their financial projections. Finally, rolling forecasts contribute to improved decision making and increased accountability by decision makers. Access to the most up-to-date information enables leaders to make more informed decisions and be more quickly aware of deviations from the forecast.

Best practices for rolling forecasts

Rolling forecasts play an important role as they provide the flexibility to adapt to changing circumstances. In order for the process and outputs to be efficient and helpful, finance leaders should:

Set clear roles and responsibilities. Everyone involved in the process of developing rolling forecasts should know their roles and responsibilities well.

Use the right tools. Consider using specialized software to manage the rolling forecast process better. Next-generation FP&A tools like Vareto make company planning, reporting, and operational decision-making tasks easier and more accurate.

Focus on key performance indicators (KPIs). Identify the organization's most relevant KPIs and track them closely.

Communicate effectively. All stakeholders should be aware of the forecast and any changes.

Continuously improve the process. It is crucial for businesses to regularly review and assess the rolling forecast process to identify ways to improve it.

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