It is a given that when you start your business, you set up a budget or a forecast to help align your goals across your business, formulate strategies, and plan for the future.
With the current changing economic environment and increasing competition, businesses need a robust way to predict the future. Rolling forecasts are used to anticipate change and better inform strategic direction.
Traditional forecasts take a structured approach, scoping uncertainties within a specific timeframe. This will deliver a reasonable chance of being accurate. However, in today’s highly volatile business environment, organisations are forced to be dynamic, adapting to change to ensure their survival.
Benefits of rolling forecasts include:
- Accurate information about industry trends, economic and other factors, providing reliable and relevant insights to identify risks and opportunities and reallocate resources
- Use of real-time data means your business stays relevant
- Meet internal management objectives
- Meet external performance goals set by competing industries
- Capitalise on financing and investment opportunities
- Enables management to focus their attention where it is needed
By adopting rolling forecasts and continuous planning, your business can remain agile, focused and flexible, meeting both internal and external performance expectations.
What Is A Rolling Forecast?
A rolling forecast is a process where key business drivers are forecast continually. Rolling forecasts are also called continuous planning. It is a leading planning technique that will help your business find opportunities amid persistent volatility and increasing competition.
The objective of a rolling forecast is to foresee risks and opportunities presented by a dynamic business environment, to revisit strategies in the light of new business scenarios and to align activities and resources for competitive advantage at regular frequencies.
Rolling forecasts are typically not associated with a specific financial year.
Key Successes Driving A Rolling Forecast
Focus on drivers that are relevant for analysis and decision making. This will ensure control and consistency, supporting decision making.
Link your forecast to strategic and operational decisions:
Revisit your business strategy and align resources quickly and effectively. The risks and opportunities you encounter while setting up the forecast should trigger ‘what-if’ analysis and scenario planning.
The strategy proposed by scenario planning, operational expenses, and resources for capital projects should be allocated, and you should set new performance targets as key performance indicators.
Direct ownership and involvement of budget holders/owners in forecasting:
The rolling forecast is mostly a reality check. It is not a process to adjust your numbers to fill the gaps or meeting targets. Budget holders/owners should be directly involved and provide objective and unbiased data, for this process to be successful.
Involving budget holders/owners, will support decision making and management will gain an accurate picture of the current position and what the future holds.
Data And Analytics Are Essential For Rolling Forecasts
Undeniably, there will be changes in strategic thinking and the planning process, but it is equally important to focus on data to support the rolling forecast. Rolling forecasts should support a quick analysis of current internal and external data to support the prediction where the business is heading.
Factors playing into the success of rolling forecasts are dependency on data, data-related processes, and traditional forecasting techniques.
If you want to transition from a traditional forecast to a rolling forecast, you should consider the following:
- Focus on relevant data and data-related processes:
Rolling forecasts occur in smaller intervals and expected to produce current and future state views of business within a shorter period. It drives quick integrations and aggregation of relevant data.
The process focusses on small sets of metrics and drivers that are essential for keeping track of changes in the environment. It includes internal and external market and demand data.
For the forecasting to generate quality results, consistency, processes around data generation and maintenance, you might need external advice. Give us a call for an obligation-free consultation on Planning, Forecasting & Cashflows.
- Statistical techniques and predictive models:
The goal of a rolling forecast is to be as accurate as possible. It is a given; the more accurate your forecast, the more profitable your business will be. Do not rely on history to drive your forecast inputs. Rather focus and apply real-time data to see what is happening or what is going to happen.
Create predictive models to simulate scenarios using statistical techniques to identify risks & opportunities. The information stemming from these models will improve meaningful decision making during the forecasting process.
Four Steps In A Nutshell For Creating A Rolling Forecast
Following the steps below will provide greater visibility and monitoring capabilities.
Your business will benefit from driver-based functional process outcomes consolidated and integrated at all levels.
- Monitor performance areas:
Identify and track all financial and non-financial metrics. These metrics include both internal and market metrics. This will support the business to stay on top of market changes and challenges.
Performance monitoring will drive a new basis and assumptions, which will trigger the forecasting process.
- Revisit strategy:
Use the ‘what-if’ analysis and scenario planning to identify alternative strategies to adapt to opportunities and risks.
- Align operational activities and resources:
Priorities will be defined through your newly identified strategy for the operational processes. Operational managers should propose adaption measures and activities.
Differences Between Budgeting And Forecasting
Budgeting allows management to set goals for the future, while forecasting provides the power of actionable insights. Both are necessary and complementary. It provides transparency and creates ownership for budget holders/owners.
Forecasts provide timely and accurate financial projections that guide strategic adjustments and decision making.
|Meaning||Quantitative business plan prepared by management for a future period||Estimate of future trends-based trends, market and economic factors|
|Projected Timeframe||1 – 5 Years||Static Forecasts: Remaining current fiscal year
Rolling Forecasts: For the next 5 quarters or more
|Preparation Time||4 – 6 Months||2 – 4 Weeks
Rolling Forecasts can be done at a high level with a 1-2 day turn around
|Formulating high-level strategies and goals||Targeted decision making in specific areas|
|Predictability||Loses relevance due to stale data||Highly relevant due to real-time data/information|
If you are looking for more guidance on how to manage your business with regular financial reviews and strategic support, visit our website for more information www.beyondfinancials.co.nz or contact us on 0800 00 48 68